And why you should do so

Prepare for take-off!  Last week we looked at what makes you different from your competition in the eyes of your ideal customer, why it is so important to small businesses and one approach to determining your difference.

As Mark Peskett said, the challenge is to avoid being a ‘me too’ business.  Sustainable competitive advantage is the force that enables a business to have greater focus, more sales, better profit margins, and higher customer and staff retention than competitors.  Mark outlined five steps to determine your competitive advantage.

I’ve also addressed this challenge in some detail below, identifying your Sustainable Competitive Advantage (SCA), .  Try it.   I think you will find it helps clarify your thinking and get you closer to that winning edge.

Develop your SCA - a powerful competitive tool for you

One of the problems that most small businesses face in developing a sustainable future is inconsistent decision making.  You may know where you want to go but if the decisions you make in an area such as marketing are not consistent with those you make in operations, or in finance or human resources, then your business will be pulled in different directions.

And pulling in different directions will ultimately degrade the performance of your business.  It will be seen in:

•    Friction between the different areas of your business;
•    Lack of teamwork;
•    Frustrated employees; and
•    Wasted energy and effort.

Defining the Sustainable Competitive Advantage

The basis for consistent decision making across your business is provided through a clearly defined Sustainable Competitive Advantage (SCA). 

An SCA is more than a Unique Selling Proposition (USP) although it can be similar in some circumstances.  Your USP should lead your ideal customer to believe your offering is the only logical choice for them.

Your SCA is about your competitive strategy.  It is the basis for your overall competitive business strategy which guides and focuses your decision making so that that all your functional strategies are consistent with a clear and concise overall competitive strategy.  The impact of all decisions being aligned with your competitive strategy is far greater than the sum of the individual decisions you might make when they are not aligned to a competitive advantage.

The SCA is defined as “that special capability identified by the business that will enable it to attain a sustainable winning position in the market with respect to its major competitors.”

The ultimate test of any new policy or plan you develop is whether it is consistent with the SCA you have defined for your business.  If it is not, then it should be reconsidered.

Of course, the underlying assumption behind this is that you are interested in your business being competitive and improving your profitability, but you wouldn’t be reading this blog if you weren’t.

  1. There are a number of important things about the definition given above:
    It is a business capability which can be further developed and used as a focus for much decision making about your overall business development.
  2. It must enable your business to achieve a sustainable winning position in the market.  This means that it must have at least a medium term and preferably a long-term competitive impact.
  3. Major competitors are used as a reference.  This means you must evaluate the relative strengths, weaknesses and competitive positions of each of your major competitors.
  4. It must have an impact on the behaviour of individuals within your business.

In short, your business’s SCA statement should:

•    Capture the essence of your business’s competitive strength;
•    Be simple and clear;
•    Be pervasive in its influence on individual behaviour.

As an example, a client developed the following SCA for their business: “We will win by the speed and effectiveness of our response to customer’s requirements.”

Very easy to say, but it required significant improvements across all functional areas of the company’s operations.  For example:

  • They had to identify and be in the right market niche, one that matched their ability to deliver;
  • Their marketing and sales processes had to ensure they properly understood and recorded what their customers were trying to achieve;
  • They had to have the right products or services to meet those requirements and ensure that whatever training and support was required was provided.
  • Their internal processes had to ensure all aspects of the requirement were accurately transmitted through the business.
  • Their internal processes had no operate smoothly with no delays or bottlenecks. 
  • Their people had to have the right product and service training, and be committed to customer service.

They would lose their competitive advantage if they couldn’t deliver an effective response quickly, or if they delivered a speedy but ineffective response.

How to identify your SCA

The first thing to do is to identify and evaluate your Critical Success Factors, i.e. those things that must be done well to ensure the future success of your business. 

To help brainstorm possible Critical Success Factors ask yourself, or your team questions such as:

  • What are we good at now?
  • What do we have to be good at to succeed in this industry?
  •  Why do our customers/clients buy our products and services?
  •  What product and service characteristics must we provide to meet our customer’s expectations?
  •  Have we developed any unique resources, processes or capabilities not readily available to our competitors?
  •  What culture must we develop to gain a competitive advantage?

The response to questions such as these can be evaluated and ranked in a number of different ways, but I find the following matrix works well.  It evaluates the Factors from both a customer and competitor perspective.

 

Those Factors which end up in the top right quadrant are key; i.e. they are perceived as being valuable from a customer’s perspective and have the ability to differentiate your business’s offering from those of your competitors.  These should then be further evaluated for their potential tangible impact of individual’s behaviour in the business.

The source of your SCA will lie in those Critical Success Factors which are ‘high’ in all three criteria.  Further evaluation and analysis may be required before you can tie your SCA down to a single statement.

It is important to recognise that the Sustainable Competitive Advantage should only contain one principal thought or factor, and that should be stated as briefly and concisely as possible.

Now to use the SCA

As mentioned above your functional strategies should be consistent with and support your SCA.  So let’s look at developing your marketing strategy and policies in these terms. 

Your marketing strategy is not only about identifying the right market segments to increase sales and profits; it is also about putting your business in a sustainable winning position against your major competitors.  The alternative is to be reacting to competitors marketing initiatives rather than have them react to yours. 

As such the marketing should at least support your SCA but may even provide the basis for it.

The issues you need to determine are:

  • At what must Marketing be especially capable to sustain your competitive advantage over the next few years?
  • What will be the most difficult – the particular challenge?
  •  What will be the most important aspects to change from now?
  •  What will be your Marketing performance measures?

I suggest a framework to analyse the answers, rather than just brainstorm ideas.  The framework you use will be based on your definition of marketing, and in earlier newsletters I have discussed some alternative approaches, and a range of marketing KPIs. 

For the moment I suggest using the traditional 4Ps approach.  Key marketing issues you need to evaluate for your business could include:

  1. How you monitor customer’s needs and expectations
  2. Product/service strategy – e.g. differentiated (many features, many options, packaging, length of warranty, exceptional service) or low cost (few features, few options, plain packaging, minimal warranty, basic service)
  3. Distribution strategy – how do you get your products and services in front of your customers
  4. Pricing strategy – e.g. cost plus, matching competitors, penetration, perceived value, discounts, credit terms,
  5. Promotion strategy – e.g. targeted, broad, advertising media, PR, personal selling, web, sales letters/emails
  6. Information systems – e.g. what marketing information do you have, how do you use it?
  7. Quality
  8. ...........
  9. ............

Now you need to assess these issues on the basis of their ‘Opportunity for Improvement’ and ‘Ability to support/create SCA’.  I can feel a matrix coming on.
 

Issues falling in the right-hand squares will tell you what your key marketing policies should be, with those in the top right corner being the most important aspects to change from now.

