Treat with utmost respect your power of forming opinions, for this power alone guards you against making assumptions that are contrary to nature and judgments that overthrow the rule of reason.
~Marcus Aurelius
Asking your customers about your business is so important. If you are selling a product or service, both market trends and customer desires should be part and parcel of the decisions you make about your business, especially where those decisions concern a shift in your company’s orientation.
While a customer satisfaction survey about the quality of your customer service provides great information, there is so much more that you should be periodically asking your customers. We are dealing with a very neat entrepreneur who has an exercise/spa business. The spa was not doing well for numerous reasons. To name just a couple, they were having difficulty finding qualified nail and hair technicians and attracting new business.
Recognizing that the spa space was not being used effectively, the business owner decided to make over the space as a wellness center that would offer a dietician and a formal weight loss program. The wellness center scheme sounded like an appealing way to overcome the difficulties with the spa, and the change also seemed to follow a nationwide trend, so the owner decided to move in this direction. However, she never asked her customers if they would support this change in the orientation of the business. Once I asked her if she had sought her customers’ opinions about the change, she quickly realized that she had missed this critical step and that she needed to survey them before proceeding.
When surveying your customers, you must ask the right questions in order to ensure that you are getting valid information to base your decisions on. A student of mine was considering starting a business selling custom motorcycles. As part of this project, he had to conduct a survey in order to gauge the demand for this new business. He went to a motorcycle event and asked as many motorcycle owners as he could to fill out his questionnaire.
Having received an extremely positive response to his survey, he decided that the business was sure to be successful. He based this judgment on the fact that 98 percent of respondents gave a positive answer to the question, “Would you consider purchasing a custom motorcycle?” However, after having some time to reflect on the survey and the question, he realized that it was not valid as most people would consider buying a custom motorcycle.
Following this realization, he amended the question to read, “Would you buy a custom motorcycle that was priced about $5,000 more than a standard motorcycle?” The revised question received positive responses from only one percent of respondents, and he quickly abandoned the idea. As a result of this experience, he learned that asking the wrong question on a survey could potentially sink a new venture.
Each and every business must continually and constantly ask its customers how it can serve them better. Of equal importance, business owners must also frame the questions in a way that extracts the information that is needed.
You can do this!
Tuesday, January 26, 2010
Tuesday, January 19, 2010
Gap Analysis to help your Business!
Expectations is the place you must always go to before you get to where you're going. Of course, some people never go beyond Expectations, but my job is to hurry them along whether they like it or not.
~Norton Juster
Setting goals and achieving them are so important in every aspect of business, but many businessmen and entrepreneurs do not pay enough attention to the gap between where they are and where they want to be. Gap analysis is the process of looking at the difference between your goal and where you currently are.
Typically, when entrepreneurs look at the various goals they want to achieve, they often evaluate them incorrectly. If the strategic goal of a firm is to have sales of $15 million for 2010, the focus is on the wrong metric. Rather than focusing on total sales, the emphasis should be on the gap between the $12 million in sales they had in 2009 and the $15 million in sales they want to achieve in 2010. The $3 million shortfall is the performance gap, and gap analysis focuses on that amount as opposed to the total $15 million, presenting a much clearer picture of what must be done to achieve the goal. This approach assumes that everything required to maintain the current $12 million sales level is also part of the strategic plan.
While gap analysis is appropriate for any performance issue, budgeting is another major area where gap analysis is critical. Gap analysis places the focus on the incremental funds that you must spend and the incremental benefits of those expenditures. Too often I see firms making terrible mistakes as a result of not focusing on the gap.
In one example, a firm was considering two projects, the first of which cost $1 million, and the second of which cost $1.5 million. The net benefit of the first project was $100 thousand a year, and the net benefit of the second was $110 thousand a year. Gap analysis focuses on the $500 thousand of additional funds needed for the second project as well as the $10 thousand difference in incremental annual benefit.
The gap analysis of this scenario shows that by choosing the second project our yield will be only two percent of the additional funds needed, and is therefore, a very hard decision to justify. Gap analysis clearly shows that the best decision would be to select project number one.
Yet another area where gap analysis has critical applications is training. Gap analysis can quickly determine what type of training can produce the best results. For example, suppose your gap analysis reveals that due to the continual changes in technology, you need additional training for your IT department. First, you must determine the current skill level of your employees, and second, you must identify where you want them to be relative to the new skill set. Training should then focus on getting them from their current skill level to the desired level. Then by simply looking at the alternative ways to fill the actual gap between where they are now and where they have to be, you can make appropriate decisions.
Gap analysis is one of those ways of thinking that you have to work on. It is just so easy to fall into the trap of looking only at the overall goal rather than the gap that needs to be narrowed or filled to achieve that goal. Now go out and practice making decisions using gap analysis.
You can do this!
~Norton Juster
Setting goals and achieving them are so important in every aspect of business, but many businessmen and entrepreneurs do not pay enough attention to the gap between where they are and where they want to be. Gap analysis is the process of looking at the difference between your goal and where you currently are.
Typically, when entrepreneurs look at the various goals they want to achieve, they often evaluate them incorrectly. If the strategic goal of a firm is to have sales of $15 million for 2010, the focus is on the wrong metric. Rather than focusing on total sales, the emphasis should be on the gap between the $12 million in sales they had in 2009 and the $15 million in sales they want to achieve in 2010. The $3 million shortfall is the performance gap, and gap analysis focuses on that amount as opposed to the total $15 million, presenting a much clearer picture of what must be done to achieve the goal. This approach assumes that everything required to maintain the current $12 million sales level is also part of the strategic plan.
While gap analysis is appropriate for any performance issue, budgeting is another major area where gap analysis is critical. Gap analysis places the focus on the incremental funds that you must spend and the incremental benefits of those expenditures. Too often I see firms making terrible mistakes as a result of not focusing on the gap.
In one example, a firm was considering two projects, the first of which cost $1 million, and the second of which cost $1.5 million. The net benefit of the first project was $100 thousand a year, and the net benefit of the second was $110 thousand a year. Gap analysis focuses on the $500 thousand of additional funds needed for the second project as well as the $10 thousand difference in incremental annual benefit.
The gap analysis of this scenario shows that by choosing the second project our yield will be only two percent of the additional funds needed, and is therefore, a very hard decision to justify. Gap analysis clearly shows that the best decision would be to select project number one.
Yet another area where gap analysis has critical applications is training. Gap analysis can quickly determine what type of training can produce the best results. For example, suppose your gap analysis reveals that due to the continual changes in technology, you need additional training for your IT department. First, you must determine the current skill level of your employees, and second, you must identify where you want them to be relative to the new skill set. Training should then focus on getting them from their current skill level to the desired level. Then by simply looking at the alternative ways to fill the actual gap between where they are now and where they have to be, you can make appropriate decisions.
Gap analysis is one of those ways of thinking that you have to work on. It is just so easy to fall into the trap of looking only at the overall goal rather than the gap that needs to be narrowed or filled to achieve that goal. Now go out and practice making decisions using gap analysis.
You can do this!
Monday, January 11, 2010
Closing Sales
People only see what they are prepared to see.
~Ralph Waldo Emerson
Each and every business spends so much money trying to attract new customers. All that money however, will go to waste if you do not have a sales team that fields these prospective customer inquiries and closes sales well.
One of our clients was getting between 25 and 30 calls a day from prospective customers, but their sales were not where they should be. In fact, they were only closing two to three of these calls each day. The business owners thought their small staff was doing a great job responding to these potential customers, but they asked me to call in and tell them how the calls were going.
At their request, I called and pretended to be a customer. Very early in the call, I was put on hold for about a minute, and when the salesman came back, he apologized for the wait and explained that he had to dispatch a crew. This was not a great first step in the selling process as what he was really saying was that the crew was more important than me, a potential customer.
As the call progressed, I asked him how his services compare with his competitors, and he responded that they were more expensive, but they provided more in services. However, as a potential customer, I really did not understand the point he was trying to get across. Rather than talking about prices, he should have focused on the value that I was going to get by using his firm. What he should have said is that they pride themselves on being the best service company in this community and that so many people have raved about their services.
In terms of prices, he should have said that rates vary all over the board and that they always try to give their customers a fair price. He should have avoided any direct price comparison unless the customer had specifically requested this.
This particular service company really needs to get out to the customer’s house in order to give a valid quote and establish a relationship. The more the initial salesman can move the conversation toward scheduling a visit to the customer’s home, the higher the probability of success. In fact, the firm converts about 70 percent of home visits to sales, so this area demands much improvement.
The greatest flaw in this call was the lack of closing. The salesman never asked for my name or phone number so that he could call me back. Neither did he try to set up a time for their representative to come out and give me a quote. He just did not attempt to continue the conversation or set up any future contact. The salesman ended the conversation by simply saying, “Thanks for calling us.” This is not a very effective way to end a call from a potential customer.
It is so important to evaluate every step of your sales process to ensure that the message you want to communicate is being delivered. This is done by establishing methods that allow you to see the effectiveness or success of each step in your sales process.
You can do this!
~Ralph Waldo Emerson
Each and every business spends so much money trying to attract new customers. All that money however, will go to waste if you do not have a sales team that fields these prospective customer inquiries and closes sales well.
One of our clients was getting between 25 and 30 calls a day from prospective customers, but their sales were not where they should be. In fact, they were only closing two to three of these calls each day. The business owners thought their small staff was doing a great job responding to these potential customers, but they asked me to call in and tell them how the calls were going.
At their request, I called and pretended to be a customer. Very early in the call, I was put on hold for about a minute, and when the salesman came back, he apologized for the wait and explained that he had to dispatch a crew. This was not a great first step in the selling process as what he was really saying was that the crew was more important than me, a potential customer.
As the call progressed, I asked him how his services compare with his competitors, and he responded that they were more expensive, but they provided more in services. However, as a potential customer, I really did not understand the point he was trying to get across. Rather than talking about prices, he should have focused on the value that I was going to get by using his firm. What he should have said is that they pride themselves on being the best service company in this community and that so many people have raved about their services.
In terms of prices, he should have said that rates vary all over the board and that they always try to give their customers a fair price. He should have avoided any direct price comparison unless the customer had specifically requested this.
This particular service company really needs to get out to the customer’s house in order to give a valid quote and establish a relationship. The more the initial salesman can move the conversation toward scheduling a visit to the customer’s home, the higher the probability of success. In fact, the firm converts about 70 percent of home visits to sales, so this area demands much improvement.
The greatest flaw in this call was the lack of closing. The salesman never asked for my name or phone number so that he could call me back. Neither did he try to set up a time for their representative to come out and give me a quote. He just did not attempt to continue the conversation or set up any future contact. The salesman ended the conversation by simply saying, “Thanks for calling us.” This is not a very effective way to end a call from a potential customer.
It is so important to evaluate every step of your sales process to ensure that the message you want to communicate is being delivered. This is done by establishing methods that allow you to see the effectiveness or success of each step in your sales process.
You can do this!
Monday, January 4, 2010
New Year's resolutions
"Be always at war with your vices, at peace with your neighbors, and let each New Year find you a better man." ~Benjamin Franklin
Every year I try to take some time at this time of year to both reflect on the past year but try to develop some great resolutions for the following year.
I think that 2009 was one of the toughest years for most business owners have ever had. Revenue fell dramatically and businesses had to continually lay off staff. Additionally, they had to continually cut expenses to manage their cash flow. Just surviving through this very tough year deserves to be applauded as so many small and many large businesses failed.
Moving on to 2010, there are so many important things to be considered. First, I think that the economy will improve especially, towards the end of 2010. However, it is going to be quite a few years before when employment will get back up to where it needs to be to support our population.
In terms of resolutions, the first should be a bigger commitment to managing cash flow. As it is going to be awhile before banks start to lend to small businesses, cash is going to continue to be the asset that must be managed so carefully. Increasing cash inflows and reducing cash out flows is the path to managing case. After all, happiness is generating continual positive cash flows.
The second resolution is to make sure that your staff stays motivated and excited about the future of your company. There is so much uncertainty in the news, your company must be viewed as a very certain and viable business for continual employment. Managing the culture in your business must be planned for and managed in 2010. Companies that take the time to both measure and then act on improving their culture are going to do very will in this New Year.
The final resolution is to focus on sales and look to expand sales by building up sales to your existing customers, which is the real low hanging fruit. As the economy starts to improve, now is the time to lay out plans to start to increase sales and to increase your market share. Focusing on your existing customers is 15 times easier than trying to recruit new sales. However, this is not the year to ignore new sales as well. As many firms start to gain more confidence in the economy, there will be so many opportunities for sales expansion. I think a valid resolution and goal is to have sales increase by more than 10% for 2010.
While 2009 has been incredibly hard, 2010 will be better! The things to concentrate on for 2010 should be making sure you effectively manage your cash flows with a plan that should not require very much in new bank financing. Additionally, you need to both monitor and manage the culture and morale of your business to make sure that there are no reductions in these critical elements of your business. Finally, increasing sales this year is so critical as the economy will be improving which is a perfect time to increase market share.
You can do this!!
Every year I try to take some time at this time of year to both reflect on the past year but try to develop some great resolutions for the following year.
I think that 2009 was one of the toughest years for most business owners have ever had. Revenue fell dramatically and businesses had to continually lay off staff. Additionally, they had to continually cut expenses to manage their cash flow. Just surviving through this very tough year deserves to be applauded as so many small and many large businesses failed.
Moving on to 2010, there are so many important things to be considered. First, I think that the economy will improve especially, towards the end of 2010. However, it is going to be quite a few years before when employment will get back up to where it needs to be to support our population.
In terms of resolutions, the first should be a bigger commitment to managing cash flow. As it is going to be awhile before banks start to lend to small businesses, cash is going to continue to be the asset that must be managed so carefully. Increasing cash inflows and reducing cash out flows is the path to managing case. After all, happiness is generating continual positive cash flows.
The second resolution is to make sure that your staff stays motivated and excited about the future of your company. There is so much uncertainty in the news, your company must be viewed as a very certain and viable business for continual employment. Managing the culture in your business must be planned for and managed in 2010. Companies that take the time to both measure and then act on improving their culture are going to do very will in this New Year.
The final resolution is to focus on sales and look to expand sales by building up sales to your existing customers, which is the real low hanging fruit. As the economy starts to improve, now is the time to lay out plans to start to increase sales and to increase your market share. Focusing on your existing customers is 15 times easier than trying to recruit new sales. However, this is not the year to ignore new sales as well. As many firms start to gain more confidence in the economy, there will be so many opportunities for sales expansion. I think a valid resolution and goal is to have sales increase by more than 10% for 2010.
While 2009 has been incredibly hard, 2010 will be better! The things to concentrate on for 2010 should be making sure you effectively manage your cash flows with a plan that should not require very much in new bank financing. Additionally, you need to both monitor and manage the culture and morale of your business to make sure that there are no reductions in these critical elements of your business. Finally, increasing sales this year is so critical as the economy will be improving which is a perfect time to increase market share.
You can do this!!
Listen to your Customers!
"The excellence of a gift lies in its appropriateness rather than in its value".
Charles Dudley Warren
I was recently in a restaurant and went to use the bathroom. When I walked into the bathroom the floor was flooded with over a half inch of water. I went out and told the owner about the water, and I could see how angry he was at me for just telling him about this very critical problem. He knew he had to deal with both the mess and potential damages from this water and he was not a happy camper. However, he should have been so grateful of my comments as it alerted to problem before it got much worse and he had the opportunity to alert other clients.
This entrepreneur should have thanked me for this information but I am sure he was cussing me in his mind out for the inconvenience that I was causing him. He just did not realize how important negative customer comments could be.
There are three types of input that an entrepreneur receives from their customers. First, there is the good and great comments from customers which are wonderful to see but really do not add much new in information but they are great to receive. Negative comments are the real nuggets since they give each entrepreneur new information about something that is not working in their business. Finally, there are people who have things to say about your business but choose not to come back or give you a chance to correct the problem.
Negative comments are golden opportunities that you cannot afford to ignore for two reasons. First they give you chance to correct a problem before it gets worse and second these negative comments give you an opportunity to salvage the customer before they decide not to come back to your business. An upset customer that you can convert normally becomes a very strong supporter of your business.
In order to receive valid customer you must be listening to what customers are saying and what they are doing. One CEO of a bank, purposely kept his office just to side of the bank’s main floor so he could see and hear what his customers were saying about his bank. By keeping the office close to the main floor, he was telling all of the bank’s customers that he cared about their opinions and wanted their input especially the negative comments.
The most troubling customer comments are those that just leave and do not tell us what the problems are but tell so many of their friends and relatives about our failings. While these are comments are difficult to capture, they are the most valuable. The best way to get this information is to go out of your way to contact customers that have not come back recently or those that might not have renewed a contract with your business. Additionally, customer satisfaction surveys are a great way to solicit customer comments from those customers that would not directly tell us about problems they have incurred.
Listening to your customers both those that tell you directly and information that you might have to solicit are golden nuggets that you have to really appreciate and value.
Now go out and make sure you have a system to encourage customers to comment about your business paying so much attention to the negative comments. Additionally, make sure you have a system in place to collect information from customers who have left your business.
You can do this!
Charles Dudley Warren
I was recently in a restaurant and went to use the bathroom. When I walked into the bathroom the floor was flooded with over a half inch of water. I went out and told the owner about the water, and I could see how angry he was at me for just telling him about this very critical problem. He knew he had to deal with both the mess and potential damages from this water and he was not a happy camper. However, he should have been so grateful of my comments as it alerted to problem before it got much worse and he had the opportunity to alert other clients.
This entrepreneur should have thanked me for this information but I am sure he was cussing me in his mind out for the inconvenience that I was causing him. He just did not realize how important negative customer comments could be.
There are three types of input that an entrepreneur receives from their customers. First, there is the good and great comments from customers which are wonderful to see but really do not add much new in information but they are great to receive. Negative comments are the real nuggets since they give each entrepreneur new information about something that is not working in their business. Finally, there are people who have things to say about your business but choose not to come back or give you a chance to correct the problem.
Negative comments are golden opportunities that you cannot afford to ignore for two reasons. First they give you chance to correct a problem before it gets worse and second these negative comments give you an opportunity to salvage the customer before they decide not to come back to your business. An upset customer that you can convert normally becomes a very strong supporter of your business.
In order to receive valid customer you must be listening to what customers are saying and what they are doing. One CEO of a bank, purposely kept his office just to side of the bank’s main floor so he could see and hear what his customers were saying about his bank. By keeping the office close to the main floor, he was telling all of the bank’s customers that he cared about their opinions and wanted their input especially the negative comments.
The most troubling customer comments are those that just leave and do not tell us what the problems are but tell so many of their friends and relatives about our failings. While these are comments are difficult to capture, they are the most valuable. The best way to get this information is to go out of your way to contact customers that have not come back recently or those that might not have renewed a contract with your business. Additionally, customer satisfaction surveys are a great way to solicit customer comments from those customers that would not directly tell us about problems they have incurred.
Listening to your customers both those that tell you directly and information that you might have to solicit are golden nuggets that you have to really appreciate and value.
Now go out and make sure you have a system to encourage customers to comment about your business paying so much attention to the negative comments. Additionally, make sure you have a system in place to collect information from customers who have left your business.
You can do this!
Monday, December 7, 2009
Small Business and Banking
If we had no winter, the spring would not be so pleasant; if we did not sometimes taste of adversity, prosperity would not be so welcome.
~Anne Dudley Bradstreet
Getting a small business loan now is extremely difficult as so many financial institutions – both community and national – are not giving them out at all. If loans are being offered, the requirements are onerous with heavy collateral requirements and a heavy commitment to a down payment.
Our government has done so much to bail out big business and big banks, but little of this has shown up to help small business, which is the lifeblood of our country. We had one firm that had just gotten a contract from the state of Florida to provide workers in the medical field. They had a purchase order obligating them to supply over 100 jobs employment for over nine months, but they needed additional funding to cover the initial payroll, which amounted to about $150 thousand.
The state was going to guarantee payment once the workers were found, but this young firm just could not get the initial financing necessary to sustain them until they got the first payment from the state. The firm had tried almost every bank, but none were willing to loan them funds. They were just unwilling to take the risk required to create jobs that are so vital to our economy.
