Change Upbuying into Upselling

2/19/2013 10:00:00 AM

Article by David Grubb

Confused by the term “upbuying”? Don’t be. I only came up with it today and it is simply a play on the term upselling. However, unlike upselling which adds to your bottom line, upbuying can have the exact opposite impact and subtract from your bottom line if you fail to convert it to your advantage.

The most difficult type of upbuying to manage in our businesses is with custom work. The design drawings used for the bid process are most often conceptual rather than fully detailed and specifications are incomplete and often conflicting. The bid is based on your understanding of the intent of the documents using your standard processes and details. Then during the shop drawing process, the designer and/or customer redefines a product of higher value (and cost) than was originally understood and priced in the bid.

Adding to the difficulty in managing this form of upbuying is that now the responsibility to manage these changes often defaults to the drafting department. This department is far removed from the estimating department that is very often the only one with detailed knowledge of what was included in the original bid.

Unless these changes are recognized by the drafting department as being beyond the scope of the original bid, these new details and materials can be incorporated into the shop drawings and a new and higher cost project is born and produced.

Project managers most often provide the interface between the customer and the company and are in the best position to control upbuying. To be effective in preventing upbuying they must:

Be intimately aware of the basis of the bid. To support this need, the estimating department must maintain appropriate notes and qualify the bid in areas which invite interpretation of the bid documents.
Be familiar with the bid documents and follow the shop drawing process closely. This includes close scrutiny of returned shop drawings to prevent upbuying.
Be intimately aware of “trade norm” as it relates to interpretation of ambiguous items in the bid documents.
Have a working knowledge of your manufacturing process and realize when evolving or changing details will have a material impact on production cost.
Have a reasonable knowledge of materials costs and realize when materials specifications changes impact cost.
Have the ability to manage the customer. That means the ability to say no in an appropriate way and at the same time leverage the opportunity for upselling through change orders.

It is important to keep in mind that ambiguity often favors the customer in these cases. The more qualifications included in the bid response the stronger the case for successful management. As an example, specifying that millwork or case goods will be produced in accordance with AWI Standards can be extremely valuable in defining your bid. However, to make the statement effective project management personnel must be familiar with those standards.

Upbuying of standard product

Selling standard catalog products with a standard price list presents less opportunity for the customer to practice upbuying but a few safeguards should be in place.

The most effective is a review of all orders for correctness at the time of order entry and confirmation. Any difference between the order and standard pricing should be caught at that point in the process.

It is not unusual for customers to come back after the initial order and ask for changes. Those changes might be as simple as a change in hardware but the system should be designed to prevent any change from being approved without going through the order entry process again. In cases were a customer accommodation is appropriate, a process must be in place to direct that approval to the proper authority.

Leverage the opportunity

Correctly managed attempts at upbuying are opportunities. They represent a perfect opening to practice upselling. Handled correctly, they allow the customer to exercise the option of getting exactly what they want at a profitable price to you; and after all, isn’t that what we are in business to do?