Latest / Really Renée / Ep. 6 - Procurement is a Profit Center, Not a Favor!

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Ep. 6 - Procurement is a Profit Center, Not a Favor! · Really Renée

• Sam Struck: If you're in the interiors world and you've thought about doing procurement, unsure how to do it, or you're kind of in the messy middle where you're kind of dabbling in procurement, but it's not super profitable, or it's really stressful, then this episode's for you. We're dreamers. Don't care what other people say we're dreamers. Welcome back. Today we're gonna be talking about procurement. It's one of those funny animals in the interior design world that I feel like is kind of an enigma. there's been a huge transition in the industry over the last several years around procurement and what it means to procure, what it means to provide you know, materials on a project and whatnot. So I just wanted to talk about it for a second because once we launched into procurement in our business, it actually changed our revenue. It doubled our revenue and it doubled our profitability. So ⁓ I think that Procurement is just one of those things that if you can nail it, it can totally change your business and the way that it operates as an interior design studio. So let's kind of dive in. let's take a second and talk about what procurement is and what it is not. So, for the purpose of this discussion and how we run it in my business, procurement is the service that you add on to purchase and supply the materials that we specify. So that would be, you know, we've picked out tile, we've picked out lighting, we've picked out cabinetry. And now we have a client that's approved it. And so we are actually the purchaser. We're the ones, the agent, the broker supplying the material to the job site. ⁓ just as like a historical sidestep, when I was in college It was not ⁓ labeled as procurement. It was labeled as trade sales. And so and it worked a little bit differently. So when I was in school, it was talked about openly that there really are only two ways to make money in interiors. One is through service, and that could be like billable time, a flat rate. It's a fee essentially. And the second one is through. Trade sales or material sales. And at least in our university, I went to Oregon State University for interior design. I have a Bachelor of Science in Interior Design. Loved ⁓ the program. It was great in a lot of ways. We'll be talking about the gaps in that in different episodes. But one of the things that stuck with me in college was like you can't do both. That it was either you just do your hourly rate and you just provide the service, or you mark up the items you sell and that's it. ⁓ So I think for a long time in the industry, people really didn't interior designers did not realize that you can do both of those things and you can do that ethically and you can do it with purpose. And so that's shifted a little bit more to where I think generally a lot of us are already procuring, but we might not be procuring in the right way in order to increase profitability. So ⁓ procurement is not a pass-through service. It is not something that is meant to make you lose money and be a service that's only for the benefit of the client. So if you're doing procurement right now and it is stressful for you because you're making low margins and you're not making a high enough amount on the items you're selling that it's worth your time, then we need to talk. We need to just kind of have a conversation around how we can redo that and kind of change the framework. So one of the things that I think we need to be open about is our pricing strategy, how we do it, ⁓ what are the rules behind it, et cetera, et cetera. Number one, for us, it always starts at the contract. In our contracts, we require procurement up front. It's part of the service, so it's negotiated in. Even if they come to us for just the design service, the procurement ⁓ portion. is put in the contract. So our contract is up front. If you want us for design services, you also need to use us for procurement. And if you procure with us, here is our fees and how it works. ⁓ typically designers will definitely do furniture, soft goods, ⁓ tile, lighting, I think most of you are. But one of the things that I learned when I was at Design Camp with Anastasia Casey and Lindsay was I I'm afraid to say Lindsay's last name. Sorry, Lindsay, if I it's Bertard, but I think I think I might have might be saying that wrong. So if I do, I'm sorry, girl. I love you. ⁓ I just want to say though that when we were at Design Camp and we were talking about procurement several years ago, Lindsay mentioned that her company does not procure flooring appliances. And for sure cabinetry and maybe plumbing fixtures. I I feel like it's for sure on the first three. I'm I'm not sure about the plumbing. ⁓ so don't don't quote me for sure on that. ⁓ feel free to like ping me on this, Lindsay. ⁓ all that to say, out of the 40-ish, 45-ish designers in the crowd, there were a handful of us that were doing procurement at the time. but I actually Do procure flooring, I do procure ⁓ cabinetry, I procure anything a client needs, so long as it's profitable for me to do that. ⁓ so every time I'm weighing out a business decision, it's always based on the risk and the reward. So I just want to say, industry standard, I think for procurement right now for interior designers is only like a 10 to 15% margin. And I'm just gonna say