Selling and Finding Customers

9.1 Choosing Between Wholesale, Commission, Brokerage, and Direct Sale

Goods may reach the final buyer by several paths. The House should choose the method that produces the best combination of profit, speed, control, and use of capital.

Wholesale: Selling substantial quantities to other merchants usually sacrifices some price in exchange for speed and simplicity.

A wholesaler who takes twenty bales at once may deserve better terms than twenty buyers each taking one bale, because he reduces our storage, correspondence, handling, and collection costs.

Do not judge the lower unit price without considering the capital released.

Direct sale: Selling directly to the merchant, manufacturer, retailer, court, household, or other final commercial user can produce a higher price and better knowledge of demand.

It also requires more relationships, negotiation, deliveries, small accounts, and collections.

The higher gross margin must pay for this additional work.

Commission sale: Goods may be entrusted to a commission merchant who sells them for our account in return for a commission.

This can provide access to a distant market without maintaining our own full establishment. But the arrangement should state who bears storage, insurance, bad debts, brokerage, taxes, and other expenses.

A commission that appears small can become large when every additional charge is added afterward.

Consignment: Where goods remain ours until sold, remember that the agent holding them has possession but not necessarily the economic risk.

Unsold merchandise, falling prices, and customer defaults may still return to us.

Require regular reports of quantities sold, prices, expenses, customers, and remaining stock.

Brokerage: A broker (sensale) may introduce buyer and seller, communicate prices, and assist negotiation without taking ownership of the goods.

A good broker provides more than names. He knows who is buying, who needs cash, what quality is wanted, and which apparent customers are poor payers.

Use brokers for information as well as execution, but verify important facts independently.

Choose according to the goods: Staple commodities with broad markets may move efficiently through wholesalers and brokers. Rare or specialized goods may require direct relationships. Fashionable merchandise may need quick distribution before demand changes.

Choose according to capital: If the House urgently needs liquidity, a slightly lower wholesale price paid promptly may be superior to a higher direct price collected six months later.

The best sales channel is therefore not always the one producing the highest invoice.

It is the one producing the best result after time, expense, risk, and capital are counted.

9.2 Setting Prices from Cost, Scarcity, Competition, and Urgency

Cost tells us whether a sale is profitable. It does not tell us what the market will pay.

Know the full cost: Begin with purchase price and add freight, insurance, duties, brokerage, warehouse expense, handling, spoilage, interest or capital cost where relevant, and other charges required to place the goods in saleable condition.

A merchant who remembers only the purchase price often sells below his true cost while believing he has earned a margin.

Know the market: Ask what similar goods are actually selling for, not merely what sellers are asking.

Quoted prices can remain high while transactions occur lower.

Scarcity: If stocks are low and replenishment uncertain, price should reflect scarcity. Do not sell too cheaply merely because the old cost was low.

The replacement cost of the goods may matter more than their historical cost.

Expected supply: Scarcity today may disappear when a fleet arrives tomorrow.

Know what ships are approaching, what harvests are expected, what warehouses contain, and whether competing merchants are preparing to sell.

A high price is useful only if a buyer will pay it before supply changes.

Competition: Understand not only competitors’ prices but their circumstances.

A merchant needing immediate cash may sell below the ordinary market. Another may hold goods because he can afford to wait.

Do not follow every low price downward without asking why it exists.

Quality: Goods of different grade, origin, condition, packing, or reputation should not be compared as though identical.

If our cloth is better finished or our oil better preserved, demonstrate the difference rather than immediately matching the cheapest seller.

Quantity: Large purchases may justify a discount because they reduce handling, storage, market risk, and collection work.

Calculate what the quantity saves before deciding what discount it deserves.

Terms: A price of 100 payable today is not economically identical to 105 payable after six months.

Always consider price and credit together.

Buyer urgency: A customer facing shortage may pay more for immediate delivery. Use such advantages reasonably. Excessive exploitation may turn a valuable long-term buyer into a one-time sale.

Our urgency: If we must raise cash quickly, admit this internally before negotiating. Know the minimum acceptable price rather than making desperate concessions one by one.

Set three prices where useful: Know the price we would like, the price we consider satisfactory, and the lowest price acceptable under present conditions.

This prevents negotiation from becoming a series of concessions without a boundary.

Do not let pride preserve an obsolete price. Yesterday’s offer is irrelevant if the market has changed today.

9.3 Extending Terms Without Giving Away the Profit

A sale on credit contains two transactions.

First, we sell the goods. Second, we lend the customer the purchase money until payment.

Both should be profitable.

Price the credit: If cash buyers and six-month buyers receive the same price, the House is financing the second customer without compensation.

The difference need not always appear as stated interest. It may be reflected in price, discount for prompt payment, or other commercial terms.

Know total exposure: Before granting new terms, add what the customer already owes us in Genoa and through other offices.

A customer who pays each individual invoice eventually may still become dangerous if total outstanding credit grows too large.

Match terms to the customer’s business: A cloth dealer who normally converts inventory into cash within two months may reasonably need short credit. If he repeatedly requests six months, ask what is happening during the extra four.

Shorten terms when risk rises: Credit should become more cautious when information deteriorates, not more generous merely because the customer needs help.

Discount for early payment: A modest discount may be worthwhile if it returns capital early enough to employ again profitably.

Compare the cost of the discount with the value of earlier cash.

