Thanks For Ruining The Vending Business

[GotLocs]

Net...Nut...COG...Percentages of Percentages..Split Profits...Blahhh!  I'm not sure about the reach of this forum as I just joined yesterday, but I am so excited to have another venue to discuss the "business" side of the vending business.  I have now put in 19 years fretting over operators killing the very business I so love.  Likely, no one would read my whole laundry list in one post so I will only address the issue of commissions.  Operators, for the most part are foolish.  In this post I will give one of the reasons why I would say such an audacious thing.  If you are acquiring locations for yourself, it is likely you are reading everyone's posts about how to be clever in negotiating commissions with store owners and ownership groups.  Everyone wants to tell you strategies about calculating Net/Nut/COG/Percentages and such...simply to disguise the fact that you want to pay the location a smaller amount than you are leading them to believe they will receive.  I contend that this is the lazy salesmans approach.  I totally understand why its done...you want to get in the store!  For many, they will tell a store owner anything they have to in order to acquire the account...lie, cheat, steal.  I contend honesty is the best policy...and GROSS SALES COMMISSION payment is the best way to be honest.  A store owner doesn't care about your expenses or for that matter care to calculate your COG, tire rotation or paper clip purchase.  Offer the store owner what you can reasonably afford to pay (FROM THE GROSS) or better yet, some non-cash value of having your equipment (another post...another day).  In other words...get good at sales!  Convince store owners to accept your quality equipment and service while still maintaining your integrity...AND...while still making a profit!  IMHO...50% commission payment was invented by a VERY weak sales person, (Gross or Net) along with slotting fees, gifts and enticements.  The vending industry offers a very rare opportunity for an average person without training to become involved in a business endeavor that can make considerable, consistent money in a short period of time.  Unfortunately, all the foolish, lazy operators copy each other and help to RUIN a good thing.  They march in to stores offering obscene commission amounts that would never offer the opportunity to amortize their equipment purchase much less put the kids through college...UNLESS they lie, cheat or steal...or...sorry, cleverly manipulate the commission payment.  In 19 years I have heard it all...the charity guy's ruse, "Hi I'm from The Children's Cancer Society..." to the clever guy, "I will pay you 50% ummmhummm (quietly) of the profit from my machine...yup 50/50".  My goal in saying all this is to encourage everyone to get better at sales.  Sure I own a locating company and want clients...but I also want my clients to be good at sales.  They set the pace in the neighborhood!  If someone from my company solicits a neighborhood, we drive commission rates down.  We tell the truth.  We are in it to make profits for our clients...not give all the money away.  (There is no reason to pound your chest if you just acquired a great big grocery store with your fancy equipment if your paying 50% commission and a $500 slotting fee.  Your never going to make ANY money.  Your are lucky to amortize your equipment before it wears out.)  Foolish operators go in to a neighborhood and ruin it for everyone...offering clever tactics all surrounding a 50% offer of some sort.  Don't fall in the trap.  If you are going to offer commissions I would recommend starting at around 20% and get good at selling that rate.  Just think what you could do with an additional 30% of your gross proceeds!  Don't give away the farm in order to compete.  It is the wrong approach.  Don't listen to anyone telling you that offering higher commissions is the way to negotiate with stores.  It's not true.  My group operated thousands of accounts over 16 years with an average commission rate of 16.8%.  It can be done!  Couple this discussion with similar thoughts on equipment cost and product cost (another post another day) and a bunch of vendors will start to make a bunch of money again.

[pdavid]

I see nothing wrong with offering 50% of net as long as the "net" is explained.

I disagree and resent the insinuations.

[GotLocs]

