The other day I wrote about selling unprofitable business.  Let me expand on this some, as it applies both to the company and the sales person…

1. Numbers are down, because profits are weak or perhaps sales are low due to competitive pressures – in other words, there are opportunities, but in order to win them, you find yourself cutting the prices.  In my From Vendor to Adviser book I show how a 20% cut in price leads to a 40% cut in gross profit (at least when we are talking about services with a standard burden cost).

2. Profits are down which demands more sales, but the profit problem is still there, and with all of the competitive pressure, and need for fast sales, more pressure leads to more discounting, less contract signing, and more deals on a hand shake.

3. Revenue numbers increase when this happens (assuming steep discounts lead to more sales) – and if you are selling managed services, the compensation is likely based on revenue, since there is no gross profit measurement to be had.  Often these deals are compensated with 1 to 3 months revenue paid out to the rep up front.  The rep is happy, the business will soon be dying.   As pressure mounts to keep this contact profitable, the customers are sure to pay with poor services, often resulting in early contract termination.  You can try to sue, but this rarely works in your favor – in fact, forget I mentioned it.

4. Competition is bound to come in at this point, sweeping up the pieces and promising to make things right.  Whether they do or don’t make good on their promises, chances are you will not get this customer back.

Fix the profit situation first…more contracts don’t equal more profit.  Bigger companies don’t mean bigger money.  Fine tune the profit machine, then work on the sales end.  Once you know your product offering or managed service model works, then you can press forward with a strong sales & marketing program.

© 2012, David Stelzl

Most of the people I ask, don’t really have a plan.  Instead, they have put together a budget (which is not a bad start), which details what will be spent to keep the business running, and calls for a certain quota on sales.  If the sales numbers are not met, the budget will not produce the expected profit.  Half way through the year, managers will be sitting around wondering why they are not hitting their numbers, and hoping to make it up in the second half.  This is not a plan.  This is not a strategy.

Some companies will have an annual kick off meeting.  Many companies are doing that this month.  What will they accomplish?  If they focus on product training, sales number reviews, and parties, I will be a waste of time.  No one will remember these things as the year begins.

This week I am headed out to my company planning meeting.  It’s a time to look back at what was accomplished, what went well, and an honest assessment of what did not go well.  It’s a time to review who performed and who didn’t.  In my case, the number of employees I have makes that easy, but for most, it’s an important and difficult step.  It’s a time to consider what must change in the vision of the company, the mission you carry out, and how you are approaching the market – it’s strategic, not tactical.  This should be taking place on a business level as well as on a personal level.  It involves setting the high level goals with a plan to meet them.  It means going beyond the dream of hitting a certain number and figuring out how it will be met.  It also means getting rid of dead weight – things (or people) that don’t produce fruit.  This year I will spend four days on this process – why?  Because it’s likely the most important thing I do all year to make sure I am headed in the right direction.

© 2012, David Stelzl

1. http://stelzlvendoradviser4.eventbrite.com/ – Setting Fees with Profit in Mind!

2. http://www.eventbrite.com/event/2571952780 – Secrets to Writing Winning Proposals (Including RFP responses)

Two areas I see even some of the most successful sales people missing on are fees and proposals.

Fees are tricky – sometimes your company sets this for you, but if you have any control over this, it’s one of the places you must master.  Too much, and the client looks at you like you’re a thief, too little and you leave money on the table or worse, discredit your own value.  I often hear the comment, “When we fix price, we lose money.”  Wow, that tells me you haven’t learned to estimate, but I will show you the secret of pricing on December 9th…there are two ways to calculate fixed price fees, then there are block time sales (which may be the thing that keeps you from really profiting the way you should be – and I’ll show you exactly why that is.)  And of course T&M, but there are two ways to do T&M, and one of them results in you taking all the risk.  I cover this in detail in my new book, From Vendor to Adviser, along with calculations and examples, so I won’t go into it here…but this is critical stuff!

