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Defending Profit Margins
| Guest post by: Greg Schinkel |
Article Overview: Each percentage point of gross profit margin you lose requires a 4% volume growth just to keep profit steady. A five point increase in your profit margin is the equivilent to a 20% increase in sales. A five point increase in your profit margin can equal a 50% boost to your bottom line profit. How do you communicate the value you provide to the customer so that you are not seen as a commodity and therefore maintain the profit margin you need to grow your business.
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Free Download - Productivity Improvement from Employee Engagement, Process Improvement By Greg Schinkel |
Defending Profit Margins
In the last few weeks I have had the opportunity to work with three companies that are each leaders in their respective industries. In each case, the products and services they offer, the people who work for them and the way they conduct business are all first rate.
And yet they all are facing the same challenge: How to communicate the value they provide to the customer so that they are not seen as a commodity and therefore maintain the profit margin they need to grow their businesses.
You Can't Make it Up With Volume
Each percentage point of gross profit margin you lose requires a 4% volume growth just to keep profit steady. A five point increase in your profit margin is the equivilent to a 20% increase in sales. A five point increase in your profit margin can equal a 50% boost to your bottom line profit.
Focusing on Features Can Erode the Perception of Value
Chances are that your company has a long list of features that you are proud of. They might include innovative design, flexibility, longevity, responsiveness, superior customer service, well trained staff, convenient locations, fast delivery, customer testimonials, etc.
Unfortunately, your customer doesn't always fully grasp the value that these features bring and therefore may not be willing to pay for them.
Understanding How the Customer Benefits from the Way You Do Business
In one case my client discovered that the quality of their products allowed their customer to sell the product longer before it spoiled. And because the product was fresher, the customer could charge more money to their customer. And the way they delivered the product reduced handling by the customer, saving them labor costs.
Another client discovered that most of all, their customers appreciated that they "saved their bacon" when they needed product really quickly.
The third client discovered that the quality of the service they provided helped their customer reduce staff turnover and increase employee satisfaction.
Communicate the Value
Inany crediblesales trainingprogram, two specific skill sets are required:
- How to develop great questions that reveal to both the sales person and the customer, the total COST of the problem and the potential value of the solving the problem. In effect the customer begins to desire the solution before the sales person begins selling it.
- How to communicate the value by describing explicitly how doing business with your company will impact their ability to increase profit or sales.
Purchasing agents and buyers typically get far more training in how to commoditize the buying process. In response, your sales people require constant training & development in selling the value your company provides.
Reflection Questions
How does buying your product or service help your customer make more money? Is your team capable of consistently communicating this value to your customers?
Action Items
- List all of the elements of your value proposition - the features and benefits of doing business with your company.
- Craft questions that will help your sales people probe for the problems that create customer desire for your solution.
- Create powerful stories, examples, illustrations and testimonials that can be used to convey the value message in the sales process.
- Give your sales people the skills they need. Not just one-time training... ongoing reinforcement.
- Watch your sales, profits and customer retention increase.
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Article Tags: bottom line profit, gross profit margin, profit margins, sales skills, volume growth
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About the Author: Greg Schinkel RSS for Greg's articles - Visit Greg's website Greg Schinkel and his team help entrepreneurs and business leaders improve profit and grow their business by providing management training, supervisor training, team leader training, lead hand training and executive coaching. The challenge for many successful organizations is that leadership becomes diluted from the senior leadership team to the front line leader. For organizations who choose to be union-free, Greg and his team equip leaders to maintain excellent employee relations while focusing on results. For unionized workplaces, the focus is how to effectively lead employees within the boundaries of the collective-agreement while achieving results. Greg Schinkel has reached more than half a million people through his writing, broadcasting, speaking, training and coaching. Greg has appeared on television, radio and in print more than 200 times for his leadership expertise. He is co-author of the best-selling book Employees Not Doing What You Expect, published in North America, India, Latin America and Korea. Since 1992, Greg has owned and operated Unique Training & Development Inc., a leading provider of supervisor training, management development, team leader training and lead hand training. His website is http://www.UniqueDevelopment.com Click here to visit Greg's website   Defending Profit Margins Leadership Tips to Manage Resolve and Prevent Conflict How Leadership and Corporate Culture Impact Profitability Want Greater Success Be Ready to Work Harder and Smarter Leadership These Seven Challenges Help Managers Succeed |
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- I really enjoyed the stories of Lisa Shepherd and Julie Mitchell - More Profit women CEOs would be great!
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A ton of Great Women
- You might want to profile Teresa Cascioli of LakePort Brewery. She has an amazing story! I met her at at the celebratory luncheon for the Profit/Chatelaine Top 100 Women Business Owners. The Top 100 list is also a great resource for inspirational stories of Women Entrepreneurs.
profit line
- I recommended Profit Line to one of my clients and they were not 100% satisfied with the service. Apparently one of the profit line people got a parking ticket while serving my client and then charged them for it.
I haven't heard the other side of the story yet but the fact that I recommended them and it didn't work out makes me reluctant to recommend them again.
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