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Avoid the trap of copying last year’s marketing plan when preparing for the upcoming year. Look for fresh ways to generate profit in your business.
Let’s make this simple. Profit is the money you have earned after a sale to a customer. Profit increases when the profit margin improves (costs go down or the price goes up) or when the volume sold increases.
Examine the various decisions in your marketing plan. Consider how minor adjustments might improve your profit margin or sales volume.
Similar customers
We often overlook what is right in front of us. Consider where you might find customers that are like your current customers. Finding similar customers is usually the quickest, most efficient way to increase sales volume. Because you are making few changes to how you run your business, it’s typically a low-risk initiative.
Sounds easy, but where do you find these new customers? Salespeople often get wrapped up in serving existing customers and don’t seem to notice those who should be on their radar. For example, a company that supplies furniture to schools might not have any contact with private facilities such as Montessori schools. These potential customers would have lower volumes than public schools, but the incremental sales volume could be beneficial. And in some industries, it’s common to target current customers’ competitors.
In other situations, it is necessary to apply some creative thought and consider who could use your product in a way similar to your current customers. For example, if you sell inventory tracking systems to the food processing industry, don’t just look at other food processors. Consider other industries that have strict requirements on tracking goods from raw material to a delivered finished product, such as manufacturers of agricultural biotechnology products.
Examine the various decisions in your marketing plan. Consider how minor adjustments might improve your profit margin or sales volume.
Sales process
Companies rarely put their sales process under the microscope. Look for hidden opportunities where a change to the process could create significant results.
One common gap is how a company follows up with potential customers. Do you follow up with people once you have submitted a proposal? Not everyone does. How do you track these outstanding proposals? Do you have a stack of sticky notes on your desk or are they archived in a centralized system for reference? A little organization can help improve your proposal win rate.
Another common weak spot in the sales process is the allocation of responsibility. When salespeople are responsible for all potential customers, a company’s cost of selling to lower-volume customers is usually high relative to the account’s revenue. Smaller accounts can still be profitable if you can serve them efficiently. For example, you could hire a junior salesperson to target smaller accounts using a different sales process. Junior salespeople often view these situations as training opportunities.
Products and services
There are times when our customers just don’t need what we’re selling. Can you offer minor changes to your products and services that might make them more appealing?
People naturally think of selling complementary products or services – for example, an equipment manufacturer could offer installation services. There’s nothing wrong with this approach. It works well in many situations.
For deeper insight, think about factors that influence how customers use your product or service. For example, you might sell packaged goods to a retailer who stores the products on site until they are sold. If that retailer has limited storage space, you might offer a customized delivery schedule with smaller, more frequent deliveries. Customers might be willing to pay a premium for such services, depending on the nature of the problem you are solving for them.
Too often, we don’t question why we do things a certain way. Say you own a manufacturing facility and for years have provided a certain higher-volume customer with individualized packaged product. Individual packaging is often less convenient to work with than bulk packaging for high-volume customers; it’s also more expensive. Why does this high-volume customer prefer individual packaging? Maybe they don’t. It’s possible they initially ordered only a few individual units and their volume increased slowly over the years. If they don’t think to ask for alternative packaging and you don’t raise the issue, you both carry on with an inefficient solution. A minor change to what you sell (your packaging) could reduce your variable costs and increase your margin while providing a convenient solution to your customer.
Pricing
It is common to raise or lower prices, but few entrepreneurs consider how to structure price differently. Price can have a huge influence on margin and volume.
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One of the most complex business decisions is setting the final price for your product or service. There are many possible approaches to the task, from a rigid mathematical analysis to gut instinct. But if you take the time to understand the floor and ceiling for your potential price, and then use a combination of your creativity and instinct to appeal to your target customer, you will be able to select a pricing strategy that is practical and effective.
Download the whitepaper Setting Your Price and explore how you can make that happen in your business.
For example, if you sell high-value equipment that has a long sales cycle, chances are high that price is a barrier to purchase. The customer might even have to secure financing to purchase what you are selling. Consider alternatives to how you structure the deal, such as bringing in a third-party leasing company to finance the transaction. You will get paid upfront and the customer will have a manageable lease payment. This increases your volume, because you are selling to a customer that would not otherwise have bought.
Price is often tied to other decisions, particularly to what you sell. In the example we just gave, the customer is now buying a lease payment in addition to your equipment. Be creative in how you structure price. For example, if you also sell service to that same customer, consider packaging the product and service in one monthly fee over the life of the equipment. Customers are aware that a monthly payment almost always means a higher total price, but they willingly pay that premium for the convenience it offers. Not only does the customer’s upfront cost become manageable, but regularly serviced equipment has greater operating uptime. You benefit from the higher profit margin, but also by securing guaranteed service revenue over the life of the equipment.
When you make decisions that provide new sources of profit, it’s like a breath of fresh air. It’s a welcome change that energizes the whole sales system. Examining the marketing decisions in your plan can provide opportunities for significant revenue increases.
First published in the March 2020 edition of The Business Advisor.