Archive for 2010

Are your largest customers as profitable as you think they are?

Your top five to ten customers likely deliver the majority of your revenue, and in some cases, the majority of your profitability as well. However, when all of the costs of doing business with these customers are accounted for, you may discover that some of these customers are a lot less profitable than you think. That’s what a capital equipment company discovered when it added up all of the costs associated with supporting one of its’ largest customers. In the following example, I’ll refer to the large customer as Customer A.

In most years, Customer A accounts for between 5% and 10% of the capital equipment company’s overall revenue. Most everyone in the company just assumed that Customer A was very profitable, because the revenue from Customer A was typically greater than from other customers.

When the company embarked on a project to identify and add up all of the costs related to doing business with each of its’ ten largest customers, it was surprised to learn that the business from Customer A was actually less profitable, on a total dollar and a percentage of revenue basis, than the business from all but two of the company’s other top ten customers.

It turned out that the company had devoted hundreds of employees and tens of millions of dollars of equipment to supporting Customer A. In addition, Customer A demanded that the company adopt unique manufacturing procedures, specifications and techniques that together took a tremendous amount of work to manage, and benefited no other customers. The company also provided large, no cost spare parts inventories, multi-year pricing commitments with guaranteed year-to-year price reductions, and very lenient payment terms to Customer A. There were numerous other previously-unaccounted-for costs, but by now you get the picture: Customer A cost the company a fortune to do business with.

Of course, the potential exposure and prestige of having your products and services adopted by an industry leader can certainly be worth the investment, as it can often influence sales with your other customers and prospects. My point however is this: you should know as much as you can about the true costs and benefits of working with each of your largest customers before you negotiate the next contract with them. Add up all of the costs of serving these customers, and don’t be afraid to point them out in your negotiations. You’ll end up with a much better, more profitable deal in the end. 

Posted by Don Maher in Achieving Sales Goals, Profitability, Sales

Email Marketing:
A critical part of your marketing mix

What comes to mind when you hear the term “Email Marketing”? If you’re like a lot of people, the next word you think of is Spam. Or perhaps you think of it as the stuff you see in your in box each morning that you delete without reading. Maybe you’ve tried Email Marketing once or twice without success, or maybe you haven’t tried it because you don’t think it would work for your company, products or industry.

With the exception of companies that can count their customers on two hands, I believe that Email Marketing, combined with a professional, content-rich web site, should be a part of every company’s marketing mix. Following are the reasons why:

Your customers are online and use email nearly every day

Customers around the world are now experienced with educating themselves on just about any subject, investigating potential options, and purchasing products and services on line. If you have or can build a solid, online reputation for sending timely, content-rich, and helpful emails to customers, those customers will not only allow you to send those emails, they will look forward to receiving them, and in some cases, will visit your web site, ask for more information, ask to set up a meeting with you, or even purchase what you’re offering.

Emails are opened more frequently than you might think

According to a number of published studies, and my own experience, open rates for email marketing efforts range from 5 – 20%. However, those open rates are for unsolicited email. If you already have a relationship with a customer and that person allows you to send emails to his or her in box, open rates will almost certainly be higher. And once the email is opened, your well-written and convincing content can encourage the reader to learn more and take action.

Email gets your message across quickly and consistently

Let’s say, for example that you manufacture capital equipment and that you have an installed base of 500 units of various configurations working in 50 manufacturing facilities around the world. You have just developed a hardware upgrade that can dramatically increase the productivity and output of 20% of the units in the installed base. The upgrade costs $25,000 to build, but it’s worth at least $200,000 in increased profit per year to each customer.  You’ve decided to price the upgrade at $100,000 per unit.

Even the world’s greatest field sales force would have a tough time reaching all the customers who could potentially buy this upgrade in a timely manner, let alone with the same exact message. So what is the best way to inform each of your customers about the upgrade, explain how it will help them, convince them that it’s worth $100,000, and do it quickly and consistently?  I would suggest that sending a detailed email to all of the customers involved in making or influencing purchasing decisions is the most effective first step you can take.