And then….

You need to follow this through each functional area of the business.  And yes, it will take some effort.  BUT, having worked with many businesses on this methodology, the SCA is a powerful competitive tool for you.

You will be making consistent decisions across your business to give you a sustainable competitive advantage.

Do you know your Point of Difference?

When clients approach me for coaching, so often they are not getting the clients they need, the right clients, or the sales they need at the margins they need.  Eight times out of ten this comes down to not knowing what is working, and how to develop compelling offers for their customers.

For more than 30 years I’ve been helping small business owners use the right tactics to plug the profit leaks in their business and restoring their cash flows by assisting them understand how to develop a Sustainable Competitive Advantage for their ideal clients, and to determine the offer to bring them on board, or win that vital tender.

If you would like to discuss with me how you might do that, book a Strategy Consult here.  There is no cost.

 

© Copyright 2018 Adam Gordon, The Profits Leak Detective 

In the Eyes of Your Ideal Customer

thinking of something in bubble 400 clr 9005

Here’s another take on a topic that is fascinating, challenging, and important to you as a business owner.

The challenge is, well, challenging.  It is so easy to say, but much harder to realistically and effectively define.  The concept has been given a number of different names:

  • Sustainable Competitive Advantage
  • Unique Sales Proposition
  • Value Proposition

But they all amount to the same thing, what makes you different from your competition in the eyes of your ideal customer.

And please don’t make it the lowest price.  That’s a sure way to commoditisation hell!

One of the problems that most small businesses face in developing a sustainable future is inconsistent decision making.  You may know where you want to go but if the decisions you make in an area such as marketing are not consistent with those you make in operations, or in finance or human resources then your business will be pulled in different directions.

And pulling in different directions will ultimately degrade the performance of your business.  The basis for consistent decision making across your business is provided through a clearly defined Sustainable Competitive Advantage (SCA). 

Writing in Smart Company, Mark Peskett has given a useful perspective, which I’ll follow with some of my musings.

Take it away Mark

Five steps to get a Sustainable Competitive Advantage

Today’s business environment is very competitive. It’s now a lot easier and cheaper to start a business, particularly with technology enabling business to be conducted online and internationally to win customers in foreign markets.

The explosion of online retailing is an example of this, and all this competition and activity makes it difficult to stand out from the crowd.

The challenge is to resist being another ‘me too’ business. The way to avoid this is by developing a sustainable competitive advantage that differentiates you from your competitors.

Sustainable competitive advantage is the key to business success. It is the force that enables a business to have greater focus, more sales, better profit margins, and higher customer and staff retention than competitors.

It is the major driver of long-term business value and is what purchasers will place the most value on when looking to acquire a business. Without a sustainable competitive advantage, you risk being another ‘me too’ business that muddles along achieving less than satisfactory results.

At its most basic level, there are three key types of sustainable competitive advantage.

1.    Cost advantage: the business competes on price.

2.    Value advantage: the business provides a differentiated offering that is perceived to be of superior value.

3.    Focus advantage: the business focuses on a specific market niche, with a tailored offering designed specifically for that segment of the market.

Most small businesses don’t have the market share and buying power to effectively compete on price and are not big enough to be all things to all customers in a market.

Therefore, to successfully compete, small businesses need to develop a sustainable competitive advantage that is based on providing superior value to a specific niche.

There is another advantage that is often referred to and that is first mover advantage. First mover advantage is where the first entrant in a new market obtains an advantage over other competitors that enter the market later.

However, while being a first mover may provide an initial advantage, in my opinion, it is not sustainable unless it’s supported by one of the three types of advantages listed above.

Google and Facebook are good examples of this. Neither of these companies were the first movers, yet both now dominate their respective markets.

The Five Steps

  1. Understand the market and its segments. Look for those niches that aren’t well serviced by competitors and can be profitably targeted and sold to.
  2. Develop an understanding of what customers really want and establish a value proposition that grabs their attention.
  3. Work out the key things that you need to do really well to support and deliver the value proposition. For example, service levels, quality, branding, pricing, et cetera.
  4. Understand what your strengths and core competencies are and how you can use these in innovative ways to provide value to your chosen market.
  5. Design your business model to support and deliver the value proposition.

At the end of this process, you will have a very clearly defined statement of:

•    Who you will be selling to (customers and market segments);

•    Why they will buy from you and not your competitors (the value proposition); and

•    The key things you need to excel at to be able to consistently deliver your value proposition.

Once you’ve found your sustainable competitive advantage, you should use it in many ways, to the business’ benefit.

Using your sustainable competitive advantage in your sales and marketing makes it easier for your customers to understand why they should part with their dollars and give them to you rather than your competitors.

This, in turn, makes it easier for your staff to sell your products or services and know their promises will be delivered.

They know the whole business is focused on making sure the sustainable competitive advantage is protected and capitalised upon.

Your sustainable competitive advantage can guide your decision-making and provide you with direction and a sharp focus.

If a new opportunity for the business doesn’t support your sustainable competitive advantage, then you should question whether to pursue that opportunity.

Is short-term growth that might erode your sustainable competitive advantage, more important than building a long-term position of strength and stability?

This longer-term view and effective use of a sustainable competitive advantage can support a higher return on capital invested in the business, even in the face of stiff competition.

This position builds value in a business and can add a premium to the sale price. That’s an advantage every business owner wants.

Thanks Mark.

Some of My Musings on this subject:

Does your message get your Prospect’s Attention?

Two Tools to Increase Sales

A Nine Step Sales Process

How to Overcome the Bureaucratic Burden of Tender Compliance

Do you want, or need, to Grow your Business?

How to Get Your Business back on the Growth Path

Next week I’ll look in more detail at my process to develop your Sustainable Competitive Advantage.

Do you know your Point of Difference?

When clients approach me for coaching, so often they are not getting the clients they need, the right clients, or the sales they need at the margins they need.  Eight times out of ten this comes down to not knowing what is working, and how to develop compelling offers for their customers.

For more than 30 years I’ve been helping small business owners use the right tactics to plug the profit leaks in their business and restoring their cash flows by assisting them understand how to develop a Sustainable Competitive Advantage for their ideal clients, and to determine the offer to bring them on board, or win that vital tender.

If you would like to discuss with me how you might do that, book a Strategy Consult here.  There is no cost.

© Copyright 2018 Adam Gordon, The Profits Leak Detective, except for the contribution by Mark Peskett

Is that why you don’t have more success?

I well remember that comment from my days in the aerospace industry (we called it the aircraft industry then).  What our people were saying/implying was that if you didn’t know the tender/request for quotation/proposal was coming out, you didn’t have time to prepare yourself for a persuasive response, to have your estimating people do their homework, and to make sure you had all potential issues covered.