Get the Book here:  www.stelzl.us/store.asp (Note: this is a preorder special – you’ll be one of the first to have it)

Then there is the proposal…I see many making one of several mistakes.  They execute the sales process perfectly, and then get to the proposal, and…well, all that effort turns into a big negotiation process, and maybe a visit to the chief purchasing officer (who, no doubt, has a degree in Negotiation Strategies!)  Who needs that at the end of a long sales cycle, and especially here at year end?  One thing  I can tell you, the meeting you have right before you write this proposal is the key to success – but there are at least eight secrets I give in my book to make this go much more smoothly.  I don’t know about you, but I don’t really like writing proposals – especially when they don’t close!

Here is that link again – I’ll see you on the 8th and hopefully on the 21st for the second one.  There is no cost to you, other than time, so don’t miss this.

Fees: http://stelzlvendoradviser4.eventbrite.com/

Proposals: http://www.eventbrite.com/event/2571952780

© 2011, David Stelzl

By observing the information and writing style of the assessment, we were able to ascertain how the assessment might have been conducted, who would have been involved in the assessment process, and how the findings were put together to create justification to move forward.  Here is what we found:

1. Fees – given the size and detail of the assessment, the seller probably could have sold it for more.  However, most assessments are sold to IT people who have no liability.  Creating justification for more expensive assessments requires asset owner involvement, and a belief that things might not be as secure as originally thought.  On there other hand, there are ways to conduct complementary assessments that can result in even great long term gross profit.

2. Interviews – the discovery process was probably limited to more technical people, and did not involve business people, top performers who use mission critical data, or executives who ultimately carry liability for both the systems and data their companies depend on.

3. Executive Summery – Like most executive summaries I read, this one did not speak to executives.  Instead, it was a summary targeting a technical audience.  It was called an executive summary simply because it was a summary…it’s unlikely an executive will read it.

4. Recommendations – most of the findings were written in a passive format, stating that certain Trojans or other common attack vectors could gain access to data.  This rarely moves a buyer.  It’s like saying, eating fatty foods might contribute to heart disease.  No one will act unless the doctor says, “You’re on the verge of a heart attack!”  Every company has urgent issues, but rarely are they called out with passion and urgency.

5. The seller’s involvement – It appears that this document was put together without the involvement of the rep.  As a result, it will be difficult for the rep to own the information and lead the charge for remediation.  Great sales people are trained and skilled in selling – how can the remediation phase be sold without the rep leading the way?

By going through this process, we were able to redefine the roles of the seller and consulting team, reformat the assessment document, and talk through the proper delivery process to move forward with both remediation and managed services contracts.  The next step – each attendee will have a one hour private coaching session allowing us to make specific applications to their business using the tools and strategies learned over the past week.  Stay tuned for our next online class, and join the success.

© 2011, David Stelzl

© 2011, David Stelzl

By David Stelzl

© 2011, David Stelzl

On the other hand, those who resell technology at the SMB and consumer level are in trouble, even after Apple just finished selling 14 million units to individuals (and some companies).  Lack of innovation and a lack of Google thinking…The brick and mortar book stores and technology stores are in trouble.  Best Buy’s report in the Wall Street Journal was telling – their value proposition has to do with technical expertise, but apparently buyers are more concerned with price than the future need for service.

But there’s more here.  Apple, at least my Apple workstation and laptop require very little support.  When I bought my Dell laptop two years ago, it came with Vista.  Now there’s a support nightmare.  So much so that after two years I just couldn’t take it any more.  So I put it in the closet and bought a Mac.  Up, running, and no problems. I’ve never had a support call.  With the Dell/Windows systems, not only did the software not work, but I had multiple hardware problems as well.

If you look at high-tech resellers over the past few years, many have built their business on the assumption that profit could be made on support – supporting systems that don’t work, which in turn allows them to sell hardware at a discount.  What happens when someone like Apple starts producing something that does work?  Or they announce something so simple and inexpensive that the user will throw it away and buy a new one – online at a discount.  All of the sudden, the reseller’s new sales model begins to break down. Many of the resellers I know are making most of their profits on problems users shouldn’t be experiencing!  This is destined to fail.  Especially with companies like Apple gaining market share.

© 2011, David Stelzl

Well, to the technology manufacturers, Moore showed how products met the first inflection point of that model where early-adopters transitioned to early majority, a new audience of buyers.  He explains in his book that this audience is a bit more conservative than the first, and unwilling to work with technology that is bleeding edge!  This group represents people who might be risk adverse or, like many information technology professionals, goaled and paid on up-time, not innovation.  The first group however, representing those who will take a risk on new technology, is likely in the camp of profit center managers, looking for technology that puts them out in front of the competition.  This is further explained in Bosworth’s book, Customer Centric Selling, as he applies the model in a slightly different way to various kinds of buyers.

Manufacturers studied these models with profit and adoption in mind.  Moore’s point was that, manufacturers needed a way to enter the larger markets of early majority and late majority (possibly representing 33% and 33% of the possible market for each) if they were to enter the larger majority markets with their products.  The first one there would be given the greatest opportunity to become the market’s defacto standard.  Once there, the channel was established to meet the accelerating demand for their products, which Moore termed, The Tornado, thus the title, Inside the Tornado.  This is where the manufacturer views the channel, but this is not necessarily where the profits are for the channel partner.  The problem is, most resellers (VARs) are positioned exactly in the middle of Moore’s Model; perhaps the most unprofitable position possible for a reseller, which in turn, hurts both the reseller and the manufacturer – the company depending on their partners to bring in more and more of their business.  This is a problem.

(You’re probably wondering what this has to do with the red hydrant…nothing, it’s just a fun picture I took while photo shooting with my daughter).

© 2011, David Stelzl

If you’re looking for justification on fee increases, look at the value you bring to your clients.  If your value is low, it’s time to upgrade.  However, most companies I talk to insist their value is high and their clients are highly satisfied.  If this is the case, you have justification to raise your fees.  But don’t penalize your existing customer contracts.   Guarantee pricing to your best clients while you move new business opportunities to new prices.  Consider adding new offerings to your existing programs that deliver more value with a higher price.  Figure it will take several months, if not a year to see bottom line impact, so get started now.  Those who wait until their income statements are in a crisis will be sorry.

Some considerations.  It’s time to charge more if:

o You are losing money on existing contracts

o Installations are coming in with lower margins than expected

o Fixed prices are turning into losses

o You are the low price leader in a high-tech market

o Larger companies won’t consider you because of amateur pricing levels

o Your business is project oriented

o Your value exceeds your price

© 2010, David Stelzl

Photo by David Stelzl

No matter how much value you represent, and no matter how well you communicate it, you will find that some prospects/clients, just can’t afford you.  In this economy, expect that number to grow within your current client base.  So what do  you do?

Move on!  But remember, every past client, every prospect, and those struggling to pay their bills right now, represent spokespeople for your company; expect them to pass on their experiences working with you.   So a couple of points are key here:

1. First, don’t be afraid to lose customers.  If it’s the economy, no problem, there are more customers out there.  On the other hand, if you have a service problem, fix it.  Over time, customers come and go, and hopefully your value grows (along with fees); while their business may be shrinking.

2. If they can’t afford you, you can’t afford them.  Don’t compromise to win a client that will continually struggle to make payment.  In the end, you lose, even if its just from the stress of waiting on payments.

3. Be prepared to refer them to a less expensive solution.  You want everyone you talk to, to perceive you as helpful, and wish they could do business with you.  One day they may be in a position to hire you, right now they are in a position to recommend you.  So keep a list of quality partners that target lower end markets.

4. Finally, don’t let your clients get behind in payments.  Extending credit may seem like you are doing them a favor, but you’re not.  Debt creates bondage… it adds stress to the relationship.

With this in mind, plan your solution strategy for 2011 based on the market you intend to serve.  Put brackets around the low and high end of your target, and serve them well.  Refer business to partners  that falls outside of your parameters, and charge for the value you deliver in your circle.  This is good business.

© 2010, David Stelzl