AME Author, www.annecgraham.com
Part 2 of 3. In the first article of this 3-part series, I shared Smart Strategy #1, Driving NEW Business from OLD Customers as a response to the looming challenges highlighted in the Purchasing Managers’ Index.
I’ve just released the 2016 Return on People Benchmark Report, and shockingly the Benchmark is DOWN for the first time since 2011, suggesting that there’s further cause for concern in the manufacturing sector. Without healthy profits to invest, this Fall many of your customers may greet your sales teams with seven of the scariest words in business: “We don’t have the budget for that”.
If your business is feeling a pinch in profitability as you look ahead to the second half of the calendar year, here’s a second strategy plus some do-right-away tactics that will help you go beyond conventional measures you may be taking and get back on track quickly and easily… without waiting for government intervention or a change in the economy,
Smart Strategy: #2 Dodge the Manufacturing Downturn With 2 Ways to Find 1% Everywhere
When I’ve spoken to thousands of leaders throughout North America, most are shocked to learn the leverage that finding 1% in the right area of their revenues or in the right areas of their costs can have on their bottom line. For most companies, the impact of every 1% in the right areas is between 16%-38% on the bottom line!
Don’t believe me? When I introduce the concept, many leaders are skeptical until I show them the math, so look at the examples below in a couple of highly simplified P&Ls, then access the Find 1% Everywhere calculator on my website to play with what 1%, 5%, or more could mean to your business.
1. Find 1% Everywhere On Your Top Line
When you look at the “Norm” column below and then see the impact of a 1% price increase or decrease, you’ll get seriously motivated to fine-tune your pricing to capture 1% Everywhere. One manufacturer I worked with who was constantly dealing with sealed-bid scenarios became motivated to complete won/lost business evaluations to see how much money he’d been leaving on the table.
To his surprise, he realized he could have consistently bid 6% higher, without losing any business. In his case, the impact of every 1% on the top line was 16% on his bottom line so do that quick math: 6 x 16 = 96%... he virtually doubled his profitability, even in a tough, competitive marketplace just by dialing in his pricing.
Here are two very simple tactics you can use immediately to leverage the opportunity to Find 1% Everywhere on your Top Line:
I. Eliminate “round number” discounts. Whatever you discount today – 5%, 10%, 20% or more, just drop those discounts by 1%! The only reason sales people use round numbers is because the math is easy, but now we all have calculators in our smart phones. Take your discounts to 4%, 9%, 19% and so on, and watch the impact on your bottom line.
II. Test your market for pricing flexibility with your unprofitable customers. When I lead clients through a non-accounting exercise to determine their most and least profitable customers so that they can really optimize their pricing and retention strategies, they often find they’re losing money on 20-40% of their customers! But you don’t have to fire them and lose much-needed volume – restore them to profitability instead, because you have nothing to lose but the red ink. Here’s a quick back-of-the-napkin tactic. Do you instinctively know that you’re losing money on some customers, and have a good idea of who they might be? Start slowly but surely increasing your prices with them until you hit resistance. You don’t have to limit yourself to 1%!
2. Find 1% Everywhere with Overlooked Ways to Trim Your Costs
In this example, I’ve played with the cost side of the equation, increasing or decreasing costs by 1%. The reason I term this strategy Find 1% Everywhere is that you need to find 1% across the board, or higher percentages in key areas of your costs, in order to get the full multiplier effect.
There are lots of conventional cost-cutting approaches you’re probably already familiar with and using, but I want to give you something different to try.
Ask every single one of your suppliers what you can do to earn a discount (don’t grind your suppliers, you want them to maintain a healthy bottom line too!), or when they come to you with a round-number price increase, see if you can negotiate it down by 1%. Always do this with integrity, finding the win for them as well as the win for you by offering a change in payment schedules to help their cash flow, or another option that will work for both of you.
When I shared this strategy in a Vistage speaking engagement, one CEO excitedly called me a couple of weeks later. He’d passed this idea along to his CFO, and the first vendor they approached with a 1% request responded with “heck, I’ll give you 5% just for asking!”
The moral to that story is “if you don’t ask, you don’t get”!
You can take action on each of the tactics I’ve shared here immediately, and they’ll take you less time to implement than you’re probably spending on email everyday. You have nothing to lose and everything to gain. Questions? Please feel free to reach out, I’m always delighted to share what I’ve had to learn the hard way to help you succeed the easy way.
Next Month: The third strategy for dodging the downturn and achieving rapid results in using LEAN tactics in an unexpected area.