No reason to resent what I say.  Please allow me the opportunity to explain.  "NET" is as subjective as judging figure skating routines.  There are so many potential factors that could be applied to the calculation of "net" including, but not limited to product cost, product shipping, product handling, warehousing, vehicle expense, insurance, employee cost, taxes, theft, losses and on and on.  My point is more zoomed out than a simple insinuation.  My point is that you have an opportunity to be completely above board (beyond reproach) in your commission calculation simply by paying off the "gross".  You play a part (however large or small) in the vending industry to help set the stage for all future store negotiations.  Me and my locating staff are in your neighborhood and ones similar to yours every day of the week and experience the "fallout" first hand from the confusion 50% (of net) negotiators create in the marketplace.  9 times out of 10 the (50% of net) stores think they are getting a 50/50 split of gross which most of us know is not within reason operating bulk vending for profit.  My idea is that you can help the vending industry as a whole by negotiating and paying a commission that is easily and readily calculated by you AND the store owner.  Let me ask this...if it works out to 25% of the gross sales anyway, why wouldn't you simply offer 25% of the gross...ANSWER...because yours sounds like more!  It's ok with me if I can't win over a single operator to this way of thinking, but I am certain its good for the vending industry in general.  This is just one of MANY possible methods for all of us to work to lower marketplace commissions rather than giving away the farm and/or screwing up the owners in towns across America into thinking they all deserve 50% of the gross sales.  If necessary, I am happy to site examples of specific cities and towns where operators have accomplished the task of "screwing up" a majority of store owners in to thinking they are getting 50% of gross (through the use of 50% net negotiating).  I can also site towns (but I won't...in order to protect the operators doing it right) that anyone would just salivate at the low commission rates being required by operators (even in the ultra-high traffic locs).

[alyssamma]

From a business perspective, I'm not sure I agree with your position on net vs. gross. What you say is technically correct, but misleading - ironic, huh?

Many payment schedules are based on net. If you keep good records, you can pretty accurately calculate your net. If you don't and you estimate that is fine too. I don't see anything dishonest about that.

If you tell someone my costs are 40% and I will split the remaining 60% 50/50 with you vs. telling someone you'll give them 30% of the gross, I'm not sure why the former is misleading while the latter is ok.

If someone is going to dishonestly report net (or try to mislead the store owner) then they are a dishonest person. They would do the same thing with gross. Since they are dishonest, what is to stop them from reporting $100 in sales when they really made $120?

Kevin

[GotLocs]

Kevin...No problems with the honesty/dishonesty comments.  You are correct...if someone is dishonest with the "net", they will likely be dishonest with the "gross"; however, that's not the point of my discussion.  I am not suggesting that if you pay on the "net" that you are dishonest.  I am simply saying that you are not operating as clearly as you could.  Many business endeavors do split profits on a "net" basis, but this is not a good one for that type of calculation (another post another day).  By paying on the "gross" your calculation is beyond reproach...in other words, it has NO subjective aspect.  It is perfectly clear to all parties involved at any time.  By paying on the "net", as I mentioned previously, there are all sorts of expenses that may or may not be applied to your calculation.  Beyond that, most store owners don't give another thought to the original deal...miraculously, all they remember is the 50/50 thing...which then gets applied to ALL future vending dealings including their cousin's grocery store down the road and their brother's store across town.  Nothing misleading in my pleadings:  Pay on the gross.  Offer the lowest possible commissions off the gross sales.  Drive down commission rates.  Encourage others to do the same.  Get better at selling.  Stop "screwing up" locations with complicated "net" calculations just to sound better.

[alyssamma]

I am not suggesting that if you pay on the "net" that you are dishonest.  I am simply saying that you are not operating as clearly as you could. 

There isn't much difference between dishonesty and "not operating clearly". They are merely shades of the same color.

I 100% disagree that deals based on net are misleading by definition. I do agree that they *can* be misleading. But that doesn't mean they *are*.

And vending, where candy prices, etc. can easily fluctuate is a good example of where a net calculation would make sense. How "confused" would the store owner be if you went back and said, my costs have gone up 10% so now I need to pay you less of the gross? Since the deal is on gross, the store owner doesn't care about your costs. This is a bad deal for *you*.

However, if you make it clear that your costs are X%, then you can easily go back to the owner and say that your costs have gone up (gas, candy, whatever) and he will probably understand.

Ultimately, I am for whatever the vendor feels comfortable with...I just take exception with the blanket statement that net deals are bad and are "ruining" the vending business.

I think a better approach would be to explain the potential problems with a net deal and make sure vendors don't make them. That way everyone is happy

Kevin

[Poplady1]

I think you may try a different approach then "Thanks for Ruining The Vending Business".  Ruining it for whom, ruinging it for you trying to knock out other operators that have worked hard to get those locations?  It doesn't sound to me like you are trying to help these guys/gals, it sounds like you are trying to help your sales staff kick more people out of their locations.