And if you didn’t know it was coming out, then it was unlikely you had developed a good relationship with the key people in the buyer’s organization.

Government, and businesses for that matter, use tenders to help obtain competitive tenders that can be evaluated objectively to select a suitable supplier.

The tender documents will (or should) contain all the relevant information about the proposed contract, rules, conditions, etc. for you which will enable you to price the work as accurately as possible, taking into account all the special peculiarities which every project possesses.

The offer that best meets all of the requirements outlined in the request, and provides value for money, should win the contract. 

Preparing tenders can help you to win big orders, and provide on-going work over a number of years, but it can also be time-consuming, cost money and tie up valuable resources. If you don't get the contract, the money and time spent is usually lost, so you need to carefully weigh up whether or not a tender is worth bidding for.

You also need to consider how important the customer is to your business. Is this a good potential client or one you don't want to offend by not tendering? Try to understand things from the client's point of view.

So, line up your ducks if you want to hit them.  Submitting a compliant, persuasive tender on time, without the attendant stress and pressure requires that you are prepared and ready for the fray.

Here are 6 good reasons why you need to be prepared and ready

  • Tender documents are not always clear in practice.  It is one of the reasons I always recommend reviewing the documentation thoroughly and meeting the key person to clarify any questions you might have.  This is one of the common mistakes in tendering I discuss in my “How to Overcome the 10 Most Common Mistakes in Tendering”. 
  • Poor quality tender documents are a source of inaccurate estimates, claims and disputes on contracts.  But of course, you have to have time to identify the issues.
  • The more important the potential contract is to you, the more you need to be prepared.  Who is going to be involved, in what role; do you have to start getting your quotes for material, supplies, sub-contractors; who is going to write it, and bring the response together; identify the competition and carry out a SWOT analysis on them; who will identify the client’s “hot buttons” and develop a Value Proposition around which you can build your response. 
  • The volume of information provided is often too extensive to allow tenderers to process and estimate a price and program for the works in a short time, usually two – three weeks.  And that is the problem, lack of time, rushing, not having time to edit and review, leads to mistakes which could cause you to lose the tender, or cost you money if you win it.
  • The core principle in Government tendering and procurement is achieving value for money. This does not just refer to offering the lowest price or best offer. Value for money can also be assessed by looking at factors including:

o    The relative risk of the proposal
o    Fitness for purpose
o    The performance history of the supplier
o    All direct and indirect financial costs and benefits over the life of the procurement
o    The flexibility of the proposal to adapt to possible change
o    The anticipated price that could be obtained, or cost incurred, at the time of disposal.

How will you demonstrate this in the time available?

  • The Assessors often have difficulty reading five or six lengthy and poorly presented tender documents.  So, imagine the time required to read through 20 or 500 documents? 

You may have the best solution, but you don’t want them to skip through your response because it is boring, difficult to read, and doesn’t stand out. 

So many of you told me when I researched this issue that being in this situation has led them to winning few contracts, while causing them great stress and unnecessary demands on their time.

Yet when I asked if they were interested in a solution, I was told “Now is not the right time.” 

The right time is evidently when a tender of interest is called, one that really matches their capability, but of course, not being prepared means the same old, same old cycle occurs.  It’s too late to improve!

There is a Solution

Do you want to continue down that path – the recurring problem of a last minute rush to get your response finished, and in on time, with all its inevitable stress and strain, and probable mistakes? 

Have you ever been in the situation where you have won a tender, and your first thought is “What did I miss?”  I know I used to.

Picture the potential; you are prepared and ready, you have all the requisite building blocks that could be required for the tenders of interest.  You have the tools to develop a unique value proposition for each request, and you have practised writing a compliant, compelling and persuasive response.

You know how to put together a stand out presentation, one that will not have the Assessor’s eyes glazing over.

And when you submit, you have full confidence in your response, both in terms of your proposed program, and your price!  What a relief!

Is that important to you?  And why?

Would you like to have a chat at some stage, either by phone or online to discuss your issues and experience?  I’d be interested in finding out more about both, and whether my solution might suit you.

This email address is being protected from spambots. You need JavaScript enabled to view it. and we’ll fix a time.  No obligations.

And if you would like to understand more on my approach to tendering go to www.catalysnt.com.au.  You might like to download my freebie – “How to Overcome the 10 Most Common Mistakes in Tendering”. 

 

© Copyright 2018 Adam Gordon

Why sell to government? 

Small businesses, and even medium businesses at times, often dismiss the opportunity to sell to governments.   They may have any number of reasons for this:

•    Government contracts are for the “big boys”

•    The process seems too bureaucratic, too much paperwork, too tedious, too complex

•    “I don’t know how to go about it!”

•    They may not have even thought about it

But that is no reason not to give some real consideration to this opportunity.

What is the Opportunity?

Imagine a customer that has a big budget and buys almost every conceivable product or service year after year. They buy during good times, and they even buy during recessions. Sounds like a great client, doesn’t it? Well, government agencies do just that. 

And many contracts run across a number of years.  That makes them an ideal customer for many small and growing businesses.

The Australian Government is a large potential market for businesses of all sizes.  From advertising and cleaning services to engineering and office equipment, and from training and project management to research and recruitment, Australian Government organisations purchase a wide variety of goods and services from the private sector.

Over the last nine years, the total value of Australian Federal Government Procurement has ranged from $32,962 billion to $59,447 billion.  It is not a steady increase but varies according to budget and program requirements. 

The number of contracts ranges from 64, 092 to 85,870 each year - that’s a lot of business!

Many small businesses supply goods and services to the Australian Government. The Australian Government encourages small businesses to compete for Government work and is committed to sourcing at least 10 per cent of procurement by value from small and medium enterprises (SMEs).

 


Note: The Government’s target for SME participation by contract value is 10%. SME participation for previous years was 24% in 2015-16 28% in 2014-15, 34% in 2013-14, 32% in 2012-13.

If you would like to see more on this, such as the breakdown between goods and services, go to Statistics on Commonwealth Purchasing Contracts.

And it is not just Federal Government; State and Local Governments are also major players in the market place, spending large sums of money every year for a wide range of products and services.

The NSW Government alone spends $12.7 billion annually procuring goods and services.  At the other end of the scale the NT Government is the major buyer in the Northern Territory, procuring over $800 million in goods and services each year.  NT Research found that whilst the tender process for goods and services under $50,000 represented just 2% of the total value of tenders awarded, they comprised 47% of the total volume of tenders.

Why governments’ buy is another question; an issue I explored recently in “Are you Selling …. Or Solving?”

How do I find out about the Opportunities?

Information on tender opportunities is available online through both government and commercial sites. 

