By now you can see that there’s a very systematic approach to improving profitability in your business, and none of it is really all that difficult. What generally tends to happen is that we get so preoccupied with all the other initiatives in our business that we overlook the basics. And that keeps manufacturers stuck in the WDHTBFT Syndrome – We Don’t Have The Budget for That! Hiring people, investing in equipment, technology and facilities, expanding to new markets – all the things that drive our economic engine are stalled every time someone says those words because they can’t afford to invest.
So far previous posts have explored:
Let’s tackle the F: Fearlessly Price for Value.
Do You Instinctively Know You’re Leaving Money on the Table?
Pricing is an inexact science at best, and there’s no easy way of knowing whether you’ve nailed it or missed the mark, even after a customer says yes or no to your proposal.
If they said yes… would they have paid more?
If they said no… you’ll rarely find out whether you missed by an inch, or by a mile.
There has to be a better way than guesswork. There is. It’s about pricing for the outcomes you create, rather that the inputs you provide. Outcomes create a level of value that can be far in excess of the intrinsic cost of your product or service.
It’s time for you to change the playing field
Competition is fierce. And when your customers can’t tell the difference between you and your competition, it comes down to price. You likely make decisions in your business in exactly the same way.
Even worse, in sealed bid scenarios the Request for Proposal (RFP) is frequently written so generically that almost every bidder will be compliant. The decision comes down to price.
Yes, you can raise prices in line with inflation and other economic factors without adding more value. But sooner or later you run out of room and its back to feeling intense pressure on margins, resorting to deep discounts and working too hard for too little.
Leverage the difference between price and value
Value is how effectively you: save your customers time, save or make them money, solve the problems they’re struggling with, and/or provide them with peace of mind.
It’s the reason we all happily pay five times as much for a washed and bagged lettuce assortment in the supermarket, versus buying an unwashed, uncut head of lettuce. We see the value. When I work with sales teams to help them sell value instead of price, I call this the Find Your Lettuce System. It’s powerful, and it’s one of several strategies that reveal opportunities to price for value. Think about it. Wouldn’t you like your customers to see so much value in what you do that they happily pay more than your competitors are charging? If they can do it with something as mundane as lettuce, you’d better believe you have opportunities in your business too.
Every 1% extra on price you can find will typically drive a 16-38% impact on your bottom line. Don’t believe me? Send me a quick email asking how, and I’ll send you an easy Excel spreadsheet so that you can see the impact that every 1% has on YOUR bottom line.
You have to know where to look for value before you can price for it.
When you understand where your customers see value in what you do (and where they don’t), you’ll effortlessly price for value. You’ll never cross the line by gouging your customers or damaging the relationship. You’ll know where to find 1% or more everywhere, and add millions to your bottom line in less time per week than you’re spending on email per day.
Mastering the art of the Value Creation Conversation is the easiest and most effective way to identify opportunities for value-based pricing, and this is just one of the powerful strategies I teach clients in ProfitU. Create a compelling value proposition that distances you from your competition, have confidence to price for value, and see results that drop right to your bottom line.
Back to Those Sealed Bids…
Consistently winning sealed bids is as easy as knowing how to help your customers move beyond a generic RFP and create a directed RFP that reflects value that’s easiest for you to deliver, but hardest for your competitors to be compliant with.
It’s not difficult to help customers or prospects include a unique value proposition that favors you when you have a proven process that builds, maintains, and leverages deep value-oriented relationship-building long before the RFP is written – typically with something like a Value Creation Conversation.
IBM successfully used this technique for years when they were primarily a hardware vendor known for premium pricing although they didn’t always have the best product. They often won because they were the only firm who could deliver in compliance with the RFP they’d helped to write. They use that same technique to this day, and now that they have made the shift to being primarily a service provider.
This works like a charm for sealed bids in both environments.
Do you fearfully price for value, hoping you don’t lose the business, or fearlessly price for value, confident that your customers will pay for the “lettuce” only you can provide?