Email is more than affordable; it’s cheap

Effective email marketing campaigns can be done with very little money, relative to the cost of using virtually any other method to reach customers. Although the costs of developing the content of each message will vary, the act of sending the information can be done for between one and two cents per email.

Email can help you reach out to those difficult-to-visit but very profitable customers

Almost every business has a number of highly-profitable customers who happen to be located in places that are difficult and expensive to get to, and therefore, can’t be supported with frequent face-to-face visits.  Using email can help to keep these customers informed and aware of not only new products and services, but also of any new information you have regarding your existing products and services.

While nothing can adequately replace in-person contact, email can help you establish and maintain an ongoing conversation with your customers and prospects, and might even spare you from ever hearing the dreaded “we purchased from your competitor because we hadn’t heard from you and didn’t think you cared”.

So, if you haven’t started communicating with your customers and prospects with email marketing yet, I have just one question: What are you waiting for?

Posted by Don Maher in Achieving Sales Goals, Email Marketing, Marketing, Sales Tags: , ,

Raise Prices? In this Market?
Are you kidding?

dollar_currency_signDespite the weak economy, it is possible to raise prices if you are selective with your customers, start small, and increase prices gradually. Some of the same customers who would surely desert you if you raised prices too quickly will gradually accept small and infrequent price increases.

If your profitability is suffering due to price erosion, and your cost-cutting efforts aren’t keeping up, maybe you should consider raising prices. The following guidelines should help:

1. Be Selective

If you try to roll out an unimaginative, across-the-board price increase to every one of your customers, without regard to how profitable each customer is, you should be prepared for a negative response.  You should also be prepared for the inevitable retreat from your new pricing to your old, with the results of no margin gain and hard feelings toward your company.

Instead, why not select the least profitable five to ten percent of your customers and increase prices only to them? You know who these customers are: they pay lower-than-average prices; they negotiate every item of every purchase order down to the last penny; they don’t pay on time; they demand better-than-average specifications and performance; they tie up a disproportionate share of your time; they demand that you dedicate more resources than they’re willing to pay for; they penalize you financially for the smallest mistake; they don’t help you design and test new products; they don’t provide testimonials or references; they aren’t loyal, and don’t seem to care who they buy from.

Some of these customers may refuse to pay higher prices, and may stop buying from your company. But others will grudgingly accept the increase and slowly become more profitable. And in the end, wouldn’t you really rather have a smaller but more profitable group of customers?

2. Start small

Imagine someone you buy from telling you that prices were going up by ten to twenty percent or more. No matter how logical the explanation for the increase, you would be unhappy. Your customers will feel the same way.

Instead, consider increasing prices by only two to four percent at a time. Increases in this range tend to be easy to accept, and some customers may not even complain at all.

3 Increase prices gradually

You can’t expect to reach your ideal pricing overnight.  If you try, you’ll alienate your customers very quickly. Try implementing an increase every six months or so. You might not achieve your desired profit margins as soon as you’d like to, but in the long run, you’ll keep more of your customers.

4. While you’re at it, add up and point out services you currently provide for free

Doing this gradually paves the way for future price increases. Examples free services might include exceptionally fast delivery; shorter than average build times; live phone or web help; in-person technical expertise; performance improvement of existing products over and above the original specifications; field service support above and beyond what was included in the initial purchase price, warranty or specifications; after warranty support, and extended or more lenient payment terms.

Start the conversation by meeting with your customers, and talking about each of the services you’ve been providing. Gently let them know that it’s getting more difficult and expensive to provide the services at no charge. Share with your customers the range of fees you’re considering, and ask for their feedback. You may be surprised at how realistic and reasonable some customers are.

The take away: you can raise prices and get paid for services if you approach it in the right manner. Why not give it a try?

Posted by Don Maher in Achieving Sales Goals, Sales Tags: