Posts Tagged ‘pricing’

Who Should You Be Doing Business With?

Monday, December 7th, 2009

Throughout the year I look at who we’ve been doing business with and how their orders compare. We use the traditional approach (Paretto 80/20) that shows us a relatively small number of customers account for the majority of our orders and profit. When I apply this approach it’s easy to see who is taking up most of our time and to compare if they are generating sufficient order size to make it worth our while. About a year ago we did this and were shocked to find one customer accounted for 66% of our press time, but they only accounted for 18% of our revenue. What does this mean?

When something this extreme becomes evident, I have to ask myself, “how did I allow this to happen?” The answer is not always an easy one. In this case, we were doing such a good job, the client kept feeding us more and more of their work. We were not their only vendor, but we were one of the only ones that could do their most demanding work. Over a period of about a year, we saw a shift in the mix of orders coming to us. They became more and more technical, while at the same time the order size was getting smaller and smaller. We found ourselves in the position of spending two to three times the production run time in set-up (registration and color adjustment.) So, for every hour of running time, we would have two to three hours of set-up. That was horrible to be sure, but it got worse.

Since the customer was sending us more and more work, they demanded greater price concessions due the volume of their orders. We quickly found ourselves in a position of having to agree to lower overall prices while their order size diminished (supposedly due to the economy) and more difficult work. There was no way we could recover the set up time over the run length and before we knew it, we were in big trouble. This was only compounded when they started to stretch out their payments to us, further impacting our ability to run the business. Overall, a very bad situation.

There are many lessons here. Number one, don’t get caught being asleep at the wheel. This is a perfect example of being so busy being busy that you don’t realize what’s gong on until it is too late. We all want to be responsive to our customers, but business is a two way street. If you can’t be profitable, AND get paid within a reasonable time, you mind as well not do the work.

Second, know what your ideal customer profile is and try to exceed it. When order sizes shrink, so must the set-up and changeover time. You need to know what the smallest size order you can do will be. Otherwise, you’ll find yourself being suckered into doing runs of 12 pieces with a 7 color front and an 8 color back. Suckered may not be the right word, more like coerced. There are a million justifications for having to do really short runs, but we all have to stand firm, or have a policy in place to account for these kinds of situations.

Third, compare the profile of each of your current customers with that of your ideal customer. If you don’t have enough ideal clients, you need a plan to fill the pipeline with new prospects so you can mirgrate away from the time consuming, profit robbing, customers you currently have.

This last year has been generally awful for most printers I talk with. While the economy seems to be getting better, it is still fragile at best. At the very least, we are coming into the slow time of the year and we all need to be especially mindful of these kinds of situations so we don’t accidently find ourselves in big trouble even though we seem to be busy.

Share/Save/Bookmark

How Do You Use Pricing in a Down Economy?

Monday, November 24th, 2008

With the exceptions of Obama Tees and Mixed Martial Arts (UFC) there doesn’t seem to be much going on across the county. I think everyone’s in a very conservative wait-and-see mode. They don’t want to spend anything, opting to conserve what little available cash they have. This is understandable. In light of all of this, what options do you have for bringing in new business?

One of the biggest mistakes you can make is to drop your prices in an attempt to get the business. This is the natural, automatic reaction when things slow down, but it doesn’t do you any good. What you’re discounting is your profit. You’ll end upĀ  working that much harder to make any money. With consumers being battered with 40%, 50%, and even 60% off at the retail level BEFORE the Thanksgiving Holiday, it doesn’t look good for the retail season. But all of this retail discounting is effecting us as well. The point being, with discounts this deep, your customers are going to be looking for the same kind of steep deals from you.

We all know this business doesn’t support retail pricing. Heck, it barely supports wholesale pricing. The key strategy for us lies in one word: VALUE. I used to think value was defined as the point at which your customer gets his wallet out and writes you a check for your goods and services. I’ve come to change view that over the past few months.

A normal purchase has a fairly high degree of impulse in it. If the buyer is even remotely intersted in what you have to offer, there isn’t a great deal of effort required to get him to make the purchase. However, in a contracting market like we have right now, it takes a great deal more than an impulsive decision. Value has to be defined from the users’ perspective.

Think of it this way. Our job is to deliver far more value to our client than just the image on the shirt and good service. We must discover where the actual value is found. In a commercial situation, it’s in creating new business. So for us, we must now define our value in these terms AND we have to find a way to measure the positive results. It’s very hard to argue with traceable results.

If you’re working in a nonprofit area, here value is defined in how often and how proud the members are of their shirts. The more you see them around, the more valuable they are in getting the message of the group out. Think about how you can use your shirts and their graphics to strengthen and grow their community.

The next few posts are going to look deeper at this concept of VALUE and how you can tap into it.Share/Save/Bookmark