I’m spending more time with owners focusing intently on their earnings. This has led to conversations about how a company can boost the bottom line. Whether the company is young, 3-5 years old, maturing nicely at 6-16 years, or entering the period when the owner is thinking about an exit, earnings should be the filter through which all company decisions are viewed.
If you’re one of these owners, this article is for you. I’m taking a close look at three beliefs that impact earnings and that when done poorly, do the very opposite of the intention, they reduce earnings.
“Under promise and over deliver”
Whomever first got a lot of applause for this idea should be ashamed of themselves. You’ve been in audiences or read books, where the expert proclaimed that in order to be ultra-competitive, and to retain customers and clients, you ought to promise less that you intend to deliver and then deliver more than you promised.
Let’s unpack this: Your buyer is seeking to make a purchase. You know you can meet their needs without any difficulty. And yet you promise less than they really want. Don’t you think that buyer is wondering “Didn’t she hear me?” or “That’s not what I want” or “Wait, I can get that plus much more from another company.” Whether your promise is about products, services or delivery, you’re cheating both your buyer and your own company. If you do this just to be able to “wow” them by delivering more than you promise, you’re guilty of manipulation and lying. You’re compromising your integrity. That’s a heavy price for a bit of “Wow.”
When you over-deliver, you’re admitting your lie. You’re telling the buyer that your word is not reliable. Believe me, trust is the most critical ingredient for any company. If you can’t be trusted to promise what they’re asking for and delivering it exactly as you said you would, what else can’t they trust you about?
The third hit your company takes with this bad practice is to the perceived value of your products and services. When you deliver exactly what the buyer asks for exactly as you promise, you are demonstrating value. Value to the buyer includes the use of the purchase plus the whole buying and service experience. That’s what you charge for.
Which leads me to the second belief you need to eliminate:
There’s a specific time to raise rates or prices
If you search for answers to the question “When should we raise our rates?” you get millions of hits. Every response tells you about timing (when you’re too busy!), about language to use (say: changing” instead of raising), and how to deal with objections.
This is the wrong question. Don’t ask yourself, and your team, “When can we raise our rates or our prices? How can we do it without losing customers?”
This is the question to ask: “How can we increase the value to our buyers?” And particularly to the buyers we want to keep?
This question is so profound. First, you are putting yourself in the shoes and mindset of your best buyers. What else would a buyer or group of buyers value? To what extent would they appreciate this new value? What is a rate or fee or price commensurate with this new value?
Once you’ve answered these questions, you can determine how the new costs associated with the new value will impact your bottom line. What will it cost us to deliver that new value? What changes to our operations, marketing, and customer service are needed to ensure that the new value is truly delivered as promised?
Finally, you will have to analyze how many buyers will be delighted with the additional value, and how many won’t. The worst thing to do is fear losing some customers. The ones who leave will free your company to have the space and energy to attract and service buyers who want the additional value. You then enjoy the new, higher value floor from which to build even more.
What about discounts and sales?
My starting point with business owners, whether they offer products or services, and whether their buyers are other businesses or consumers, is simple: NO DISCOUNTS!
Why? Discounts are an insidious invader into your profit and loss statement. They reduce your revenue line, never reduce your cost of goods sold and operating expenses and decrease your bottom line.
Even worse, they reduce your brand value. Consider that your brand is perceived by buyers as equal to a “10.” When you discount your offerings, you are discounting your brand value as well. Now maybe it’s down to 9.5 or 9. But shortly, that new value becomes permanent. Buyers think “This company is only a “9,” I’m not going to pay more than the discounted price.”
Now that one-time discount, or discount used to attract new buyers, has permanently reduced your company’s brand value. For what? A few dollars of new revenue, a loss on the bottom line.
Do NOT DISCOUNT. It is not a one-time thing; it is a permanent hit to your brand and your bottom line.
If you want to attract new buyers, or entice your current buyers to try something new, you can offer new value for the same price. But remember, this new value for the same price becomes your default. And you can’t go back.
To increase earnings (Revenue-Costs=Earnings), be the owner that always, always thinks in terms of value: value of your promises and delivering on those promises; value that your buyers will be happy to pay for; and value that is never diminished by discounts.
If you’re one of the business owners thinking about company earnings—or if you haven’t been thinking about company earnings and want to start! —we would love to hear from you. Get the conversation started with an email or a call: 703-801-0345