Our national government is throwing trillions of dollars into the Troubled Assets Relief Program (TARP), stimulus spending and now into health care, but these dollars have been ineffective at reducing the unemployment rate. These dollars are missing the mark because they are bypassing small business, which is the job-generating engine for our economy. If we are to get out of this recession and get people to work, we have to find some way to finance the growth of small business.
For most small businesses, there are, however, several avenues to acquire the funds that are needed to grow and build the infrastructure for the coming recovery. Firstly, look to credit unions as many of these financial institutions have funds available and are now offering small business loans with very attractive rates.
Additionally, the Small Business Administration (SBA) has a great program called the “504” loan program, which furnishes loans to small businesses. SBA “504” loans offer small business owners and manufacturers access to low interest, long-term and fixed-rate financing with only 10 percent down payment requirements for the purchase, construction or renovation of owner-occupied commercial real estate and/or the acquisition of industrial equipment or other fixed assets. “504” loans are delivered exclusively by non-profit Certified Development Companies (CDCs) regulated by the SBA. A firm called Florida First Capital Finance, which has offices throughout Florida, offers these services as well.
Finally, if you need financing, consider raising funds from your friends or relatives, a method that is typically called bootstrap financing. There are so many wealthy investors that love to loan money to small businesses if the deal is right. Obviously, these lenders or “angels” do not carry signs that say, “We have money to loan”; rather, you need to find them by asking your accountant and possibly your banker if they know of any.
While the opportunities for acquiring funds to expand your business are exceedingly limited right now, there are still vehicles available to you to raise money. It takes much more work than it used to, but it can be done! Like most things, raising funds – especially in this market – is tough, but with a plan it can happen.
You can do this!
~Anne Dudley Bradstreet
Getting a small business loan now is extremely difficult as so many financial institutions – both community and national – are not giving them out at all. If loans are being offered, the requirements are onerous with heavy collateral requirements and a heavy commitment to a down payment.
Our government has done so much to bail out big business and big banks, but little of this has shown up to help small business, which is the lifeblood of our country. We had one firm that had just gotten a contract from the state of Florida to provide workers in the medical field. They had a purchase order obligating them to supply over 100 jobs employment for over nine months, but they needed additional funding to cover the initial payroll, which amounted to about $150 thousand.
The state was going to guarantee payment once the workers were found, but this young firm just could not get the initial financing necessary to sustain them until they got the first payment from the state. The firm had tried almost every bank, but none were willing to loan them funds. They were just unwilling to take the risk required to create jobs that are so vital to our economy.
Our national government is throwing trillions of dollars into the Troubled Assets Relief Program (TARP), stimulus spending and now into health care, but these dollars have been ineffective at reducing the unemployment rate. These dollars are missing the mark because they are bypassing small business, which is the job-generating engine for our economy. If we are to get out of this recession and get people to work, we have to find some way to finance the growth of small business.
For most small businesses, there are, however, several avenues to acquire the funds that are needed to grow and build the infrastructure for the coming recovery. Firstly, look to credit unions as many of these financial institutions have funds available and are now offering small business loans with very attractive rates.
Additionally, the Small Business Administration (SBA) has a great program called the “504” loan program, which furnishes loans to small businesses. SBA “504” loans offer small business owners and manufacturers access to low interest, long-term and fixed-rate financing with only 10 percent down payment requirements for the purchase, construction or renovation of owner-occupied commercial real estate and/or the acquisition of industrial equipment or other fixed assets. “504” loans are delivered exclusively by non-profit Certified Development Companies (CDCs) regulated by the SBA. A firm called Florida First Capital Finance, which has offices throughout Florida, offers these services as well.
Finally, if you need financing, consider raising funds from your friends or relatives, a method that is typically called bootstrap financing. There are so many wealthy investors that love to loan money to small businesses if the deal is right. Obviously, these lenders or “angels” do not carry signs that say, “We have money to loan”; rather, you need to find them by asking your accountant and possibly your banker if they know of any.
While the opportunities for acquiring funds to expand your business are exceedingly limited right now, there are still vehicles available to you to raise money. It takes much more work than it used to, but it can be done! Like most things, raising funds – especially in this market – is tough, but with a plan it can happen.
You can do this!