it up front. If that was all I was making on the materials I'm purchasing, I definitely would not do that service at all. And I would just be like, Nope, you guys can buy it yourselves. A 10 to 15% margin is just not worth anyone's time to do it. So ⁓ for us, for us to be profitable, for us to be ⁓ willing to do it, I need to operate at a minimum twenty five percent markup. Plus a 10% procurement fee. So to a client, ⁓ what they see on their end essentially is that we have an item, we source it, and we charge below retail. And typically it's 10% or 15% below the retail price, and then we charge a 10% procurement fee on it. So for them, it looks like, ⁓ we're getting it 5% or 0%. ⁓ discounted from retail, but we get the service included of order management and tracking and customer service, dealing with damages, all of the things. So it might not be that you're selling the discount on the item. It's mostly that you're selling the service behind it and saying, if you bought this yourself, you would be paying the same price. But You would have to manage all of this and you would have to do it. And we'll do it for you. And it will cost you nothing. And that sell, that like way of selling the service is kind of key to the profitability of it. ⁓ so we do get clients all the time that ask, like, do you pass through your trade discounts? It's an uncomfortable conversation. Years ago, I would be like, Yes, of course. ⁓ and then once we get up got into like more Higher level discounts based on the volume of sales we were doing. it did make sense to do that. Like, that's my hard work. Like, we're the ones getting all the business for these companies. So our tiered discount is based on what we're doing, not based on the client, in which case that should be given to us. That's our hard work. So ⁓ when clients ask that question up front now, I will say. Yeah, we get trade discounts. It's based on the companies that we, you know, can stand behind that we do higher volumes with, et cetera. And we ⁓ we don't disclose those. And so again, it's less about ⁓ trying to focus on a discount because I think in a mindset of a client, you never really want to focus on discount, discount, discount. You want to focus on service. This is what you're getting. It would cost you the same. You get the service with it. And that's what makes it kind of an easy sell to a client. ⁓ if you are up front about your procurement too, and you put it in the contract up front, then those questions get answered for them early before they're even in the procurement phase. And so ⁓ we have clients that read through our contracts and like, wait, what? What about this thing? What about that thing? ⁓ and we're not, you know, we're not even in procurement. So they get to think about it and have that framework for quite a bit of time before. they're exposed to what the actual costs are, if that makes sense. So ⁓ my recommendation for you guys is like literally if you're making only 10 to 15%, you can't be doing that. You you have to figure out a different structure. And that also is tied to the idea of trade sourcing versus retail sourcing. So we stopped doing trade or sorry ⁓ retail sourcing for our projects. So if a client picks something from Pottery Barn or West Elm, Yes, we get a 20% discount. Everyone knows this. It's wildly public. ⁓ we get a 20% discount, but that margin is not enough for the amount of damage rates that we get and the hiccups that we have and how hard the customer service is to work with. So we tell the clients to buy themselves then. We just say it's not worth it. And ⁓ if a client's like, wait, well, I don't want to have to manage it, then we'll say, well, we'll be happy to find something similar to that in a trade source that we ⁓ have a better reputation or relationship with. Most of the time the clients will then want it. If there is like the thing that is so specific to a retail vendor that you literally just can't imagine sourcing it from somebody else, which does happen, believe it or not. I limit those selections to no more than 10% of a total package because the margins are less. So ⁓ it just doesn't increase profitability. So you you can do it. I just would, like I said, commit to a smaller percentage of big box retailers or retailers that ⁓ you know are gonna be lower margin and harder to work with. So I don't know if that helps. It's ⁓ I think like if you were to calculate it out and let's say you had $50,000 on a furniture package, then the difference between 15% markup and a 30% margin, sorry, margin is $7,500. So that's real money that if you are choosing from the right sources and you're also ⁓ coming up with the best strategy to sell the service, then you it just goes directly into your business. So and to be clear, when you've already made the selection and you're just at the point of ordering. That's like a small amount of work for the amount of money you can get back. So ⁓ that's how we went from essentially doing, you know, 750 a year in revenue to 1.5 million. ⁓ it became I tracked it the a couple of years that we launched into procurement and it was like for every dollar in service we did, it brought in a dollar of procurement. And so and the margin on that is really high if you are. Kind of organizing it right. So, ⁓ and the work is less. So the payoff was great. Hey, so if you're finding this content helpful or informative, I would so appreciate if you could consider subscribing to us and leaving a comment or a review just