Q: It seems like the price is even more an issue today then ever before. In this environment, how do we get the margins up to increase the bottom line?
by Dave Kahle
A: Thanks for the question. Believe me, I understand the constant pressure on your price. I wish there were a simple, 25-words or less formula for increasing your margins. There isn’t. What there is though, is a set of tactics that have been proven effective in increasing your margins, even in the most difficult of markets. Pick and choose from this list of specific, proven tactics and them apply them methodically, with discipline, over time, and watch your margins slowly grow.
1. Add a point to routine quotes and bids.
Most people get into ruts when it comes to quoting a certain product or range of products. We fall into habits and just naturally put a standard mark up on the final price. Break out of the rut, by trying one point higher. For example, if you routinely quote some product category at 20 percent gross profit, try it two or three times at 21 percent, or 20 ¾. Chances are you are leaving some money on the table by using the same mark ups you’ve used for years.
I know one point doesn’t seem like a lot, but it typically falls right to the bottom line. Multiply that times every product and quote that you make for a year, and you would have added substantial additional margin to your business.
2. Add a point on price and product changes.
Let’s say several of your customers are routinely buying a product line from you. You have it in at 18 percent gross margin. The manufacturer raises his price to you 3 percent. You refigure the customer’s new price at 19 percent margin. You’ve just gained a point.
Every price, packaging, and product change is an opportunity to add a point or so.
3. Promote higher margin items.
In every industry with which I’ve been involved, there are high volume items that almost every sales person focuses on, and then there are very low volume items that most people ignore. That’s too bad, because the high volume items are usually the lowest margin, while the odd ball requisition items carry margins that are often multiple times higher.
A low volume item that is too small in actual dollar volume to interest your competitors is a golden opportunity to increase your margins. So, make it a point to present and demonstrate those low volume items that are not nearly as price sensitive. When most of your business is going through at 18 percent, it’s amazing what a few items at 45% can do for you average
4. Obtain the competitions’ pricing.
We all try to do this before the deal is done. It is, however, much easier to gain this information after a deal is done and then use it for the next round. After the deal is done, and the customer has made up his mind, just ask about the competitive pricing. Whether you won the deal or not you can still use the opportunity to collect useful information. Ask the customer to share with you the prices from every one else, after the business has been awarded. At this point, there’s little pressure on the customer to keep that information confidential. After all, it’s a done deal. No harm in divulging that now.
As you gather the information after the fact, analyze it to see what patterns your competition is using in their price quoting.
Use the patterns and insights you gained to predict their next quote. Instead of fearfully using very low margins because you are afraid of losing the business to a competitor, you’ll have much better information on what your competitor will probably do, and you’ll find yourself not deeply discounting so often.
5. Give the customer a reason to pay more to buy it from you.
Why should the customer pay more to buy it from you? So many B2B salespeople look on every sales call as purely a discussion of product and price that they fail to consider the totality of the factors that influence the customer to buy. Now, if there is absolutely no difference between buying it from you and buying it from the other guy, than the customer should go with the lowest price. However, I very rarely have seen there to be absolutely no difference.
Your job is to identify all the things that are different when the customer buys it from you. Put those things into a list, turn them into statements of benefit for the customer and memorize the presentation.
Then when the customer says, “You’re a point or two too high,” instead of discounting, share with the customer what he/she gets in exchange for that point or two. If there is some valid economic impact, than you’ve just added a couple points to your margin by giving the customer a reason to buy it from you.
There is no one simple strategy. Increasing your margins is a matter of a methodical, disciplined approach applied over time. Consistently use the tactics discussed above, and you’ll see your margins gradually grow.
This entry was posted on Thursday, June 24th, 2010 at 7:37 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