AusTender provides centralised publication of Australian Government business opportunities, annual procurement plans and contracts awarded. 

State and territory tender websites provide information about procurement opportunities for businesses. Tender sites usually include upcoming, current and closed business opportunities, details of awarded contracts, as well as the ability to register to receive email notifications of new relevant business opportunities.

The AusTender site also provides a link to tenders for states and territories government tenders websites which save you time if you are looking for opportunities at state level across Australia.  Select your state or territory for specific information.

The commercial sites are subscription but save you the time and effort of researching opportunities.

  • Australian TendersAustralian Tenders is an Australia-wide, locally-owned and operated service, providing information on current tenders by Federal and state governments.
  • TenderLink provides search capabilities for current tenders, RFQs, RFPs & EOIs by category.
  • TenderSearch is a specialist service that searches and notifies you of tenders, quotes, expressions and registrations of interest from Australia and around the world - including tenders and opportunities.
  • Projectory provides intelligence on major projects throughout Australia.

Similar sites will exist in New Zealand, USA and UK etc.

What are the problems that may confront me?

Many find completing government tenders a bureaucratic burden.  I’ve heard all the complaints over the years:
•    It’s too complex,
•    It’s too bureaucratic,
•    Everything takes too long,
•    It’s biased,
•    Tender forms are repetitive,
•    Small businesses can’t win, big business has an unfair advantage,
•    The requirements aren’t always clear, it’s confusing
•    It’s too demanding, it’s too costly

On and on and on.

Although governments have made a serious effort to work with small businesses, the process can still be cumbersome. Often you have to pore over long documents to ensure that your company can meet the government’s requirements.

As a business owner, you must balance these benefits against the challenges of working with the government. Only you can determine if this is the right opportunity for your company.

How to turn Problems into Opportunity

When you do your research into the opportunities you may be confused by the range of choices.  The only way to deal with this is to specialise and focus your efforts. Start with one level of government (federal, state, or local) and then expand as your abilities improve.  Don’t try to do too much at once or you will be overwhelmed.

Identify your impediments – Are you tender ready?  I explored this, including a checklist, in “Are you TenderWins Ready?”

Cultivate sound professional working relationships with potential Government users of your goods and services so that they are aware of the capabilities of your business. For example, many government organisations with Standing Offers may invite their suppliers to provide information about their goods and services for distribution to other government organisations or they may conduct supplier expos.

The AusTender website provides are some basic tips on marketing to and doing business with Australian Government organisations to help get you started:

  • Try to identify the organisations likely to need your goods or services, and within those organisations, identify the specific areas that are most likely to make purchasing decisions
  • Develop your relationships by meeting with the relevant officials, and provide useful information. Information could include your corporate profile, track record, testimonials, website address, pricing schedules and contact details (but don’t flood organisations with advertising material or constant phone calls - cold-calling is not an efficient marketing method)
  • Make sure organisation buyers know what sets you apart from your competitors
  • Maintain contact with organisations to ensure you are aware of future prospects
  •  Be aware of any regulatory requirements, conditions, pre-qualifications, licenses etc that you might need to supply to the organisation
  • Consider whether you can partner with other businesses that sell to government organisations
  • Build a reputation for providing value for money - bid competitively and wherever possible add extra value within the scope of the requirement. An innovative solution is often welcomed.  

Register with the Industry Capability Network.  This is an independently managed non-profit national organisation that introduces local buyers and sellers for the development of effective supply chains using Australian and New Zealand companies. Registering with Industry Capability Network can introduce your products and services to buyers seeking competitive and capable local suppliers.  There are links on the site for each state office, and I recommend your register with your state office.

Have testimonials ready, both on your website, and a database of testimonials and references you can draw on to support any submission you may make.

You may pick up some tips in preparing your response in “How to Improve your Tendering or Quoting”. And do avoid blowing your chances when you do submit!

What is your experience?

I’d be interested in your experience, and the challenges and fears you face when tendering to Governments.  What have you found, what are you looking for to help you, and what have you learnt?  This email address is being protected from spambots. You need JavaScript enabled to view it.

I’m working on a new online course to help people transform their success rate in tendering, while reducing the time and stress involved, and would like to build your experience into the design of the modules.

If you would like to discuss your experience with me, This email address is being protected from spambots. You need JavaScript enabled to view it.

And if you would like to understand more on my approach to tendering go to www.catalysnt.com.au.  You might like to download my freebie – “How to Overcome the 19 Most Common Mistakes in Tendering”.

© Copyright 2018 Adam Gordon, The Profits Leak Detective 

Big Business made them – but could you?

Over the last few months, we in Australia have been horrified by the shenanigans going on at the Royal Commission (Inquiry) into some of our largest businesses, the major banks, and the damage they have done to themselves.

For the first time since the scandals erupted, a bank chief executive---the National Australia Bank’s Andrew Thorburn --- has stepped back and analysed where his bank went wrong.

This analysis by Thorburn has been suggested also applies to the actions of the vast majority of large Australian-listed companies.

My question is, could they apply to small businesses such as yours?  Let’s have a look at them.

Customers

Thorburn suggested the primary focus had shifted away from customers. This has left his industry open to the challenge of ‘profits before people’.  He said, “Ultimately the interests of our shareholders are the same as the interests of our customers.”

It’s hard to disagree with that, but the underlying problem appears to have been a move from a long-term view to a short-term one.   Management have been looking at only this year, and at best, next year.  Hence there were all sorts of incentives for short term results.  He admitted that, “given the risks and nature of our business, we should be planning over a 5-10 year horizon, not just 1-2 years.”

What is driving that is the view of the big institutions which control their share price.   As a small business owner, you don’t have that hovering over you.  But you do have your bank hovering over you. 

Does that impose pressures on you, to satisfy the bank, just as the banks have to satisfy the institutions short term horizons.  And if so, does that impact on how you treat your customers: “get the sale”, rather than “satisfy the customer”.  Short term performance, rather than long term growth.

Systems and Procedures

Thorburn suggested “Banks have become bound by internal rules, policies, regulation and legacy systems. This has led to inertia – and as a result losing the local connections we previously had with customers when our people were more empowered.”

Now I’ve always thought that one of the real advantages small business has over bigger businesses is flexibility, and being able to react quickly to events, whereas big business has to make sure all the boxes are ticked before they make a decision. 

In a small business, you make the decision, and I believe that can give you a real advantage. 

Information

It appears some of the banks at least, have been fog-bound.  Thorburn said the bank could not identify how, or to what extent, it was failing to comply with the law.  And this applied not just to his bank.

Apparently neither the senior management nor the board of the bank could be given any single coherent picture of the nature or extent of failures of compliance; “they could be given only a disjointed series of bits of information framed by reference to particular events.”

