It’s 10 o’clock. Do You Know Where Your Profits Are?

When I began my consulting practice 24 years ago I’d go into companies and ask “What’s making money?”  Most of the owners/CEOs would shrug, indicating that they really didn’t know.  Unfortunately, they were being honest.  Their accounting systems weren’t designed to accurately measure profitability by customer, by offering or by salesperson.

I’d analyze the profitability of their offerings and find that their greatest investment in marketing dollars and production capacity were in their least profitable lines.  When confronted with this fact they’d say “That’s our primary business, can we raise prices?”  And I’d show them how to raise prices.

I realize that you could care less about how I got into the pricing business, my point in telling this story is to let you know that the vast majority of business owners/CEOs don’t know what’s really making money for them.  Without that information it’s nigh on impossible to:

  • Identify your ideal customer – those who value your offerings enough to pay a premium price to get them.
  • Create marketing messages to attract those customers.
  • Develop sales scripts that can quantify the value customers perceive and communicate it in ways that your competitors can’t.
  • Establish pricing that reflects the value your customers desire.

Given these circumstances is it any wonder that so many companies default to industry pricing?  More importantly, is it any wonder that consumers view your offerings as commodities and look for the lowest price possible?

Here are a few simple steps that will help you avoid being just one more source for whatever you’re offering:

  • Identify your most profitable customers, offerings and salespeople (not the highest revenue, the most profitable.)
  • Using this information, create a profile of your ideal customer.  Don’t limit yourself to a demographic profile, demographics are helpful but they only tell part of the story.  Develop a psychographic profile as well – a list of characteristics that define your most profitable customers’ behavior.
  • Translate the psychographic profile into marketing messages designed to attract more of your most profitable customers.  By targeting your marketing more effectively you produce greater profits off a smaller marketing investment.  You also avoid confusing the market.
  • Create sales scripts that not only communicate the value your customers desire, but quantify that value for them so that your price seems fair in light of the value they’ll receive.  For those of you who are online retailers, you may not feel that sales scripts are relevant in your business.  I’d like to suggest that this is a great way to distinguish your site from your competitors’ sites.  Use FAQs and comment boxes to differentiate your higher priced offerings from those of lower value.
  • Establish pricing that is slightly less than the value than the customer receives.  Most companies price well below the value they provide which diminishes that value in their customers’ eyes.

Imagine how much simpler your life and the lives of your customers will be when you have and present that kind of clarity to them – when your brand promise (what they value), your marketing messages (touting what they value), your sales scripts (quantifying that value) and your pricing (their investment in that value) are all congruent.

The choice is yours.  You can continue to invest time, energy and resources and take whatever business comes your way.  Or you can take control of your destiny.  You can employ the steps outlined above and dramatically increase your company’s profits and your customers’ delight.  Choose well.

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