so that we can reach more people, reach more designers, and help elevate the design community. Thanks for tuning in. If you end up getting to a place where it's higher volume, I highly recommend you hire somebody that's just a procurement that just does data entry. It's not your design team. It's not your designers. It's just data entry, order tracking, ordering, et cetera, et cetera. So we have a procurement person that manages all of our project orders and it's just incredible. And it just keeps us going. And that one position pays for itself because of the profitability of it. So as a side, that's it. One of the things that I think, again, just to like double down and drill on. is if you have $50,000 and you know that project revenue and you move from a 15% margin to a 30% margin, you're making that extra $7,500 across eight projects, you know, you're now $60,000. And so you really want to try to play with those numbers and how you sell things so that you can capitalize as much as you can on every project you're doing. The idea behind it is if you are already have a client in the door and you already have a client that's like signed with you, it is so much easier because of the trust that you've established with that client to move them into procurement and make money off of sales than it is to get a new client signed and just do design work. So it it is it is stressful. Procurement is like very stressful if you haven't if you haven't done it. I'll just tell you up front, it's it's stressful, but it's worth it if you do it right. So ⁓ I'm definitely a believer in no risk, no reward. And I think that's probably why I'm more comfortable also dabbling into ⁓ flooring, appliances, cabinetry, etc. Flooring and cabinetry in particular are two very, very profitable things if you get comfortable with it. This conversation centers around ⁓ a really good ability to understand construction and millwork detailing. And if you have somebody on your team that can do that or if you can do that, then this can be a highly, highly profitable part of your business, especially cabinetry. I could do a whole episode on it. We are dealers for both ⁓ wood mode and also Bridgewood Cabinetry. If you ever want ⁓ to know inf information about that or you're curious about it, drop me a note, send me a DM. ⁓ I've offered to help other designers procure cabinetry so that they can start to get profitability in it. And in the interim, I help them with their drawings and mill works and ⁓ detailing and whatnot so that you can get familiar with it eventually to like open and establish your own dealerships and make ⁓ the margin on it. But just like off the cuff, that item, let's say you have a hundred thousand dollars. in cabinetry for a residence, kitchen, bathrooms, like a whole package. ⁓ your margin on that's 50%. You get 50% of that. So f 50 grand in one sale. ⁓ not always do you sell it at retail, right? You you have to like be pretty able to like determine your client's ceiling and then sell yourself and market it accordingly. So, you know, I would say with A discounted package that we know a client will buy, plus ⁓ any field adjustments or replacements that come up after the order is placed, I would say we retain, you know, 35 to 45% of the cabinetry package. And of course, the more detailed and the better you can execute up front, the higher that margin is. So I am somebody that is like, I want to make a good chunk on one. Order rather than buy a hundred pieces at a 10 to 15% markup or margin, whatever. I have to actually sorry, this is a random thing. I have to look up the difference between margin and markup. I am aware that one is, you know, marking up from the price, and then the other one is your mar like your margin, your profit margin. ⁓ in this case, I'm not entirely sure which one I'm referring to. ⁓ but generally when I'm looking at our like profitability, ⁓ I'm looking at, you know, in studio design, we use studio studio designer for all of our proposals and invoices. So when I'm looking at the items and I'm filtering by profit, essentially if it's a hundred thousand dollars ⁓ in furniture or material package, I will not sell it to a client unless it hits thirty thousand dollars in profit. So ⁓ that means that we need to like make adjustments, mark it up, be honest, whatever. So ⁓ yes, the goal is 30%. I think that's margin then. So ⁓ anyways, I'm not I I wouldn't say I'm like the most like I don't know all the business tech words, ⁓ but I do know how to sell a package and make a good amount of money on it. So Same thing with flooring. I think there's a really good amount that you can mark up flooring. Typically it's forty percent and you so then maybe your margin after all of that is like more like thirty five or thirty. But ⁓ a lot of designers don't want to do that because of the risk of the takeoff and the risk of the ⁓ failure rate of flooring. My recommendation to you if you want to embark on that journey is find solid vendors that you know will have your back if something were to ever come up. Your vendor relationship is the number one way to maintain profitability in this sphere because you don't want to have to take the all the liability or risk if something goes wrong or you don't have an answer or something breaks. So we only have the level of comfort to do the sales that we do. Because we have such great vendors that we work with. So a good example of that is we work a lot with Chown Hardware in Portland because we can