This is a very sensitive topic but it is a reality in a business life. Entertainment is a part of the marketing cost which we frequently need to get or preserve “long term” business. Sometimes it is even a key factor for a business success.
The problem is how to control and declare this cost, since a lot of them are really in a grey areas, it can create a tax problem because this cost may not classified as normal expense but as a part of the company profit.
“Entertainment” cost can be divided into two categories i.e With Official Receipt and Without Official Receipt. The category With Official Receipt, it is very straight forward, but still considered under the aspects of ethic and morale. It is very bias because ethic and morale in doing business is different from place to place, some time it is between you yourself and God. Example: Dinner are normal, but cigarette and “mad party” are not paid by some company because it is considered as not ethical and not morale, but some company does not care, as long as there is an official bill, the financial controller will accept.
More difficult is the unofficial without receipt cost, this happen mostly in developing country where the living standard is still low and people still prefer to get hard cash rather all the others “soft” benefits. Every company has their way to classify this cost such as: SP (Sales Promotion), SG (Smear Geld), UT (Under table, but paid over the table), SC (Special commission), KB (Kick Back) etc.
The dangerous we face on such cost is what we call the Dracula Effect, once the Dracula tastes the blood, it will always look for blood. Once you start linking this cost as a tool to get and preserve business, you are addicted to it, you cannot pull out, once you stop, for sure you also lose your business. Most of the time people just think short term, as long as we make money, I do not care to spend those money. But becareful once you link your order on those cost (either on percentage, kg etc), you are in trouble. Experience shows us that selling price will be lower and lower, while living cost is higher and higher which means your margin is lower and lower and it is not unusual that you have to pay more than you earn! At that point, it is usually difficult to tell your “friends” that the cost to them will be lower and they will not accept it (since they had enjoyed the blood).
How to avoid Dracula Effect and manage this cost?
We sell on benefits, you should be able to quantify the value you add in selling your products. I repeat what I have been preached during the Sales Training Course: You have to find out the customers’ requirement. Usually the boss wants profit, the production wants productivity, the printer wants trouble free, the user wants easy to use, logistic wants just in time, the purchaser wants cheapest price. That is why you need a marketing strategy to approach all of them.
Convince the boss to give you a chance to try your product, if there is any complaint, do not take your product back (once you do it without finding the root cause, you reduce your credibility significantly). Send your technical team to find and solve the real technical problem then send them a visit report on our technical team’s finding to the person in charge and a copy to the boss (and also your boss).
If the same “commercial” problem happens again, look at that person who give you problem (eye ball contact), tell him/her: please help you out and you will help him/her out. Do not promise any link of your sales, but take care them from time to time. You are in the same boat, if he/she makes your life difficult you will tell him/her that you also need some order to survive.
If he/she does not appreciate your approach, tell her/him that you cannot survive as her/his supplier but make sure you get a fair treatment by making this issue to be aware by his/her top management. If the management does not care that means you choose the wrong customer, drop them and try another one.
Never entertain (pay) them when they put you under pressure such as your product is not good etc, once you give way under pressure, they will suck you to death in the future. Solve the problem which they claim (usually is not a problem), only after that, you entertain them so that you turn the case into celebrating the success, and not paying them to keep them silence. If you (and company) cannot solve the problem, why should you entertain them? Anyhow they will never become your customers.
Save your time with them and look for new customer.
Remember: Manage your Customer and not to be managed by your Customer