A recent survey of CEOs and business owners (within the $1 million to $25 million annual revenue range) identified two common concerns: how to maximize customers and how to maximize margin potential (avoiding margin erosion). These are always top priorities, but they seem to generate more concern during times of economic uncertainty, when there is increased competitive pressure, and when a business has reached a plateau.

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	Henry Pellerin

This week's article will focus on these two issues and provide some insight to help address them.

Customer Maximization

When a business becomes stagnant or hits a plateau, what do most companies do? If you said, "Get more (new) customers, develop a new marketing campaign, hire more salespeople, increase advertising, etc.," you are not alone. In fact, these actions are the most common reactions to overcoming a stagnant business.

Instead of reviewing the customer database for opportunities, many companies look for new opportunities. This occurs because the organization feels it has penetrated as much market share as it possibly could with its current customer base. Listed below are three activities you can implement to determine whether you are maximizing the potential of your customers.

Three Simple Steps to Maximize the Potential of Your Customer Base

1. Create a customer maximization matrix: Identify what products and services each of your customers is using. For each customer who does not use your entire offering, list the additional products and services that have potential or are needed by the customer. Some companies will go through this exercise and will develop enough new opportunities to keep them busy for the next 12 months.
   
   
2. Interview customers: Find out what they like about your product or service, as well as what they would like to see in the future. This can help to identify additional products the customer can use or new products that need to be developed.
   
   
3. Become a problem solver: By understanding that with which your customer is struggling the most, you will be able to determine his or her most important need — and be in a position to solve the problem with your product or service.

As part of an overall strategic plan, a business should continually be looking for new customers and maximizing its existing customer base. Trying to acquire new customers is not a quick fix, and by only focusing on new customers, you will cause your existing customer base to diminish even further.

Avoiding Margin Erosion

This is a major problem in today's market, and it is a direct result of companies competing strictly on price. The challenge is that many businesses are forced into competing on price because customers are forcing them into bids, reverse auctions, etc. Once your business or market is in this position, it is difficult to get out. Listed below are some common causes of margin erosion and some strategies to help avoid them.

1. Dealing with bids or reverse auctions: The mistake most companies make in this situation is offering the "Cadillac" model, or the service with the most "value," in hopes that the customer will see they are offering more than the competition. This strategy is doomed to failure for two reasons. First, the company is forced into reducing the price of its most profitable product or service. Second, if a company offers everything up front, there is nothing left to up-sell later on. A more effective strategy is offering the bare minimum that meets the customer's specifications. After the bid is awarded (and you win), you can have your sales team go in and sell add-on products and services.
   
   As a side note, in many instances, suppliers that are considered "partners" or have excellent customer relationships can avoid these situations altogether.
   
   
2. Competitive pricing pressure: Has your sales manager or sales associate ever said, "If we were less expensive, I could get all of their business"? If you gave it a try, what was the result? Competing on price alone is never a sustainable strategy because there is always going to be someone that is less expensive at some point in time. Not to mention, when price is the only perceived value you have, what happens when the customer finds something less expensive? The answer to this scenario is easier said than done. It is value selling, and it is estimated that only 10% of the nation's top sales professionals are experts in this area. However, you don't have to transform your team into value-selling experts overnight; just have them get better on a continuous basis.
   
   
3. Cost controls and price increases: In 2005-2006, the economy was faced with the most volatile pricing for raw materials in our history; every month, the costs were increasing dramatically (sometimes daily). Companies faced two options: lose margins or increase prices. A smart business practice is continually (annually or semi-annually) reviewing pricing. However, in this particular scenario, there was no way to absorb the tremendous price increases of raw materials. This is an excellent reason or justification for why a company should be in a position to increase prices to customers. If your company provides value, has strong customer relationships, and serves a valid need for your customers, those customers will understand when a justified price increase comes along. Justifying the price increase is the key factor. Companies need to communicate to their customers and present tangible reasons for their price increases. If your customers truly value your products and services, they will understand. They will not leave just because of a price increase. However, if you happen to be just another vendor, guess what? Making a price increase is going to be difficult.

Margin erosion and maximization are areas that can be controlled, but they need to be parts of the organization's strategy. By continually monitoring margins, pricing practices, and business development strategies, you will be able to stay current and will avoid surprises.

Customer and margin maximization directly impact the pulse of a business (cash flow). It is easier to have strategies, plans, and processes in place to avoid problems in these areas than it is to take corrective actions once a problem occurs.

About the Author

Henry Pellerin is the president and founder of VantaEDGE™ Inc. and co-author of The Strategic Selling Process. VantaEDGE™ Inc. provides customized sales training, consultation, and facilitation services. Henry personally has had more than 17 years of experience in sales, sales management, and business development, and he shares his expertise with clients to help them receive the same results he has attained year after year.

You may want to sign up for the VantaEDGE™ monthly sales tips newsletter, VantaEDGE Monthly, from which you'll receive valuable selling tips each month along with the special report "Avoid the Top 10 Selling Mistakes That Lose Sales." To do so, visit www.vantaedge.com. Henry can be reached at 864-254-9300 or via email at henry@vantaedge.com.

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