Keeping Profit Margins Intact? Priceless.
How many dollars a year do you give away directly out of your pocket and your companys pocket?
Lets examine how the price of the products you sell affects your profit and, in most cases, directly affects your income.
If you are on a commission program or are salaried with incentives, the price you get for each product sold directly affects your income. There are also compensation systems that float. The higher or the lower your gross profit percentage, the higher or lower your commission percentage.
In all cases, it is to your advantage to sell your products at a good profit margin.
Your price also must be a good investment for your customer and must provide them an excellent return on investment (ROI). Thats where selling your products or services comes in.
We conduct numerous selling skills seminars throughout the country for distributors and manufacturers. When we get to the handling objections section, our attendees often say price is customers most frequent objection in the field.
I asked my good friend Deone Johnson, the vice-president of sales for Brissman-Kennedy in St. Paul, for his thoughts on this important subject of price, profit and income.
Deone has been a territory sales rep in the janitorial supply business, has worked for a large manufacturer in the marketing department, and has held sales manager and vice president of sales positions for a number of years in this industry. Deone agreed that the price issue is extremely important for individual salespeople and their companies.
In our experience, for many janitorial supply sales reps, discounting from the suggested selling price is a way of life and it costs the sales reps and their companies thousands of dollars a year.
We would like to share some thoughts to see if we can encourage sales reps and managers alike to increase their profit margins while simultaneously giving their customers a good ROI.
When discussing price increases or quoting prices on new items, there are two things that come to mind: one, your attitude and two, preparation. You first need to have the attitude that low prices and discounts cut into your income. In addition, price increases and good margins can replace the need for additional volume. The more volume, the greater the cost of delivery, bookkeeping, added inventory, etc. A price increase or a good profit margin goes directly to the bottom line.
Deone tells me that his firm receives notice of price increases almost every day. Maybe its time to decide to give yourself a raise even if some costs havent gone up by implementing selective price increases of your own in your territory.
Preparation is important. How do you present a price increase? How do you avoid discounting when you present a new product or system? Pre-plan what you will say and what your customer will say. You have probably quoted those particular customers in the past or passed along price increases to many customers in your career. By now you should know what to expect, and be able to prepare your response accordingly.
What words will you use? What price will you quote? What product benefits will you use to justify your price or price increase? What response can you expect from your customer? Is your customer likely to be talking to a competitor? If so, which one and do they sell similar or exactly the same product lines. This planning will take some time but can provide an excellent return on investment for you.
Our suggestions are: Never use the word list in front of the word price. Try, Your price is, or The industrial net price is. Be ready to negotiate; if you are looking for a 10 percent increase, start at 15 percent. Be ready if your customer counters with a low offer but do not accept the first counter offer. Use an effective demonstration and all of the other ammunition you have. Remember that price is only an issue in the absence of value. Sell value and define your values. Always be prepared to answer the price objection.
Take a look at this example: if the price is $100 and the gross profit is 40 percent ($40) and your commission is 25 percent of the gross profit, your commission is $10. If you discount by 10 percent, you reduced your gross profit to $30, and 25 percent of $30 gives you a $7.50 commission. You have just reduced your income by $2.50, or 25 percent. Can you afford to reduce your income by 25 percent? The same thing holds true if you neglect to pass along price increases.
There are a number of additional issues that Deone and I discussed regarding price issues. So we will continue to share some thoughts with you in next months column.
To share your selling ideas, fax: (414) 228-1134, contact Mr. Dixon at (877) 379-3566 or e-mail questions or comments regarding this article.
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