Defending Profit Margins

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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
In our Value-Based Selling program we emphasize two specific skill sets:

  1. 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.
  2. How to communicate the value by describing explicitly how doing business with your company will impact their ability to increase profit or sales. The best method to convey this message is using a combination of success stories, fact based analysis and testimonials.

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.