You need to know what is happening in your business, and that means more than acting on PHOGY thinking.  The road to success is paved with good information, so you can see where you have been, and where you are going, and not be fog-bound.

And you need good systems to give you that information, and good procedures to ensure errors don’t creep into what you do.  Don’t go overboard with them, but have enough to give you consistent performance.

Local Connections

There’s another tip to be picked up from the first quote from Thorburn, and that is “losing the local connections”.  You, and your people, are the face of your business.  People still value dealing with people – a friendly face, a smile, some useful guidance.  It makes a big difference.

Yes, we all buy on-line, and I have no doubt this trend will keep growing, but being the business the customer turns to when they have a problem can’t be replaced by a system.

Systems can improve efficiency, take steps out of a process, but they are not a smiling face.

So what can you take away?

The big boys have clout, there is no doubt about that.  But they have lost a lot of trust.  You can build trust by the personal relationships you build with your customers, showing that you value them – it’s more than just a sale.

Have the systems to give you the information you need to run your business, that will enable you to make good decisions, quickly.  I discussed the “Essential Attributes of a Good Business” in Part 1 and Part 2 a little while ago. 

Be consistent and plan ahead.  Don’t be like the banks, and sacrifice the future for short term gain.  You won’t have the bank hovering over you.

Are Your Marketing and Sales Strategies Performing?

When clients approach me for coaching, so often they are not getting the clients they need, the right clients, or the sales they need at the margins they need. 

Eight times out of ten this comes down to not knowing what is working, and how to develop compelling offers for their customers.

For more than 30 years I’ve been helping small business owners use the right tactics to plug the profit leaks in their business and restoring their cash flows by assisting them understand how to use the 80-20 rule to determine their most profitable customers, and to determine the offer to bring them on board.

If you would like to discuss with me how you might do that, book a Strategy Consult here.  There is no cost.

© Copyright 2018 Adam Gordon, The Profits Leak Detective 

That's where the Money is!

I’d like to say that business owners and managers have a good handle on this, but they don’t.  In fact, I’m not sure they even devote much time to even thinking about it.  But they should!

Why – because such strategies effects not just their sales, but what is left after everything else is taken out.  It affects their profits.  And that is what we are all in business for, profits – to give us the lifestyle, freedom and comfort we desire.

So I turned to Sue Barrett of Sales Essentials for some clarification you might find useful.   Sue is a 'selling better' strategist and advisor, sales philosopher and speaker, sales trainer and coach, writer and activist. She is chief executive of forward-thinking sales advisory Barrett and online sales education and resource platform www.salesessentials.com.

Take It away Sue!

This week we thought we would touch on the differences between business, sales, and marketing strategies.

This is because there’s usually confusion between sales and marketing strategies. To avoid confusion, it’s always good to look at definitions.

Michael Porter defines strategy as the set of choices that define a company’s distinctive approach to competing, and the competitive advantages on which it will be based.

There are two different levels:

  • corporate strategy, which is the strategy for the business overall (the portfolio of businesses); and
  • business strategy, which determines how each business will compete. Business strategy is a high level plan to achieve business objectives.

Beneath business strategy, sits, traditionally at least, marketing strategy.

Marketing strategy is how a marketing team organises its efforts. It defines target markets, general value proposition, positioning strategy, offering mix, collaterals and how to reach clients so they know about the company and the offering.  Marketing speaks to groups, and works with averages.

There is also digital marketing strategy which can sit within the general marketing strategy, or next to it, aligning to sales and social selling efforts. Digital marketing can be the bridge between marketing and sales strategies.

However, this is not enough for a sales operations to function at an optimal level. To achieve this, next to marketing strategy, and overlapping and working collaboratively, needs to sit sales strategy.

Often confused with marketing strategy, a company’s sales strategy is the mechanism by which it determines its unique value proposition and how this makes the company’s offer relevant to each particular customer. It also includes how it will deliver that proposition to attractive sales segments where the business has some form of competitive advantage.

These sales strategies are then deployed by the sales force in both business-to-business (B2B) and complex business-to-consumer (B2C) situations.

Sales strategy is how the company organises sales efforts to go to market, who it’s going to sell to and how to create real value within the given market place with your customers.

Sales is about one-to-one where the business becomes real for the client. Sales develops relationships and looks after individuals.

Sales deals with the ambiguities and analyses the behaviour of the prospects and customers with whom they deal with on an individual basis.

Sales strategy is what happens when the rubber hits the road. This type of planning is strategy and execution in one. A good sales strategy minimises execution risks and sets up a path to follow to achieve the planned results.

The goal of business strategy is profitable growth. Whatever ends up being the chosen road to get there, one thing is for sure: the business needs to sell.

There is no business without selling. A sales strategy is what business do to sell well and achieve business goals. As strategy expert and Harvard Business School academic Frank Cespedes puts it: “you can’t do strategy without input from sales”

Here’s something else to ponder: in terms of business, we’ve all been brought up in the philosophy of competition. However, what if you could create uncontested grounds where you wouldn’t have to compete, at least for the foreseeable future?

Thanks Sue.

There are a number of valuable takeaways here.  These are the takeaways for me – What did you get?

  1. Strategy is the set of choices that define a company’s distinctive approach to competing, and the competitive advantages on which it will be based.
  2. Marketing strategy defines target markets, general value proposition, positioning strategy, offering mix, collaterals and how to reach clients so they know about the company and the offering. 
  3. Digital marketing can be the bridge between marketing and sales strategies.
  4. Sales strategy is how the company organises sales efforts to go to market, who it’s going to sell to and how to create real value within the given market place with your customers.
  5. Sales deals with the ambiguities and analyses the behaviour of the prospects and customers with whom they deal with on an individual basis.
  6. The goal of business strategy is profitable growth - but you won't get that unless you get your strategies in line.
  7. There is no business without selling. A sales strategy is what business do to sell well and achieve business goals

Are Your Marketing and Sales Strategies Performing?

When clients approach me for coaching, so often they are not getting the clients they need, the right clients, or the sales they need at the margins they need.  Eight times out of ten this comes down to not knowing what is working, and how to develop compelling offers for their customers.

For more than 30 years I’ve been helping small business owners use the right tactics to plug the profit leaks in their business and restoring their cash flows by assisting them understand how to use the 80-20 rule to determine their most profitable customers, and to determine the offer to bring them on board.

If you would like to discuss with me how you might do that, book a Strategy Consult here.  There is no cost.

 

© Copyright 2018 Adam Gordon, The Profits Leak Detective  Except for all those bits by Sue Barrett.

Are you losing valuable Gross Profits?

