Increase Profits and Revenues in Tough Times
My friend Ron Karr wrote an outstanding article in his latest newsletter that I wanted to share with you. So here it is:
Think about this. If you reduced your fees or prices by 20%, you would need to increase your sales volume by 400% to make the same profit you were making before the price cut. This is what Donald D. Juschartz, County Extension Director at Michigan State University, discovered in his study of how Price vs. Volume relationship may alter the retailer’s thinking.
In declining markets, it is very tempting to lower one’s prices to hold on to business, especially if your customers are demanding it. Yet, some are probably lowering prices too fast too soon. And in some cases, it may not even be necessary. Realize that for every price reduction you agree to, you are going to have to sell more to make the same.
This is the time to hone your skills to avoid price reductions whenever possible. And in case you need to give in at some point, there are things you can do to limit your losses and in some cases wind up ahead of the game.
Many customers are going to ask you for a price reduction and even threaten to take your business away. Do not give in. You need to restate your value proposition and ensure the value they are getting from you far outweighs any price concession they are being offered by the competition
Do not get angry. It is very frustrating to constantly have to restate your value proposition and continue to make it stronger. Get over it! That is the job of a rain maker and sales professional. In tough times, you have to do it more and you have to be better at it.
If you have tried everything and there is nothing more you can do, make a strategic decision if this business is for you. Will the precedent of discounting affect your overall market position? If not, do what you have to do. If it does, then you may want to take the risk of losing that customer. Anytime one raises a price, 20% of existing customers usually cannot come along for the ride. In a declining market with declining prices, you may want to view the act of staying firm with your current price structure as a form of a price increase.
If you decide to reduce your price, never do so without getting anything in return. Here are some examples of what you can request in exchange for a reduction in price:
– Longer term of agreement
– Increased volume for existing product
– Placement of additional products
– Reduction in service
– Improved terms
And, there is another option:
RAISE YOUR PRICES!!!!
You may be asking yourself how you can possibly do this in a down economy. The answer is simple. Just ask for it! You need to remember a few points of power you have, especially when dealing with existing customers:
- You are the devil they know vs. the devil they don’t know. Things are going well. Why take the chance of screwing things up. There is a value for an insurance policy.
- Link your value proposition to how you can help them weather this storm and be ahead of their competition.
- Nobody will protect your value except for you. That is your job!
CASE IN POINT: Michele Litzky, Principle of a Hoboken-based PR firm was attending a meeting with a current client to discuss 2009 strategies. While waiting in the conference room, she noticed a piece of paper on the floor that had two lines: “Cancel firm Litzky”, and second line said “reduce fee”.
When the client walked in the room, Michele asked if this note was left on purpose. The President said no, it was left unintentionally from an internal meeting. Michele immediately changed the direction of the meeting and revisited the significant positive outcomes they had provided the firm with a recent publicity campaign. After restating her value proposition, the client, which wanted to either cancel her services or reduce her fee, wound up giving her two additional projects and agreed to a fee increase after 90 days.
This is a classic example of how one needs to operate in today’s environment.!!!
Whatever you do, please do not act with a bunker mentality. There are opportunities out there and there are people who are actually raising prices. If you don’t believe me, look at the new sports stadiums going up. Seats in those stadiums are much more expensive than in the old stadiums. And they are selling them. Maybe not as fast as they would like, but they are selling!
People want to save money. People need to reduce costs. But more importantly, people need to succeed. Is your conversation centered on reducing prices? Or it is centered on how you are going to help others succeed?
Again, you may need to reduce your prices. However, make sure you do not do it until you have tried everything else first. If you do reduce your prices, remember to get something in return. And then be accountable for making up the lost profitability with increased volume somewhere else. Every action creates a reaction. At the end of the day, you still need to meet or exceed your quota.
Again, this was written by Ron Karr. Check out his site at www.RonKarr.com.
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Voss Graham is an Organizational Architect with 30+ years of experience designing sustainable business growth for organizations of all sizes.
Creating the Strategic Focus with the Executive Leadership Teams, he uses Systems & Process to ensure the Drivers for Business Growth are Executed at the Highest Levels. Voss is available as a Speaker for your conferences or company meetings – contact him at 901-757-4434 or use the LinkedIn or Facebook direct messages.