I think each of these operators know how to calculate a fair commission.  They are business people.  You might suggest that lowering commissions might save them some money but it may very well put them at risk from a Cougar locator. I am curious what is the name of your locating company?  Your photo looks so familiar to me.

Blue Moose

[BluePlate]

GotLoc,

What happens when your cost of good start to spike?  In the last year the price of M&M's have gone up $2 per bag.  Do you go to you accounts and say "Sorry I was giving you 25%" and now "I have to give you 18%"?  It is much eaasier to raise the COG. I give the merchant a receipt the shows gross amount minus my average Cost of goods = NET.  They get 50% of net.  My business owners understand cost of goods.  It's clearly on the receipt I give them.

I'm sure in your area someone with $50 in their pocket can put a vending machine next to you machine.  Face it we all pretty much sell the same stuff.  I feel what makes me different the guy down the road is, I service the machine.  I count the money in front of the merchant.  I'm clear with commision splits.  If it's a good account I don't mind putting a nice Beaver machine in.

[pdavid]

I'd also like to know why you operate out of a UPS maildrop?

You must have some really tiny locaters on staff.

http://transport-services.masterseek.com/id/11395220/UPS.htm

[tooldini]

I don't have any machines out yet but I figured I would start with like 20-25% gross. Do you guys just pay the store owner right on the spot from the machine or send a check later. Seems like it would be best to pay right on the spot so they could see you count and everything. I may be wrong since I basically don't know much about the business. I just figured at 25% you would basically pull a quarter out for every dollar you brought into the machine.

[Jax Snacks]

I don't like doing this percent of net either and always try to do a percent of gross.  If the owner does not give me any objections, then that is the end of the discussion.  However, many will claim that the other vendors are giving them 50%.  That's when I need to explain the concept of product cost and overhead to them.  I point out that the video games and pool tables can give a true 50% of gross since there is no product cost.  I also try to point out that the crane vendor is usually giving 33%, keeping 33% after a 33% COGS.  I would agree that most customers don't care about your overhead, but they do need to appreciate it in order to win them over.  I also like to only discuss the "direct overhead" which is COGS and Vehicle Expense and not all of my overhead like locator fees and supplies.  I personally understand that a lobster dinner will cost more than a burger since the COGS is much higher.  But I don't care about the owners other overhead, like the rent, utilities and payroll.  I may loose an account very soon due to an ownership change.  The new guy is demanding 50% and I told him my direct overhead was 40% for the rack, so that would only leave 10% for me.  He told me that he also had overhead and that was my problem.  Well I am not driving to a location to pick up just 10 bucks for every hundred I collect.  So I will most likely tell him to go pound salt!  The only other option with this guy is "give in" and then short him (i.e. lie) on the commission - which I do not want to do either since that will catch up with you some day.  I don't like playing this 50% of net commission game either, but the competing vendors give me no choice.

Jax

[alyssamma]

LOL, there's that "pound salt" again!

[Jax Snacks]

I guess I have no excuses this time.  However, I think it's justified when an owner demands 50% of gross!  How about this for a joke, I will buy a 50 pound bag of white sand and leave it at the location when I remove the rack and have a note attached that says, "Here is your 50%, have fun!"  And I might as well dump a case of stale gumballs in his parking lot as I leave!  After all business is business!  

Mr. Gotlocs, I can't believe that you have never run into this 50% thing when locating around the country.  It must be dealt with in a logical and professional way to overcome the objection.  This is the world I live in and I don't locate in Mayberry!  Hmmm... Maybe get Aunt Bea to throw in cherry pie or let old Barney do the negotiations!  Just trying to add some humor to this, but seriously, this is a real problem and we vendors are simply trying to deal with it.

Jax

[GotLocs]

Kevin...Just so you know, I wrote the title of this thread sensationally on purpose.  I didn't mean "ruin" literally, I meant it figuratively.  Being a newbie on this discussion board I will learn as quickly as possible how much "banter" is allowable and acceptable.  I have some strong opinions that certainly don't apply to everyone.  I like a forum because it allows discussion...all sides...lots of opinion...persuasive arguments, etc.  Certainly, none of my comments are meant to attack anyone personally or a method they have found effective in conducting business.  From what I see on the boards I am an old timer in vending compared to most, but that stack of years doesn't necessarily amount to expertise.  I have been around the block a couple of times though and look forward to sharing and exchanging as long as the exchanges don't come back as a personal attack on me either. 

