Surcharges as a profit centre: Maximising Profitability in low-margin or commodity products.

Recently, I have been working with a client to explore how to improve margins and profitability in simple, commodity or low-margin products [for example, MDF or particleboard]. One critical insight was to remove the focus on driving profit from the actual product, where there may be limited pricing power, and evaluate the circumstances under which various customer types order the product.

In industries like building materials, where margins can be tight, companies often overlook a significant opportunity: surcharges.

Failing to charge for services that exceed the standard offering allows businesses to miss the chance to capture value and protect profitability. However, surcharges aren’t just about boosting the bottom line—they play a vital role in educating customers on the actual cost of their demands and shaping their behaviour to optimise the cost to serve. This last factor cannot be stressed enough. How much is the cost-driven into your business through suboptimal customer behaviour or attitudes? Customer ordering at the last minute makes yard staff run around like crazy to fulfil orders, bumping other orders off the schedule, creating havoc with standard service levels and increasing customer dissatisfaction overall to appease a small group of disorganized customers.

The Role of Salespeople For this strategy to be effective, it’s critical that salespeople are equipped to ask the right questions. By understanding the customer’s requirements in detail, they can assess where non-standard services are needed and the value they generate for a prospect/customer and apply surcharges accordingly. This goes beyond just knowing what the customer is asking for—it’s about understanding the value equation from the customer’s perspective.

Sales teams should identify critical factors like urgency, delivery specifics, handling requirements, and potential complexities. Armed with this information, they can ensure that the customer understands why specific surcharges apply based on the value the business delivers.

Checklist of Value Surcharge opportunities:

1. Urgent Deliveries When speed is essential, companies must prioritise resources, often at the expense of efficiency. Charging for urgent deliveries ensures that these costs are recouped and that customers are encouraged to plan more effectively.

2. Specific Date, Time, or Location Deliveries Not every delivery can be slotted into a standard schedule. If a customer requires a precise delivery time or location, this flexibility comes at a premium, and salespeople should be adept at explaining why.

3. Long-Distance Deliveries Delivering over longer distances means higher transportation costs. During the initial conversation, sales teams must assess these distances and apply the appropriate surcharge to reflect the extra expense.

4. Oversized or Complex Orders Some deliveries are not straightforward—oversized items or complicated orders may require additional equipment or manpower. Salespeople must identify these complexities early on and communicate the extra costs involved.

5. Hazardous or Dangerous Goods Delivering hazardous materials involves added safety precautions and regulatory compliance. This level of service must be reflected in the pricing through appropriate surcharges.

6. Difficult Delivery Conditions Whether it’s narrow urban streets/council restrictions or delivery in remote rural areas, some delivery conditions increase the complexity of service. By identifying these factors early, salespeople can apply surcharges that accurately reflect delivery costs.

7. Rush Orders for Manufacturing: When customers need products faster than the standard lead time, resources are often redirected, or overtime work is required. Surcharges for rush manufacturing orders ensure that the business doesn’t absorb these costs. When supply chain speed is essential, customers' willingness to pay can increase by over 100% over standard expected market prices.

8. Special Handling Requirements Products that require special care, such as temperature control or delicate handling, increase the complexity of the service. Surcharges for these additional requirements reflect the added value and resource commitment and risk mitigation.

The Value Equation To successfully apply surcharges, salespeople must understand the concept of the value equation—what is the customer gaining from this non-standard service, and how does it impact the business’s cost to deliver? By identifying and communicating this value, they can secure the appropriate surcharge and build trust with the customer.

When surcharges are framed in the context of delivering value, customers are more likely to understand their importance and adjust their behaviour—placing orders earlier, simplifying delivery requirements, or opting for standard services. This improves margins and leads to a more efficient and predictable service model.

Surcharges aren’t just about covering extra costs—they are a powerful tool for educating customers, driving efficiency, and protecting margins.

If you would like to explore how you can improve profitability in your business with our AI-driven solutions and expertise, please feel free to contact me for a confidential discussion.

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