In “When Quoting, is Price the Only Thing? I suggested one of the worst mistakes you can make is to assume that everybody makes buying decisions based solely on price. 

The question tantalises all of us running our own business is; what is the right price for your product or service?  While we might worry about the price we charge, it’s value that customers focus on.  Sellers Worry About Price - Customers Worry About Value

MY friend Rashid Kotwal of Revealed Resources has a good tack on this.  Take it away Rashid.
**********************************

We all have a money thermostat“What we’re willing to pay for something and conversely what we’re willing to charge our clients.”

When we’re buying something, it comes down to how much value we perceive and how much we’re willing to pay.

Ironically this is also true when we’re selling our own consulting services.  We’re bound by our own perception of self-value rather than what our clients are willing to pay.

If you don’t believe me, look around at others in your field.

Think bell curve, standard distribution.  Most will charge approximately what you would for a given service.  But there’ll be a few people who charge considerably less (which frankly in not sustainable in the long term), and others who charge multiples more than you do.

Are the latter any better than you?  Unlikely.  So how come they charge what they do and get it?

Two things.  Their own self value is considerably higher.  And they communicate their value in ways that having their clients agree and hence are willing to pay for.

Couple of stories come to mind.

Years ago I told a couple of clients to raise their prices.

At the time one was charging $3,000 for a particular service and struggling to come to terms with charging more.

We played a game.  I kept putting his price up while asking him what his internal feelings were at each jump.  i.e. What could he feel his value was given what he provided.

We got up to $6,000 until he said “stop”.

A couple of months later, he did put his fees up to $6,000 and no one batted an eyelid!  He lost no clients and added significantly to his bottom line.

Fast forward a few years and he commented he had a similar pricing/value issue with is new business partner.  They went through a similar exercise and lo and behold, last I heard they’re charging over $9,000 for the same service and have become of Sydney’s leading consultants in their field.

Another client has gone completely against industry norms of free initial consultations and now charges a significant upfront fee.

We’d helped them realise the value they provided in an initial meeting should be paid for.  And as with all our clients, they’ve steadily increased their fees over the years without losing clients.

In fact, they’re in the enviable position of having a waiting list.

And finally, a previous client walked up to me at a conference and the first words out of his mouth to the person standing next to me were, “One of the best things Rashid forced us to do was to massively raise our prices.  It was the best thing we ever did.”

Notice the pattern here.

All value has to first stem from between your ears.  Your mindset and personal money thermostat will determine your business posture and what you feel comfortable charging.  That quiet assurance will rub off on your prospects and lead to higher profitability.

Now of course that’s only half the story.  Your marketing and sales system has to reflect and communicate your value, or you’ll be the world’s best kept secret.

Wrapping up, we can help you.

Increase your personal money thermostat so you feel comfortable increasing your prices. Then helping you create marketing and sales systems which communicate that value so clients happily come on board.

Thanks Rashid, that’s very helpful.

Is Your Marketing Performing?

When clients approach me for coaching, so often, they are not getting the clients they need, the right clients, or the sales they need at the margins they need.  Eight times out of ten this comes down to not knowing what is working, and how to develop compelling offers for their customers.

For more than 30 years I’ve been helping small business owners use the right tactics to plug the profit leaks in their business and restoring their cash flows by assisting them understand how to use the 80-20 rule to determine their most profitable customers, and to determine the offer to bring them on board.

If you would like to discuss with me how you might do that, book a Strategy Consult here. 

© Copyright 2018 Adam Gordon, The Profits Leak Detective  Except for all those bits by Rashid Kotwal.

And why it is important to persevere

“Tendering is a pain in the arse – horrendous.  It is nearly impossible to submit a quality tender response.”

So said a respondent earlier this year to a survey I conducted on businesses seeking to win work from governments through the tendering process.  As I said in “How to Improve Your Tendering & Quoting” there’s money in tendering.  Governments, whether at Federal, State or Local levels are major buyers of goods and services.  And they pay in a timely manner.  That can be important to your business.

Because I want to continue to assist small and medium businesses improve their success rates in tendering to governments, I surveyed a range of businesses to find out the issues that concerned them most, the biggest impediments to winning more business.

And this is what I found!  And there is a clue to where you should be working, but more of that when you’ve been through these comments.  Here are some of their comments.  Even these comments raise questions for me. 

Time Required was a major issue:

  • A lot of hours into ticking boxes, getting quotes, time in collating.
  • Time is a factor – you always need time to do well.  We do a cost-benefit analysis of our decision to tender – discount the opportunity if we are not a front runner.
  • Time factor, and lack of understanding of those assessing.  Do they want a flowery response, or specific?  One takes more time than the other.
  • Time to submit – the last tender was 90 pages, three weeks work
  • Timeliness
  • We have no redundant staff to do the submission.  The alternative is to get someone to help.  There is a cost to doing the submission.
  • There’s so much time and effort in doing a tender, addressing the little things.
  • Finishing it in time to have a break and review is inevitably difficult to achieve.
  • For most SMEs, time is the biggest enemy.  Time you could use for something else. 

And then there is stress!

  • Stress – knowing that it is a lot of effort, yet you can lose 5 years’ worth of work if you don’t get it right.
  • You feel the responsibility of getting the tender right.
  • It is difficult when you put in the hours and hard work to develop a response, and don’t succeed.
  • Tendering is a pain in the arse – horrendous.  It is nearly impossible to submit a quality tender response.
  • The content necessary in your response is part of the time pressure
  • The amount of content is the biggest requirement and that is why it is important to cut and paste.  In your answers you need to be aware of possible consistent misconceptions.  So give more than a basic answer, give as much detail as possible.  But that takes time.
  • One respondent suggested they cut and paste to reduce the time and stress in supplying the content.

And then there are the problems with the response requirements!

  • Content required can be replicated in different questions
  • Repeated first questions.
  • They also seem to ask the same question, with small variations.
  • A lot of questions in tenders tend to be the same, with some variations.  You have to go back, look back and learn – put in the information that is relevant.  It’s more than just copying and pasting.

Many businesses had problems with those calling the tenders:

  • The underlying problem is that the Dept is understaffed, and can’t do the necessary work beforehand.
  • The quality of tender requests they are writing.  The people writing the tenders don’t know their subject matter. 
  • People writing the tenders don’t have the necessary skillset to do so.  Their cut and paste is obvious, and not applicable.
  • It takes them time to draft the response to our queries.  Effectively we are helping them improve their tender, but we have to do so without getting them offside.  How to be the good guy while implying they are idiots.
  • Responding to queries which really are statements – “what you really should be saying is this!”  They obviously don’t know what they are talking about. 
  • The lack of understanding of those assessing.  Do they want a flowery response, or specific?
  • The major problem appears to be that they don’t read the responses.  We submit a profile with each tender, but the assessors come back with basic questions which have already been answered in the Profile.
  • The Assessors didn’t really read the response.
  • Inexperience on behalf of Procurement – they are not able to read or understand the response.
  • Government’s technical ability to understand their tender (is limited).
  • Once done, getting the first work (panel contracts)?  And then there are the Ts & Cs.
  • They are only interested in price – this governs all.
  • There was no ownership within govt.  The manager we reported to had moved on.  The whole structure of the Agency our region has changed.  Very bureaucratic. 

