This is part four of a series on business lessons we can learn from the dairy industry, in particular, the middle men who get between you and your customers?
As previously discussed, knowing your market and customers is vitally important for business planning & decision making. Here we add to that knowledge and look at the roles of the middle man (your direct customer) and their customers (your end customer), and their effect on your business process.
If it’s a ‘middle man’ who pays you, they are your direct customer. By association their customers become yours also. If either the middle man and/or their customers change their purchasing behaviour this will financially effect you, in one way or another. In these cases, there’s no incentive for your direct customer to do anything about it because they continue to get their ‘cut’ (especially if it’s a set cost). So you need to decide whether to keep selling to the middle man or not.
Lessons:
- If what you‘re paid from your direct customer changes depending on what your direct customer receives from their customers (the end user) then it is extremely important you understand the supply/demand needs of the market.
- When market conditions aren’t great, keep an eye on your direct customer to see what they do and make sure that whatever they plan on doing makes sense. When supply exceeds demand and they want you to increase supply, or they’re spending money on increasing plan production, this is a very bad idea when you aren’t getting enough to cover costs already.
- If they look to reduce how much they pay you even further, or they extend credit terms with their suppliers, these are red flags indicating money issues. If they’re financially unstable then you’re at risk of losing your customer (and if they make up over 50% of what you earn, this will significantly hurt your business).
- Make sure you have alternative customers available and try not be so reliant on one customer for over 50% of your income.
- Put the risk of changes in end customer spending on the middle man so they’re motivated to get better prices, limit supply, or make changes when a market changes. Avoid signing contracts where the middleman has no risk.
- Do not rely on a middle man to do everything for you – especially taking responsibility for the market you’re in. It’s understandably easier selling to one person but ultimately you may pay a price for this. If the market changes then you are at risk, not the middle man.
Best practice is to never let your customer dictate what you do in your business, and be prepared for when they try. Having alternative customers available if needed and letting your existing customer know you don’t need them anymore (if they push back), can sometimes help them to ‘back off’ when they realise (or care to admit) they need you more than you need them.
Not sure if a middle man is helping you or not? We can help you find out.
Having this knowledge will begin to affect more self-confidence in your business direction. So too will understanding your numbers and we discuss this next.
