I

have often wondered about the high costs per unit involved in anything that is "business to business". Why do businesses pay such outlandish prices for items that you could buy at the local WalMart for half as much ... or less? For instance, I worked at a hotel once which paid to have cases upon cases of cleaning supplies delivered by truck to their dock door. I was able to see the prices they paid and ... working it out to the per unit cost ... found that they were paying twice to three times the amount I would have paid in the local K-Mart type store. I thought ... "Why can't I just go down to that store every week and buy case or two's worth of whatever the hotel needed?" ... and ... "We could split the difference". In the long run I would have made a substantial extra income for the price of a small effort of a short drive.

It's the percentages ... stupid

The prices charged by businesses reflect their use of percentages rather than dollar amounts that lies at the base of all their dealing. Markups are done in terms of percentages. Whatever they pay for anything ... and increase of say, 3%, results in a markup of 3% (or more in the case of inflation) to their prices. They do the same thing when figuring a salary (the bosses and owners - not the laborers, i.e. the slaves). So, if your salary is 2% of the income of the business, it would behoove you to increase sales to double that income and thus double your own income. Get it? If your income is tied to the company's profits, increase profits and increase your own income.

This is sensible ... isn't it?

There is another way.

If you are doing all business to business or mostly B2B, you can increase your profits by charging more to businesses and paying more as well. What ??? Pay more money??! Yes. If you increase the amounts going in and out, it is equivalent to increasing your sales! ... At least on the books.

Observe ...

The Ledger

B2B   1000       Widgets                    +$10,000
B2B   1000 hrs   Services                   +$10,000
B2B   100        Airline Tickets            -$10,000
Total                                       +$10,000
Your cut is 10%                             +$1000

with 10 fold increase in costs both ways ...

B2B   1000       Widgets                    +$100,000
B2B   1000 hrs   Services                   +$100,000
B2B   100        Airline Tickets            -$100,000
Total                                       +$100,000
Your cut is 10%                             +$10,000

There's the whole sordid story right there. Do exactly the same business and get ten times more cash by screwing the other guy in the ass ... and ... accept an ass screwing on your end ;o) Easy come, easy go! A giant circle jerk.

But wait a minute ...

This wouldn't do anything at all if only B2B were involved because no matter how much money you make ... there is only so many goods and services for individuals to buy out there and more dollars will just drive up prices for those goods and services. But ... remember ... the slaves don't get cut in for a percentage of the action ... so they get left holding the dirty end of the stick. Well, somebody has to take it up the poop chute without giving as good as he's got, eh? Somebody's gotta' be at the end of the line ... the circle jerk just won't work all by itself.

There is a limit to what they can get away with however. At the end of the day, you can't sell lots of widgets to individuals (B2P) if the cost per item is too high. There is an optimum to all this butt fucking.

Why do it at all? Why not just charge and be charged as individuals? Well, if somebody charges more to another business, the lazy man's way to get 'round the extra charge is to "pass it on to the consumer" and "charge more to other businesses for our services too". The hard thing would be to look for another business who offered better value ... but that might interfere with that Saturday golf outing ... so ... just pass it on.

So, in the end ...

There is a certain amount of this going on in the business world and that's the way of it. If you don't follow suit as the trend demands ... you lose money ... unless your business is real small and you just ... go to Sam's and buy what you need, yourself, at lower prices than the "big guys". That way you can lower your price somewhat ... but they still have you on high volume.

It's a jungle out there. Bend over.