Installments: For larger accounts, partial payments can reduce risk and reveal whether the customer is capable of honoring the agreement.

Security: Where exposure is substantial, seek guarantees, pledges, bills, or other security when commercially appropriate.

But do not allow collateral to excuse an otherwise poor sale.

Currency and place of payment: Specify where payment must be made and in what money or instrument. A profitable price can be reduced by unfavorable conversion or costly remittance.

Overdue accounts: Contact the buyer promptly. Do not allow thirty-day terms to become ninety-day terms merely because nobody wished to have an uncomfortable conversation.

Renewal: A new bill replacing an old unpaid bill does not necessarily mean the debt has improved. It may simply conceal delay.

The merchant who sells on credit must understand that his customer becomes, temporarily, his borrower.

9.4 Using Brokers, Agents, Auctions, Fairs, and Personal Relationships

Goods sell through networks as much as through markets.

Brokers: A good sensale saves time, brings credible counterparties, communicates market conditions, and helps establish the price at which business can actually be done.

Pay useful brokers fairly. But do not allow one broker to become the House’s only source of market information.

Agents: In distant cities, agents can solicit customers, negotiate within limits, supervise delivery, and assist collection.

Define their territory, authority, commission, and whether they may represent competing merchants.

Commission merchants: Where local knowledge matters more than direct control, commission sale may be efficient. Judge the commission merchant’s accounting and credit discipline as carefully as his ability to sell.

A man who sells everything to weak customers is not a good salesman.

Auctions: Public sale can be useful when goods must be converted quickly into cash, when many buyers compete for scarce merchandise, or when damaged or unusual lots lack an obvious price.

But auctions also expose urgency. If buyers know the seller must accept whatever is offered, competition may not rescue the price.

Fairs: Commercial fairs concentrate buyers, sellers, brokers, bankers, information, and settlement in one place.

Prepare before attending. Know what goods we wish to sell, minimum acceptable prices, customers to visit, debts to collect, bills to settle, and information to obtain.

A fair is too valuable to spend merely standing beside merchandise waiting for someone to ask its price.

Translator note: Early modern commerce depended heavily upon personal networks. Brokers, factors, commission merchants, fairs, correspondence, introductions, and repeated dealings supplied many of the functions later associated with formal distribution systems, credit reporting, and market information services.

Introductions: A recommendation from a trusted merchant can open a relationship, but the introducer’s reputation does not replace our own judgment of the buyer.

Samples: Where quality matters, use representative samples and describe grades honestly. The easiest way to destroy repeat business is to sell from an excellent sample and deliver inferior goods.

Correspondence: Regular letters keep customers aware of available goods, expected arrivals, prices, and opportunities. They also reveal what buyers intend to need later.

Personal presence: Visit important customers occasionally. A letter reports what a buyer chooses to say. A visit shows the warehouse, clerks, traffic, confidence, and condition of the business.

9.5 Turning a Buyer into a Regular Customer

A single sale produces revenue. A sound customer relationship produces commerce.

Deliver what was promised: Quantity, grade, packing, timing, and terms should match the agreement.

Reliability is one of the strongest reasons for a customer to return.

Maintain consistency: Buyers who rely upon us for regular supply value predictable quality almost as much as low price.

Remember preferences: Record which grades, colors, sizes, packing, shipping methods, and payment arrangements matter to important customers.

Knowledge retained by the House should not disappear when one clerk leaves.

Respond quickly: Customers remember which merchant answers while the opportunity still exists.

Handle claims fairly: Investigate complaints promptly. Resist false claims, but settle legitimate ones without forcing a good buyer to fight for every small adjustment.

Do not purchase loyalty with reckless credit: A customer who buys from us only because nobody else will give him such generous terms is not loyal. He may simply be dangerous.

Scarcity reveals relationships: When supply is limited, consider reserving reasonable quantities for reliable long-term customers rather than selling everything to strangers offering a slightly higher immediate price.

But do not promise goods we do not have.

Avoid dependence: A valuable regular customer can become dangerous if he represents too much of the House’s sales or receivables.

Good relationships should strengthen the House, not make one buyer indispensable.

Understand the customer’s business: Know when he buys, how he resells or consumes the goods, what qualities matter, and when his own customers normally pay him.

This improves both selling and credit judgment.

Provide useful information: A merchant who occasionally warns a customer of approaching scarcity, freight difficulty, or changing supply becomes more valuable than one who merely quotes prices.

Do not reveal confidential information belonging to others.

Measure the entire relationship: A customer buying large volumes may appear important while producing little profit after discounts, slow payment, frequent claims, and high service costs.

Judge margin, turnover, risk, and effort together.

End poor relationships when necessary: Some customers consume attention, delay continually, dispute honest invoices, and demand terms that remove the profit.

Reduce or end such business without unnecessary insult. Markets change, and a difficult customer today may become sound later.

My sons never confuse selling with success.

A sale is good only when the price covers the true cost, the terms compensate us for time and risk, the buyer is capable of paying, and the transaction returns capital to the House at a useful rate.

Choose carefully between wholesale, commission, brokerage, and direct sale. Price according to the market as well as cost. Treat every extension of terms as an act of credit. Use brokers and agents for access without surrendering judgment.

Then cultivate the buyers who keep their word, value reliable supply, and allow both sides to profit.

One transaction gives us revenue.

A sound relationship gives us business.