And some suggestions to consider:

  • With a tender, you’re trying to offer a solution to their issues, so you need to demonstrate you understand their issue.  You have to do more than just feature dump on your product.  You need to find out what are the issues before, “I might be able to help you with that!”
  • Not being able to demonstrate value – get value over the line in your response. You should reduce the time to submit a compliant response, by drawing on proven responses – templates.
  • Winning the first one – that is the hardest.  Getting familiarity with the process, being comfortable and systematic helps.
  • CC says it’s a struggle every time, and he constantly reviews, looking for better ways of saying something. 
  • Build a personal relationship with the person calling the Tender.
  • Learn how to communicate your story and services as clearly as possible.

There is a lot to think about in these responses.  Some came from very experienced and successful tenderers, others from less-experienced.  But I was interested that the most experienced responded emphasized the need to keep on reviewing and improving.  I had a chuckle as he is an old client who also told me I had worked myself out of a job by helping him improve his tender responses.

There is one point I’d like to emphasise.  There is little to be gained by seeking to win more by changing the way those on the other sides of the table go about calling and assessing tenders.  Governments, and their bureaucrats are very hard to change.  There is a great deal of inertia.

More will be gained by working on those things over which you have control– how you respond.  It’s a little like a SWOT analysis.  Opportunities and Threats are outside your business, and you have little control over them.  But you do have control over your Strengths and Weaknesses.

So persevere, and keep on improving.

What is your experience?

I’d be interested in your experience, and the challenges and fears you face.  What have you found, what are you looking for to help you, and what have you learnt?  Let me know.

I’m working on a new online course to help people transform their success rate in tendering, while reducing the time and stress involved, and would like to build your experience into the design of the modules.

If you would like to discuss your experience with me, This email address is being protected from spambots. You need JavaScript enabled to view it..

And if you would like to understand more on my approach to tendering go to www.catalysnt.com.au.  You might like to download my freebie – “How to Overcome the 19 Most Common Mistakes in Tendering”.

© Copyright 2018 Adam Gordon, The Profits Leak Detective 

Does Cash Flow Cause You to Lose Sleep?

Recently I interviewed a small business person who was seeking some mentoring assistance.   It was an unusual request, as this business exhibited none of the usual problems of a rapidly growing small business.

Although only operating for three years, sales were increasing rapidly, it was profitable, cashflow was not a problem, but I am nervous. 

There are a couple of reasons for that:

  • The owner manages via his bank account, seemingly without understanding that a bank account represents the outcome of decisions previously made, sometimes many months before.
  • The only time the owner looked at his financial statements was after his accountant had finished his annual tax return.  I’m very much in favour of regular monthly reporting, even if you are reporting to yourself.  There is also the small matter of tax records being statutory reports, not management reports.

Rapid growth typically leads to a business hitting a brick wall, as I’ve written about before.  The brick wall has three major elements: 

  • lack of cash flow (it’s increasingly tied up in Working Capital),
  • systems (they need to change to match the increasing requirements placed upon them), and
  • management skills.

The skills that lead you to set up your small business, to strike out on your own, are no longer sufficient to handle your growing business.  Studies have found that lack of management skills is the cause of most small business failure, and that key elements within this in particular are a lack of understanding of finance, of marketing, and of management.

Now that’s not surprising, as most small businesses are started on the technical expertise of the owner, not their management experience.

Then there's reporting - the problem if you are not regularly looking at how your business is travelling, is that any one of those three elements can smack you in the face.  If you don’t see them coming, it's hard to avoid that brick wall.

And that is where regular management reporting comes in, reporting that covers not just what has happened in key areas of your business, but also lead indicators of future business.

Cash flow problems are the ones that cause most loss of sleep.  How do you pay your staff, how do you pay your suppliers, can you afford to buy in more stock, and so on.

Two issues arise with cash flow problems:

•    Can you forecast it?

•    How do you fix the cash flow problem?

The first of these I discussed in “Why you should do cash flow forecasts” and  “How to do a Cash Flow Forecast”

Good cash flow management requires you to know exactly how much money is going in and out of your business, and is likely to be flowing in the period ahead.  It will guide every decision you make.  Keeping a close watch on cash is one of the fundamentals of business survival.

My prospective mentee needs to think about this.  Cash flow is not currently a problem, but it could become so, insidiously creeping up on him like a thief in the night. 

Some years ago, I had discussed this possibility with a business man.  He assured me that it was not a problem, everything was under control.  Three months later he turned up in my office, somewhat distraught, and said “That problem you warned about – it’s happened.”

So let’s address the second issue; if you have such a problem, how do you fix it?

The key action is to diagnose the cause of the problem.  If it is left untreated, that profit leak has to be funded, either by your bank, or by your creditors (who are not getting paid).  The latter is very dangerous territory in which it be travelling.

Cash flow problems can be temporary, such as having to bring in stock or materials for a major project or event, the returns recovering the outlay.

But if it is an ongoing problem, there are two basic causes:

•    Insufficient sales

•    Low margins

As I’ve often preached, it’s not the volume of Sales that is critical, but the volume of Gross Profits.  And that depends on the market you are in.  If the margins are appropriate in your market, then you need to look at why your sales are insufficient.

Dr. Greg Chapman identifies five reasons why your marketing may not be working:

1. Your marketing is not generating enough enquiries

2. Your marketing is not generating the right kind of enquiries

3. You can’t find the right market for your products

4. You are getting sufficient number of enquiries, but can’t turn them into sales

5. Your offer has insufficient market appeal

I would add the entry of a major new competitor or disruptor into your market who pinches your sales.

Margins being too low is the other issue.  This can certainly impact on the volume of Gross Profits you generate.  Margins are a factor of costs and price.  You must generate sufficient margin to cover you Cost of Sales and leave some Gross Profit, and sufficient sales so that the Gross Profits cover all overheads and leave you a nice Nett Profit.

I have had clients who had so little understanding of their costs that their Cost of Sales was greater than their Sales.  The more they sold, the more they lost.

Most small and medium businesses cannot generate the volume of sales necessary to survive on low margins. They need to have the margins that generate good profits at their likely level of sales. 

