Business Margins & Profitability Are Under Siege!
By Damien Parker | December 1, 2014
It’s time to protect your margin (the difference between the price you pay for your goods and services and what you then sell them for) for it is under siege on a number of fronts.
Firstly, there are the clowns down the road; you probably call these people your competitors. But a clown is what they are when they can sell on nothing else but low price, low price, low price.
Truth is, their sales skills are next to zero…otherwise they’d try and build the sale and defend their margin. Their business acumen isn’t razor sharp either, otherwise they’d realise that playing the price war game is a one way trip to Business Boot Hill. Their business creativity isn’t strong, otherwise they’d try and look to differentiate their product and service so that it is different from yours.
But whoa!
- What are our sales skills like?
- Does our sales team know how to build the sale?
- Does our sales team know how to handle people who ask for a discount?
- Do we have a firm policy on discounting?
- Do we try and differentiate our product and service offerings so that we are not competing on the same playing field as the clowns?
- Have we recently run the tape measure over our figures to ensure that at our present asking prices, we are covering all our expenses and making a decent profit?
Beware Inflation
Then there’s the invisible enemy…inflation! It just creeps up on you ever so slowly, but its effects on your spending power are serious. Please don’t believe the official statistics. They just don’t ring true. Want proof? The basics of life are air, food, water, warmth, shelter and medical attention…hey, these individual areas have had price rises well beyond the official inflation figures in most countries.
Fact: If your profit level is much the same as it has been for the past ten years, you are going backwards, courtesy of inflation creep.
Let’s say you made $100,000 in 2004 and you’re still making around $100,000 in 2014. In 2004, your $100,000 would buy you $100,000 worth of goods and services. By the year 2014, your notional $100,000 will only buy goods/services equivalent of around $74,000 (rounded for illustration) at a 3% annual inflation rate. That might mean you can now only eat mince when once a juicy steak was yours for the ordering!
My point is this: Unless you are protecting your margin by at least the CPI or inflation rate, you might well be going backwards.
Way back in 2001 at one of our annual Sales & Marketing Super Summits I took this message to our 150 enthusiastic delegates; I challenged them to consider a price increase of 5% to 7%.
I proved to them that the inflation rate (in Australia) had actually increased by 5% over the previous year.
Subsequent to the Super Summit I spoke to in excess of 30 people in attendance and they had already increased prices on all or some of their product lines. The overall theme was “Yeah, Damien, I knew I had to do something…I just needed to be pushed into taking some action!”
One attendee was sufficiently encouraged to increase prices by 10% across the board which resulted in additional annual profits and cash of $1.3m…and no backlash because he handled it the right way. And there is a right way; I have a fully documented program on just what to do and when.
So, please take my challenge: Investigate your pricing and see whether you are staying ahead of inflation creep. As owner/manager, your primary job function is to protect and expand your sales, profits and cash, year on year.
Here’s to more sales, profits and cash from your business,
Damien Parker
Business Improvement Specialist
www.salesprofitscash.com
Follow my Tweets: @salesprofitcash
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