Are You Fighting for the Right Customers?
Do you know which clients to fight to keep? Which prospects should you own in the marketplace? How would you know?
At first glance, you would think they would be the clients or prospects that have the most profit potential. However, life is not this simple. I had a coaching session with a client in the business services sector this morning. The issue we discussed was a product line where they have seen significant profit degradation. It represents about 1/3 of the firm’s revenue, and they have seen a significant number of proposals go to their competition because they are not price competitive. The firm is concerned that no matter what they offer, their competitors will continue to undercut them by as much as 40%. Another concern regarding this product line is that customers seem overly concerned about price and are indifferent about other factors that go into providing the service. This is a common theme I hear from industry to industry, but keep in mind that these are the symptoms and not necessarily the real problems. Based on the symptoms, you might think they should just drop this product line.
My first question to the client was about cost structure. Could your competition possibly have a different cost structure that allows them to be more competitive than you? The answer was yes in 3 areas:
1) Failure to embrace new technology – They are still doing things manually that others do electronically. Until now they had been able to pass the extra labor costs on to clients.
2) Labor Costs too High – The firm does not employ top grading philosophies, so unless an employee does something terrible, or the firm really needs to let people go for survival, employees have their jobs for life. If the firm employed top grading and had more “A” players, they would be able to get more done with fewer people. In addition, the firm is “top heavy.” They have partners doing work that staff and managers should be doing, and their partner-to-staff ratio is too high.
3) Process Failure – The firm does not have efficient processes and communications systems. The combination of redundancy, unnecessary meetings, ill-timed reviews, and other workflow issues significantly increases cost to each job. Historically, they always passed these costs on to the client.
These 3 factors easily add 40% to 50% to the job. Other firms that pay closer attention and address these issues could go to market offering the same services at 40% less and make a good profit on the job.
The next issue is a little more loaded. I have never believed that all potential customers are created equal. There are definitely people that are only worried about price. If you want those types of clients, or need some to cover your overhead, you must have a streamlined cost structure to be able to make enough money to make taking them on worthwhile. I never recommend just chasing revenue for the sake of growing your top line.
I believe that the customer that only thinks about price is a minority. The problem that I usually find is that salespeople do not ask enough questions to find out what factors are important to each buyer. The following are some questions I asked my client about a prospect they were wooing to determine if their concern about inability to differentiate between price and value was real. What we found out was that they are not asking clients and prospects the right questions to help them differentiate.
- What factors other than price are important to them?
- Are they getting that from their current vendor?
- Which of these factors would they be willing to pay more for if done really well?
- If we could perform miracles and do things as part of this project that would be considered going above and beyond, what would they be?
- What would those things be worth to you, the client, in terms of dollars?
- Have you ever had an accountant, lawyer, consultant, etc. that has ever done those things for you?
- If a firm delivered all of what you just talked about, would you pay above average price for it?
- Do you know what makes us different from our competition?
- Do you see the differences between the firms you are getting bids from?
- How are you going to choose between the firms?
Without this information you cannot properly prepare a proposal, and you cannot prepare the prospect to choose you.
When I got done with my client, it was clear that the issue was internal, not external. They realized that to be competitive they were going to have to address their cost structure and improve their selling skills. The alternative was to exit the line of business. At the current cost structure they could not be profitable into the future. Their market had changed, and they were not prepared.
Howard Shore is a business growth expert that works with companies that want to maximize their growth potential by improving strategy, enhancing their knowledge, and improving motivation. To contact Howard Shore please call (305) 722-7213 or email him at [email protected].