comfortably procure plumbing fixtures at a rate where they work with designers, they give you a discount, we can mark that up, make a good amount of money. And then if something ever were to go wrong, which it has, right? Things fail, things are wrong, they will always have my back. to be like, yep, we got that covered. I had a project that ⁓ finished three years after the client reached out. ⁓ it had been finished for three years. The client reached out because their drain in their kitchen, the finish was chipping. And I sent a picture to it to my peeps at Chown. And literally they had a new drain sent and paid for the plumber to replace it. That is the type of customer service and efficiency that moves your procurement along and keeps you ⁓ in a good spot in terms of liability and risk. So if you can offset that liability and risk by vendor relationships where you know that vendor will have your back, then that helps just, I don't know, take the stress off of being willing to do it. So We procure the flooring. I have two pallets of flooring being picked up today from our warehouse under us. So ⁓ I I I think that you should do whatever feels right to you. But I think that, you know, as you approach this conversation of procurement and as you, you know, identify how you can procure, I definitely want to encourage those of you that maybe have heard what the standard areas of procurement are and know that it's okay to step outside of that. Get outside of your comfort zone. Sometimes that's where the profitability really lives. ⁓ at the end of the day, the clients all just want to be served. The general contractors all just want to be served. And if we can provide more things to them and they know they can just pick it up from us and we've got it handled, the better the process is, the better the project goes, and the easier it is for everyone. So ⁓ that's my like two cents on that. So I wanted to talk about tiered markup concepts. So the different categories get of of supplying materials and what percentages they get. ⁓ just to tell you up front, there is no such thing, at least for me, as taking one item and always applying the same markup. We don't do a universal markup. Again, that would just like limit profitability because some of our discounts are higher again, based on the vendors that we work with. So a good example is forehands. We do a significant amount of furniture with forehands. It works well in our area. People love it. So our discount with four hands is the highest tier possible because we just do a high volume. And ⁓ if I were to take that and just like mark it up twenty-five percent, thirty percent, it would still be ridiculously below retail price. And that would be profit that I'm potentially losing out on. So the tricky part is you can't take a standardized approach. I don't recommend you do a standardized approach in your ⁓ contracts where you're like, you know, we take a price and then we mark it up 30%. number one, I think a client's gonna look at that and be like, ⁓ shit, you shouldn't, that's a lot for you to make on every item. That's a huge amount of money. ⁓ I don't think you should talk about that at all. ⁓ but that aside, when you actually go to price, it will require you to put in a lot more work on the front end to price everything out individually. But what we do is we literally, you know, supply a vendor with a ⁓ quote request proposal, or if it's a vendor that we can like log in and do our own carts and see the pricing, we do all of that. And then the markup is literally based on how much of a discount we get below retail. So ⁓ like I said on a forehands piece of furniture, that markup is like 50%, 60%. ⁓ and then and then for maybe like a tile or a light fixture, it could be twenty-five percent. That's the minimum that we do. ⁓ it could be thirty percent. So y if you can get really agile and familiar with your typical discounting rates from each vendor and then know roughly what that looks like. in terms of how much markup you can put on it and therefore what your margin is, ⁓ that's that's the sweet spot. You can't, unfortunately, I don't see it work out well in terms of profitability to just do a universal markup. ⁓ I think people often want to do that. Designers want to do that because it makes it easier for your procurement team to just be like, ⁓ yeah, we purchase everything and we mark it up 30%. ⁓ but you're just leaving a lot of money on the table by doing that because you know, as you get into it and you see your discounts, like some of them are gonna be super, super high and you can make more than 30%. So ⁓ think about that. That's my only nod on that. The other thing I would say is you have to get familiar with trade sources. So if you're a designer that's early, emerging, just starting our out and aren't sure what that means, you need to look up what markets are. That would be The Las Vegas market, the high point market being the biggest one. I know there's one in Dallas, Atlanta. ⁓ I don't know where all the other ones are. I'm on the West Coast, so typically we're going to Vegas. ⁓ but you need to get familiar with that and you need to spend the money to go travel and see them because ⁓ those are the sources that make you the most money. You need to go to the places where clients cannot go, where customers cannot Google things and Set up your trade accounts and get connected with your sales reps there. Get familiar with your market, see which lines are going to be the best in your