Determining Wholesale Pricing

[longtime lurker]

  From what I am seeing here some sawyers evidently don't like dealing with customers as well as others. I am very social and love meeting new people but my milling is more of a cost neutral hobby in my old age rather than the bread and butter my family depends on so regular sales are not critical to me. When I saw/sell I expect adequate compensation and I don't have to saw or sell if I can't get it.

  One point I have not seen addressed very well is that when selling wholesale it seems you are locked into an agreement with one or a small group of customers. If they suddenly drop you as a vendor or suddenly demand an additional discount you are left holding the bag with a product you may not be able to move quickly and/or spend a lot of time and money in court proceedings. Are you prepared to deal with that?

Actually Howard the reason I have trouble with retail is I like people. And it's a mill... Just a big boys toyshop full of interesting things... But I get paid to sell lumber not yap, and I like to yap:D 
All I have with my retail yard customers is a handshake deal. I give them a pricelist, they order, I send wood, they pay me. But there's unwritten rules there go with it... I don't sell against them, I get first option on jobs.
It's like any long term business relationship ...or getting married... Sometimes it starts out great and goes sour, sometimes it lasts a lifetime. And when it goes sour it hurts, particularly for a small mill because they aren't just one of many they're a significant part of your cashflow.
It's like any other long term business relationship... Price is just one factor. Quality is another. Lead time,good service etc is another. Being the cheapest might open a few doors but cheap, bad and late supply isn't where a retailer makes money.
My retailer customers need me profitable so I'm here next year so they can make money then too. And once you have a reputation as a good supplier... If a guy drops me over price good... I'll find another one to supply.
But yes, when you're smallismall can hurt in the middle of them.

[longtime lurker]

I have been in new home construction retail for the last 20 years.  I price out the complete projects , factor in all the overhead  and put in the correct profit margins.  So talking with people that want to purchase small orders of lumber from me is natural for me on the retail side.. and much simpler than what I deal with on a daily basis.  Just be sure to cover all your expenses from start to finish including wear and tear on a new machine.. so you can basically pay the mill back as well per board foot that it saws.

Okay but...
One of the things that happen once you start taking orders and sawing for a living is you pretty quickly realise that for every board you cut the right size seems you get one the wrong size( not really but)... Knots, holes, sweep, taper, grade issues... There's a whole pile of good boards building up that will be perfect next week or next month or something but today they're going nowhere and there's a cost to that.


And you guys don't get to buy in a trailer load of wood to get a pickup bed full out. Sawdust, shavings, slabs, pithwood, and that's in good logs. Bad ones sometimes all we get is the bill to buy them and the bill to cut them... It happens.


The business model of a sawmill is significantly different to a retail yard. We're manufacturers not retail, and the closest business models are abattoirs and oil refining.  Retail yards tie up dollars in stock but... Nobody sends you a whack of ties as well just because you ordered 8x3's, and you aren't sitting on a pile of logs that might cut landscape but not much else. Basically retail yards order exactly what they need to cover what they've got sold or on order already.


Profitability is important in any business but when you're a processor profitability cannot come at the expense of cashflow. In all the talk of margins here what isn't getting said is that 10% of $200k beats 50% of $50k. Yeah I know it doesn't add up... but ask any bank manager. When you get to 1.9% on a million he'll want to be your friend

[WV Sawmiller]

LL,

  I'm not trying to be critical of you or others who prefer or need to be sawing vs talking to customers. (If I were being critical I'd talk about y'all driving on the wrong side of the road and eating vegemite on toast or such. :D :D)

  I was just trying to point out some risks of putting too many of your eggs in one basket.

  BTW - you mention not competing with your retail clients. How do you deal with the customer who buys some of your retail items as part of his order then wants to finish it out with items you typically sell to your wholesale clients? Do you just not saw or stock what your wholesale clients buy from you?

  We have an excellent local hardware store who is sometimes criticized for being too expensive but the next supplier is 25+ miles away. Our local lumberyard/building supply place closed down so the hardware added on and stocks common lumber. You don't have the selection of the larger box stores but can generally get what you need for most home repairs/projects. His comment to the outgoing building supply owner was "I don't want to sell lumber but if you close I will because if people have to drive to the big box store to get a sheet of plywood they are going to get their hardware and paint at the same place." He is right. BTW - he can be a little brash but he is also the guy when we bought our plumbing parts for a Sunday urgent project he gave us his home number and said "If you are missing anything call me and I'll come down to the store and get it fir you." You can afford to pay a little extra for that.

[longtime lurker]

Hi Howard.

My deal with my wholesale guys is geographic. Closest one is the Cairns guy and hes about 100 mile north. Shire (county) boundary is about half way so... Anything his side of that I direct enquiries to him. There's a couple of oddities there around marine pilings, bridge girders, and ties that aren't lumber yard products where we quote direct but just the general stuff... I won't quote supply to his side of the line except through him.

It's a lot of eggs in one basket mate and it's cost me some sleepless nights. The fundamental issue is I'm not big enough to play this game. I need three of them, or two and my own turf in the middle, and I don't have enough mill capacity to do it. Yet.

Everyone always complains about the little local guy being expensive. It's usually a long established business, he doesn't drive a Mercedes, he'll go out of his way to help, has a couple juniors working there after school, and likely sponsors the junior baseball team or something. Every small town is the same (give or take a couple foot of snow). I try and support local businesses...they don't have to be cheapest just competitive within reason. Every time a small business leaves a town something dies with it.

[WV Sawmiller]

   You nailed it with the local guys supporting the community projects and such. I will always donate wood to any local kid building something for a class or scout project. My free-lance photographer donates photos for local charity and scholarship auctions and such. She will also go set up and take pictures for church fund raising projects and such no matter which denomination. I have done and offer to go do sawmill demos at schools and community organizations.  The kids like it and I like meeting and talking with them. My daughter volunteers at a summer camp for kids who have/had cancer and their siblings. Of course when they needed wood for adding woodburning as an activity you know who she calls - and it is the best time and money I spend all year! Keep up the good work. 

[SawyerTed]

I sell white oak lumber to a local builder supply occasionally.  Sometimes it is a direct sell to the business for resale and sometimes it's pass through sales where they have a customer order.  They don't pay me NC sales tax since they are reselling and are charging tax on the sale.

Ultimately they need to pay me a price that leaves them room for markup.  I can't sell to them at true industry wholesale prices or I couldn't cover log and sawing costs.  But I do sell to them at a reasonable price that lets them make some money on the deal.  My pricing to them runs 40% or so above regional wholesale pricing on green white oak.  Most of what I sell them is 4/4 and 5/4 #1C.  The current difference between wholesale per 1,000 bdft and what I charge them is $380.  I used to figure log cost plus sawing costs to get my prices.  I learned that method put me below local market pricing on custom sawing.  

Buying logs, sawing lumber and selling at wholesale is a small margin high volume prospect.  It's beyond my production capacity.