Blue Moose...Thanks for your comments.  I totally understand your aggressiveness in your response, afterall, I came on pretty strong with my opinion.  Agreed...the ultimate message is that "lowering commission rates can contribute toward higher profit margins".  As far as "trying to help these guys/gals"...that's all we do...help people in the vending business succeed.

[GotLocs]

Jax...Sure, we run in to the 50% thing all the time.  That's why I wrote this rant.  Unfortunately, the only sales tactic available to many operators is giving the store more money than the last guy/next guy.  It's all downhill from there...the vicious cycle begins.  We just solicited a very busy store yesterday that told us he has been asked by every vending company in town to put equipment in his establishment.  He said if we want to get in his store we would have to match them...pay 50% of all our monthly sales.  Then he added, "AND...You will need to pay an up front slotting fee of $1000."  We quickly agreed to his demands and asked if we could do anything else for him.  Then we walked out and had a good laugh about the whole thing.  Obviously no one is willing to meet his demands...he has no equipment in there.  All we can do is chalk it up to another jaded (maybe greedy) owner...AND RUN as fast as possible to the next account in hopes he is not jaded yet!  When an owner asks for exceptional commissions right up front we do all we can to steer him in another direction...perhaps quality of service, unique machinery, fulfillment of a niche, creative deals (we trade him a bag of sand each month in exchange for some space in the store), maybe we offer to rearrange shelving to make space, maybe we look for a way to show we will give to the store, not just take (perhaps goodwill from charitable involvement or local interest)...anything but commission, commission, commission.  Obviously, there comes a point in time to have the discussion about our costs and expenses, but we do it quickly and matter of factly (as many have said, a store owner understands that we have expenses).  In commission negotiations we usually opt to tell the owner we will pay him 20% of the gross proceeds and pay for all expenses and product from our split.  He doesn't have to pay for anything.  If he shows any hesitancy (even the slightest sigh), we immediately go on to explain that our operators will care for the equipment, maintain the equipment and restock it on a monthly basis.  He doesn't have to do anything.  We will count the money with him and pay commissions on the spot.  By this point, most of what he has heard was a laundry list of tasks and expenses that we are absorbing and he begins coming around to accepting the offer.

[alyssamma]

GotLocs,

No problem...this is an open forum and you are entitled to make whatever claims you want. But I am allowed to respond in kind

Again, I disagreed with your basic premise from a *business* perspective. Some of the other vendors here (e.g., Jax) who are heavy into commission can (and have) commented on how it applies to vending.

Also, I think if you are trying to change behaviour, a less aggressive tone would work better.

Again, feel free to post whatever you want...I wasn't trying to stop that.

Kevin

[Jax Snacks]

Gotlocs,

I would agree that if you can get the location to understand the bigger picture that includes good service, quality products, quality machines, variety, etc. and not just the money, money, money,then that is a very desirable situation.  My best accounts are the ones that mostly want to have vending available to their customers as a value added service and the commission is a nice little bit of gravy for them.  After all they are earning some money by doing nothing and using floor space that would otherwise go un-utilized by having a stupid plastic plant in that space that the owner's wife just picked up at a flea market!

But many owners are not that well rounded and only think money, money, money.  My point is that I do not want to just walk away, but rather to have a constructive conversation about the direct overhead associated with servicing the machine.  Some I can win over and some I can not.  I will present the net/gross argument to try and win them over.  However, I just don't cave in and agree to 50% and will walk away from ridiculous demands.  As I said before, we no longer live in Mayberry and the real world wants the money, money, money.  We also live in a very competitive environment and we don't always have the pick of the litter.  We also live in a more diverse country and many immigrants of Asian and Arab cultures can be very demanding.

Jax

[joebob051977]

GotLocs,

I really like what you have to say. I I had a prime location that the owner said he wanted 50%. I immediately told him that I couldn't do 50%. That would be more like a 85-15% split! I explained to him that my COG was almost 35% so I couldn't do that. I like seeing that I was on the right track when I offered 20% commission from gross. I like offering commission off of gross because it seems professional and above reproach. It is a lot easier to go in with a scale and weight the money and give 20% of it than saying, "Okay, this is the gross, lets calculate in the COG, and then the commission split." It does make it easier for businesses to understand. Now, the hard part is getting businesses to understand the 50% they were getting before (Net), isn't as good as the 15-20% gross they'd be getting from me. 