Thursday, December 3, 2009
Lean on your Suppliers
There are risks and costs to a program of action. But they are far less than the long-range risks and costs of comfortable inaction.
~John Fitzgerald Kennedy
Going through these very difficult economic times, controlling cost is one of the major things that you can do to really help your bottom line. Now is the time to renegotiate everything from rent to cost of goods sold.
So many of your vendors are having such trouble with falling sales that they are now willing to take significant price reductions, but you must ask for them. Your suppliers need to retain you as a customer now more than ever, and they should be willing to do most anything that is reasonable to keep your business.
We were helping a firm that purchased over $5 million a year from its primary suppliers. These suppliers had quickly passed along their cost increases—particularly transportation costs—to this business. Now that sales were falling off, the company needed some relief if it was going to survive.
When asked why they had not requested a price break before, the comment was, “Our purchasing agent just does not feel comfortable in asking for these.” As you can imagine, I went livid and asked the owner if a savings of $1 million (20% of $5 million) was worth asking for.
He finally got the point that now things had changed and that unless he was willing to demand price reductions from his suppliers, he might not be around much longer. He was able to get his purchasing agent to buy in by giving him a percentage of the savings from the cost reductions they secured and by very clearly demonstrating how to ask vendors for price breaks.
At first, the purchasing agent just wanted the vendor to give them a better price. The owner, however, mandated that the purchasing agent start off asking for a 20% price reduction from those suppliers that they knew had nice profit margins and could afford it. Starting with a number established an expectation that was reasonable rather than just asking for any type of price break.
When asking for price reductions, nothing should be off limits. Whether it is consultants’ salaries or office supplies, you must demand price reductions in these market conditions. You must ensure that your company has a cost structure that is workable in today’s economy. Your viability depends on this.
Even if you have signed a contract for service, these should be renegotiated as well. A recent study found that six out of every ten chief information officers are renegotiating existing contractual agreements. When renegotiating, your leverage is that these contracts will have to be renewed in the future, and your willingness to renew is going to be a function of this renegotiation process.
Now go out and initiate a process of renegotiating each and every one of your purchase contracts. This just cannot wait. It must be done as quickly as possible to get the benefits flowing into your company.
You can do this!
~John Fitzgerald Kennedy
Going through these very difficult economic times, controlling cost is one of the major things that you can do to really help your bottom line. Now is the time to renegotiate everything from rent to cost of goods sold.
So many of your vendors are having such trouble with falling sales that they are now willing to take significant price reductions, but you must ask for them. Your suppliers need to retain you as a customer now more than ever, and they should be willing to do most anything that is reasonable to keep your business.
We were helping a firm that purchased over $5 million a year from its primary suppliers. These suppliers had quickly passed along their cost increases—particularly transportation costs—to this business. Now that sales were falling off, the company needed some relief if it was going to survive.
When asked why they had not requested a price break before, the comment was, “Our purchasing agent just does not feel comfortable in asking for these.” As you can imagine, I went livid and asked the owner if a savings of $1 million (20% of $5 million) was worth asking for.
He finally got the point that now things had changed and that unless he was willing to demand price reductions from his suppliers, he might not be around much longer. He was able to get his purchasing agent to buy in by giving him a percentage of the savings from the cost reductions they secured and by very clearly demonstrating how to ask vendors for price breaks.
At first, the purchasing agent just wanted the vendor to give them a better price. The owner, however, mandated that the purchasing agent start off asking for a 20% price reduction from those suppliers that they knew had nice profit margins and could afford it. Starting with a number established an expectation that was reasonable rather than just asking for any type of price break.
When asking for price reductions, nothing should be off limits. Whether it is consultants’ salaries or office supplies, you must demand price reductions in these market conditions. You must ensure that your company has a cost structure that is workable in today’s economy. Your viability depends on this.
Even if you have signed a contract for service, these should be renegotiated as well. A recent study found that six out of every ten chief information officers are renegotiating existing contractual agreements. When renegotiating, your leverage is that these contracts will have to be renewed in the future, and your willingness to renew is going to be a function of this renegotiation process.
Now go out and initiate a process of renegotiating each and every one of your purchase contracts. This just cannot wait. It must be done as quickly as possible to get the benefits flowing into your company.
You can do this!
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