Change the world $27 at a time

I've never done this before, but today I'm going to plug the Grameen Foundation's "$27 on the 27th" campaign. For those of you who don't know, the Grameen Foundation is a microlending institution that helps poor women in developing countries get loans to fund small businesses. Loans are typically in the range of $20-200. Their founder, Muhammud Yunus, started with the first loan of $27 in 1976. Yunus and the Grameen Bank shared the Nobel Peace Prize in 2006 (no NPP jokes, please). I have been involved with the Grameen Foundation for several years, and seen first-hand how their work is helping people in India. The breadth and depth of poverty there is vast, and top-down development efforts have often failed to help those who need (often while enriching people who don't). The bottom-up approach is not a silver bullet, but it builds small businesses, helping families and communities along the way.

So I encourage you to think about the next 27 discretionary dollars you plan to spend, and consider spending it on microloans to help people build small businesses. Learn more here.

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Pricing at the dollar store

Pricing humor from Slingblade, courtesy of an alert reader.

Linda Wheatley: Karl, you know what? Melinda here was voted employee of the month at the dollar store last February. Isn't that something?
Karl: Yes ma'am, I reckon.
Melinda: Well, when you like pricing items as much as I do, it's just bound to happen sooner or later, I guess.

Upcoming Event: Professional Pricing Society Fall Conference

We'll have a booth at the upcoming Professional Pricing Society Fall Conference in Orlando, October 22-23. Come by and see us and learn more about Sales Compass.

Get more information and register here.

Agility Key to Success in Turbulent Times

The economy's in a bubble! A crash! A recovery? Careful, you might get whiplash. Looking back at the roller coaster ride, a lot of companies lost a lot of money because they could not act, or even react, quickly enough. Strangely, this money rarely showed up as a line item on the corporate P&L, although the losses had a huge impact on share prices. What were these losses, and how can we apply the lessons more profitably now?

Most companies have a hard enough time figuring out "optimal" pricing in relatively static markets. List prices get revised once or twice a year, often through a process that involves more heat that light. Promotional programs and discount plans get a fancy spreadsheet model that never gets revisited to measure effectiveness.

When conditions change rapidly, companies often get caught on their heels. For example, when energy prices rose rapidly, companies like UPS who recognized the importance of energy prices to their bottom line, and their competitors' room to maneuver, implemented fuel surcharges and turned energy costs to their advantage. Most companies do not monitor fuel prices carefully, however, and most of them failed to take advantge of price increase opportunities or even to keep up with inflationary pressures in their supply chains.

By the time many of them had figured out they should have raised prices 6-12 months earlier, the economy had tanked and pricing power evaporated. Even then, some companies had waited long enough to react that they could still push through price increases of 5, 10, and even 12%.

Now companies have retrenched for the recession and are timid about raising prices. How will you know when? And how much? Or if you can raise prices in some industries but you have to be more flexible with discounts in others?

You need, in a word, agility. You need to see what's happening now, not just what happened last quarter. And you need to be able to adjust how you price and discount based on that. You can't wait for your year-end pricing review. You can't wait for a marketing review. You need to tie into your sales team and empower them to be agile. If you don't, your company will likely leave 10% or more of its profit on the table. You may not have to declare it as an expense, but your investors will notice the difference.

What's your plan to close out 2009?

What's your plan to close out 2009?

For many companies, 2009 has been a tough year. While many people remember the crash of the dot-com bubble, some people seem to have forgotten, and even that crash didn't impact the broader economy the way the housing and credit market implosion did.

So how are you going to close out 2009? (If you're in retail, good luck. I'll write more on this later, time permitting.) Many companies are trying to sell into a buyers' market, with less support from marketing efforts than they enjoyed in the past, fewer reps, but the same pressure to deliver.

Many companies run as hard as they can at the opportunities in their pipeline. They stay up late, fly around the globe, and try to "close" as many of them as possible. Buyers know this, and know how to extract maximum concessions by causing maximum stress.

I'd like to promise you that by reading this blog post, you'll make your numbers and not have any stress, but I can't. However, here are some things to keep in mind that can help improve your close rate, close time, and reduce your concessions.

Note that the concession bit is often the last thing on the minds of your sales teams. It's something that you deal with once you get to the "negotiation" phase of your pipeline. Chances are you're already pushed into a corner at this point. But for every 1% discount you give that don't have to, you're giving up about 10% of your profit. For some companies in this economy, that's going to put you out of business.

Without further ado, here are the tips;

• Look at the characteristics of companies that buy quickly and with minimum discounting. Assign reps to focus on accounts with these characteristics. Assign marketing to find more of them. All too often, sales teams beat their heads against the wall with prospects that aren't a great fit. They spend too much time trying to sell vitamins instead of painkillers. This stretches out sales cycles and increases discounts. (In many cases, these discounts put the deal into the red, sometimes on both a gross and contribution margin basis.)
• Give your reps information on what your best reps are doing. Sales teams have gotten a lot better at using CRM systems to share best practices on prospecting, meeting, closing, and other important sales activities. But when it comes to deal pricing and negotiation, the buyer tends to enjoy a huge information advantage. Fight back by giving your sales team information on how similar deals were priced out their outcomes. Reps sometimes just need to know that it's possible to sell at a 10% discount rather than a 12% discount (a change that might mean a 20% swing in profit).
• Have a Plan. Know what your goals are and what you need to do to hit them. Make sure the entire organization is on board to avoid last minute problems with price exceptions. Know when you're doing to walk away.
  
• Have a Plan B. We've all seen situations at the end of the quarter when the carefully crafted sales plan from the beginning of the quarter gets torn up and the company enters "Wild West Mode." Margins go down, and customers get trained to put you through the same process next quarter. To avoid some of this pain, set up contingency plans so that if certain conditions occur, you can change some of your sales and pricing parameters. For example, having a specific plan for responding to competitive price cuts not only reduces stress, it also reduces destructive price wars.

Best of luck with the rest of the year. Would love to hear how you're implementing these practices, or others.