[dperry]

However, if you make it clear that your costs are X%, then you can easily go back to the owner and say that your costs have gone up (gas, candy, whatever) and he will probably understand.

But now you are always renegotiating with the owner each time you service.  Candy prices fluctuate on a monthly basis it seems.  How is anybody suppose to know that this lot of candy cost 10% more than the last lot of candy?  What do you do?  Do you go to your owner each time you service and say "This batch's COGs was 25%, which is 5% higher than last time, so I'm giving you 5% lower commission because of it?

What about from the other direction?  What if you open up your candy wheel (or close it down) to change your vend amount?  Will you then say that your COG's has changed because of it and so you change your commission rate?

Doing it off the net also robs you of your ability to play around with your COG's.  What if you were giving 20% off the gross and you found that the cost of M&M's has fallen from $9 back to $5 (which has happened at Sams recently).  Were you going to report that to the owner and adjust your commision to the higher amount like you suggest?  Or would you just pocket the extra change?

With toy vending, the product costs fluctuate depending on what product you are currently selling and where it's purchased from.  If you started out buying from Gumballs.com and paid a commission of 25% off the gross, then you stumbled upon A&A and got your product for 1/2 of what Gumballs.com were selling the exact same product for, you would be able to pocket the difference yourself and have no need to go to the owner to let him know that your COG's had fallen.

And here's the thing.  Paying off the net leaves you open for another vender to come in and 'educate' the owner on how you aren't really paying 50% of the gross like they believe they were told.  If they think you are cheating them out of money they believe you owed them, you might find yourself getting the boot, and another vender getting your spot.  A vulnerablilty like that is something I don't need.

[dperry]

GotLoc,

What happens when your cost of good start to spike?  In the last year the price of M&M's have gone up $2 per bag.  Do you go to you accounts and say "Sorry I was giving you 25%" and now "I have to give you 18%"? 

Simplest thing in the world to do.  Raise your prices, or lower your vend amounts.  Nothing need be said to the owner.

[lurtsman]

Dperry,

If you pay off the gross, you are vulnerable to a net operator offering a higher percent. If you pay off the net, you are vulnerable to a gross operator calling you a thief. In either case, you might be doing nothing wrong. The lesson here in my opinion is that we are all vulnerable to stupid management being manipulated by someone who wants the location.

[dperry]

I like a forum because it allows discussion...all sides...lots of opinion...persuasive arguments, etc.

Which begs the question.. Who are you?

[pdavid]

Dperry,

My 50% net accounts receive the breakdown on each receipt I give them and they sign. They understand the "net" concept, they're business owners after all. If my costs change, it shows up on the COG column. It's all above board, nobody is swindled. I maintain there is simply no way to get into some very lucrative accounts without going the "50 %" route. Yeah, they usually want 50% of gross, but are more open once I explain I have COG unlike the video game owner who gives them 50% gross. Plus, most of my machines don't use electricity.

[alyssamma]

dperry, for the record, I wasn't suggesting net was better than gross or vice versa. I don't have any commission locations, so this is a subject I can't speak to at all. I was only replying to the blanket statement that net was "bad" from a *business* perspective.

I'll leave it to the experts to argue net vs. gross for vending

Kevin

[caserri]

Dperry,

If you pay off the gross, you are vulnerable to a net operator offering a higher percent. If you pay off the net, you are vulnerable to a gross operator calling you a thief. In either case, you might be doing nothing wrong. The lesson here in my opinion is that we are all vulnerable to stupid management being manipulated by someone who wants the location.

I love this topic, sensational title and all. 

Being a 50% of net vendor, I've had my share of "dishonesty" accusations however for me, it all comes down to paying commission on money I paid for COGs. That creates a double cost for me and I refuse to pay it. I too gave the location an accounting sheet that they must sign to receive their payout.

I think if you want to initiate real change in the commission debate, lets all REFUSE to offer commission! Now that's a radical change in bulk vending thinking!

I'm not sure about other areas of the country but very few of my locations were commission or charity. I simply asked for the location on the premise that I would offer a quality product and service. At an almost 100% closing rate, it was definitely easier to get a location when offering commission but I hated to have to pay out anything! 

Lets make a REAL change and stop offering commissions at all!