Do you accept the proposition that all business is not necessarily good business? Do you so aggressively pursue new orders that you are not able walk away from a bad deal? If you sweep the streets you will invariable take orders your competitors did not want. In rare instances companies pursuing a predatory pricing strategy where they attempt to put competitors out of business, but if you are indeed a small to mid sized company this not a game that you should think about playing.
So let’s consider what might drive a company to go after all the business out there. They might want to grow which is a good idea, but taking business at a minimal or no profit is not the way to go unless for example you have lots of capital to finance your way to the point where you can make money this way, such as amortizing your fixed cost over a larger sale base or using LOSS LEADERS to penetrate a client and then increase your bill rate and margin rate.
If you don’t have such a MARKETING STRATEGY and are able to track your performance to make sure you are getting where you need to be, then exercise a more disciplined marketing approach. This would include determining: 1. Which jobs you can make money at given your current costs. 2. Which book of business you can negotiate a higher price at and only taking those. 3. Lowering your cost so that you can make a profit at the pricing levels you need to meet.
When you don’t have a well thought out and effective LOSS LEADER program, or can exercise one of these 3 MARKETING STRATEGIES to make money; then be prepared to walk away from this business. Many clients will try to find a vendor foolish enough to take business at a loss because they either do not know their cost, are desperate enough to take any business even if it is unprofitable to keep their staff busy, simply want to have a “big name” client on their books somehow hoping that the cache will bring in more profitable clients, etc. There competitors who can make money on business that you can’t do to their lower cost structure or other differences. Try negotiating a fair price before walking away from a bad deal. But when you can’t the best decision and looking for business that you can make a fair profit on. Know thyself and make your choices accordingly.
To see all articles in this series please go to http://optimal-mgt.com/blog.