And that means concentrating on value.

Unless my potential mentee makes some changes, I suspect he will hit that brick wall, and damage it causes will be evidenced through cash flow problems.

Are you running into a brick wall?

When clients approach me for coaching, so often they are not getting the clients they need, the right clients, or the sales they need at the margins they need.  Eight times out of ten this comes down to not knowing what is working in their business.

For more than 30 years I’ve been helping small business owners use the right tactics to plug the profit leaks in their business and restoring their cash flows by assisting them understand how to use the 80-20 rule to determine their most profitable customers, and to determine the offer to bring them on board.

If you would like to discuss with me how you might do that, book a Strategy Consult here

 

© Copyright 2018 Adam Gordon, The Profits Leak Detective  Except for those bits by Greg Chapman.

Three Tools to Use

“No business buys a solution for a problem they don’t have.”  So said Seth Godin.  That’s understandable.  No one goes out looking for something if they don’t have a want or need that has to be satisfied.

But having a prospect looking for something you offer doesn’t mean you’ll get the sale.  You have to do more than that.  And you may provide clients with excellent customer service, but many of your competitors will make the same claim.

It is a reality of life that those who make the most money in any field, industry, or profession are not necessarily those who have the most knowledge, are most experienced in their craft, or sell the highest quality service.

"The fact is this: those who make the most money selling their services in any field are not necessarily the best at their profession or craft ... they are the best at marketing and selling their product or services to others."  (Bob Bly - one of the most successful copywriters in the world.) 

What this means to you is that it's not enough to be good or even great at what you do.

You have to be great at convincing others that you are the one they should hire instead of your competitors.

There are many tools to use to do this, but in this blog I want to touch on a three tools relating to pricing you can use in your sales copy that you might like to consider.  They follow on from some of the techniques in my previous blog:

  • Reciprocal concessions
  • Price anchoring
  • The strategic use of discounting

Reciprocal Concessions

A reciprocal concession in your offer sets a peg then rolls it back... then rolls it back some more. With nuance. With patience. But absolutely, with purpose.   (John Forde)

As an example, here’s a study undertaken at the University of California (LA) where groups of students negotiated over a pile of money.  They were told observers would measure their negotiation skills.

Beforehand, one student was secretly instructed to try three different negotiation tactics with three different sets of students.

With the first, he demanded all the money and wouldn't budge. 

With the second, he made a reasonable demand only slightly in his favour. 

With the third, he made the extreme demand and then backed off to something more agreeable.

Guess which group gave him the most money?   In every test trial, the third group was the most generous.

The study found that...

(a) The second group who "gained" the concessions felt like they'd created the deal and were now obligated to uphold it, even if they didn't actually force the concessions, and...

(b) The third group who felt like they'd brokered the concessions and controlled the deal were actually more satisfied with the outcome -- even though they had foregone more of the money.  Why?  Because they believed they had controlled the deal.  They were played by reciprocal concessions.

Anchoring

Anchoring is an idea about how to set a frame of reference for a number or an idea.   It's used most often when you introduce a product price, in the close of a sale.

The logic goes, you mention a big number...   Any big number...

And then mention your price, which -- of course -- is lower.  By comparison, the price will look small.

"If that's too much," you're saying to the customer "how about this?"

Knowing, of course, that the "this" you wind up with was what you were hoping to nail as the final price all along.

So how might that work in your next sales pitch? Maybe something like this...

"To get the same kind of service from a top-level pro, you might pay $1,500 for a three-hour consultation. That's what I've charged my private clients for years..."
"And frankly, it's well worth it."

"But I know this is new. And I know, from where you stand, it takes guts to be a pioneer. So I've set the launch price at just $749. That's a great deal.

"However, let me do you one deal better.

"For the next 24 hours, you can grab an early-bird discount of just $499.

"And there's only one catch: To get that price, you HAVE to let me hear from you by midnight. Make that deadline and the steep discount is yours."

You get the idea. And note the use of “Urgency” to help close the sale.

Sure, you could always just start by mentioning the lowest price you'll take. And maybe it will still feel too low, compared to what you're offering.  Then again, it might not.

So why take the risk?

Test it. Try starting with a big price. Or even just a big number, even an unrelated one, before you mention a better bargain deal.

Maybe even try knocking the price down twice after you set the initial anchor in place.

Not only will you be more likely to get the sale, you might also get a customer who feels a lot more satisfied for getting such a good deal.

Sometimes you see the same technique used by comparing the price to the cost of a daily cup of coffee.

The Strategic Use of Discounting

Now I’ve railed against discounting many times, including in my last post, but it can be used strategically, and cleverly.  I’m indebted to Dr. Greg Chapman for this example. It also uses anchoring. 

Everyone (including me) says discounting is a bad idea if you are using it as a way to increase gross profit through sales volume.  For example, if your gross profit is 30% and you offer a 20% discount, you will have to double your sales, just to break even.  It also creates a reputation for your business that your prices are negotiable.  Not a great strategy.

Most people discount when they see their stock just sitting on the shelves and then they panic, but what if you planned to discount from the start.

What might such a plan look like?

Let’s say the product cost you $30. Keeping the arithmetic simple, you decide to sell it at $100, a 70% margin.  You don’t expect to sell many at this price, perhaps 10% of your overall sales.  Next you decide to announce a 15% discount to your customers as part of a ‘mid season’ sale.  You expect to sell 30% of your stock at this price.  Remember, by having priced it at $100 initially, the 15% discount seems like good value, with the initial price being an anchor point.

Finally, you offer the product at your ‘end of season’ sale at a massive 40% off where you expect to clear the remainder.  Of course, at this price, you still have a 50% margin and over the whole season, you have achieved a 58% margin.

Does this strategy create a reputation as a discounter?  Not if there are ‘good reasons’ for the discounting which don’t include ‘you can’t pay your bills’. Such reasons might include a new model or end of financial year sales.

The discounted value is relative to the significantly higher initial price that you set as a reference point.  Your focus is on achieving the average price target you have set, and discounting is the tool you use to achieve it!

Is Your Marketing Performing?

When clients approach me for coaching, so often, they are not getting the clients they need, the right clients, or the sales they need at the margins they need.  Eight times out of ten this comes down to not knowing what is working, and how to develop compelling offers for their customers.

For more than 30 years I’ve been helping small business owners use the right tactics to plug the profit leaks in their business and restoring their cash flows by assisting them understand how to use the 80-20 rule to determine their most profitable customers, and to determine the offer to bring them on board.

If you would like to discuss with me how you might do that, book a Strategy Consult here. 

 

© Copyright 2018 Adam Gordon, The Profits Leak Detective  Except for those bits by Greg Chapman.

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