area, and then lean into those because ⁓ if you are just sourcing from big box retailers, again, pottery bar in West Elm, things like that. Number one, the quality that you're gonna get for the price is gonna be better. Number two, most of those companies are selling trade companies furniture. So four hands is a good example. I see their products all the time on Pottery Barn, West Elm, etc. and same with Curry Co. Troy Lighting. That's all sold at Rejuvenation, that's all sold through other companies. And so if you can go to those sources and open your own trade accounts, then you will be able to buy direct, save money, and be able to make more money on those sales. So ⁓ again, I just don't see a structure in procurement that is as profitable as when you're leaning heavily on trade sourcing. So again, just to go back to like my earlier conversation, we only do 10% of a proposal in ⁓ retail based sales. So that means for us we're relying 90% on trade only sources. 90% of our proposals are through vendors that a client could not otherwise access. So just keep that in mind. And then when you are doing that, ⁓ for example, our vendor list, our vendor roster, we have like a ⁓ passwords like login doc that we keep track of all of our vendor relationships. That is literally almost 400 vendors. We don't use them all regularly. I would say we probably use ⁓ 10% of that on a regular basis, and then the other ones are more specialty or as they come. ⁓ But I just I I highly recommend it's it's super overwhelming at first, but I highly recommend you make the time to just like set up your own trade accounts, look at the discounts, get familiar with them, and then then ask for help. All trade reps for these companies are super willing to like educate you, help you out, bring materials to you because they make commission off of you selling stuff. So ⁓ leverage that as much as you can. And then make sure that you are working with vendors that you really trust. If your gut tells you like, mm, this vendor feels like sleazy or like this doesn't feel right, be willing to say that and honor it. I have had reps in the past where I have been like, This is not a good fit. And I have gone to their bosses, their superiors, and been like, I love these products, but this rep is not helping me out and it's not a good fit. ⁓ So if you are committed to a product and it feels right for you and it's n it's one that you know you can sell, go to whoever you need to to get that product dialed in and a resource connected to you that feels good. So ⁓ we've had reps leave companies and go to other companies and competitors and we've gone with them because I love them and I love their families and I have great relationships with them. ⁓ so I think it's just really important to develop those relationships and know that the profitability will come from it. So ⁓ yeah, if you guys have other questions around procurement, if you're curious about it, if you're new and this is like a whole new world for you, I would say spend the time, send me a message. I'm I'm curious what the struggle is for you. For those of you doing procurement, ⁓ do you feel like it's profitable? Does it feel really stressful for you? And ⁓ we can talk about mm just for like a microsecond, I'll talk about the fact that we have a four thousand square foot warehouse under us and we do receiving. So it's not just like we order the material and then that's it. We are the receiving agent and then also get it to a job site. So our area is a small town with limited resources. The closy closest receiving company is Portland, Oregon, which is an hour away. So if we do projects in Portland, we'll send them there. If we don't, then we send it here. So ⁓ most other places have receiving companies and you would be using the receiving company to receive your goods and then quality check it, check it in, and then take it to a job site. ⁓ like I said, because we're a small town and there's nobody doing it, we did it because that was how we got the sales. So don't be afraid to like really look at your market, look at what the needs are of both the general contractor and the client and Develop ways to I don't know, get yourself in front of them. So it's it's one of those funky things. I never saw myself being in a warehouse, like warehousing things. And ⁓ I was literally just inventorying about a hundred items this morning downstairs because it just got backlogged and we had a huge, huge project that we ordered for. So ⁓ Sometimes the not glamorous parts of what we do are the things that bring us the most income and therefore the most freedom, whatever you want, whatever it is for yourself. So ⁓ hope this was helpful. Let me know if you've got any questions or comments. I do want to put it out there that we have a markup calculator that we created and it's one that will help you understand. where your numbers are in your business, where your gaps are, and see how you could possibly leverage things differently. So if you're interested in that, feel free to ⁓ s you know, sign up via email for that. We'll drop the links in the show notes for you so that you could get connected to it. And then if you've got other questions or this didn't help answer the full picture of what procurement is and how to do it from a profitability standpoint. Reach out, let me know what else you want to know. Thanks for tuning in. We're dreamers, don't care what other people say. We live it like this could be a final day. We're dreamers.