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Monday, December 22, 2008

The death of salesmen?

This thread, "The Death of Salesmen?" on the JLC Online forum, is a fascinating discussion about pricing, marketing, and Internet forum skepticism. Rick Ritivoy starts it with this post (I've edited a little here to get around a run-on paragraph):
I’ve read through some of the threads and posts and the one that got to me was all the chatter about PRICE. Should it be lower, higher more detailed etc. I’m fascinated that the only solution to a downturn in your business is “Should I lower price?” Should I go back and rebid lower? No one has said that maybe its time to get some sales training and do a better job with the opportunities that they get.

Balderdash man. For the love of God sniffling about the economy must stop. To prove a point I contacted a local company that remodels bathrooms. They gave me eight leads that called in and I sold six of them, five on the first visit at higher margins than the company expected. They are booked through Feb now and I’m a rock star.

Were things so good that all of America forgot that products and services need to be sold. Detailed pricing and scopes of work left on the table to fend for themselves against the others piled on is a race to the bottom waiting for the starting gun. Shouldn't the answer to lost projects be better sales skills not lower prices?

If all it took was a low price one place could sell everything and there would be no need for salespeople at all. There are three things that almost always sound the alarm of the failure of a business.

One thing is declining gross margin. Gross margin only goes down because your selling price is too low relative to your cost. The second condition is wages, as a percentage of sales, increasing. And the third condition, surprisingly, is sales volume increase.

Now, a lot of people say how can that be? Well, to put it simply, when a business gets into trouble, and let’s talk about trouble in a business. Trouble comes when you can’t pay your bills. When you can’t pay your bills, you need some cash. Now, to get some cash, we’ve got to sell something. How to sell something, “let’s cut the price.” and invariably they cut the price, but they didn’t cut your cost because when you cut prices, you don’t cut the cost, you just cut the selling price. Your costs are still there. So, your gross margin has gone down.

Now, when you cut price, did you cut payroll? No. If you cut price 2%, 10%--pick a number--do you cut wages of everyone that works there 2% or 10%? No. So, wages as a percentage of sales go up and consequently you will probably sell a little more and have some sales volume increase, but your margin hasn’t gone down, your wages as a percent of sales has gone up, your sales volume is going up and your company almost assuredly is going broke.

Great sales skills equal better margins. Isn't lost projects a sales problem?
Sounds reasonable enough, and readers of this blog know that the one piece of advice I constantly make in the recessionary environment is that price-cutting may be a recipe for business suicide. You can, in fact, in many cases, raise your prices if you think carefully and your brand/relationships and marketing are in a healthy stage.

But when you read through this thread, you'll find over five pages not all of the JLC Online readers are buying Rick's story. They suggest he might be exaggerating his numbers and making excessive claims. Further postings suggest these rather negative observations are overstated and that Rick may indeed offer real insights.

Then, again, I checked his website and yellow warning flags went up, loudly. His web page uses the online marketing tricks, to claim: "

"Secrets of a Successful Remodeler..."

...How to grow your company by 30% in a down market!"

I can see why some forum participants are skeptical. Loud claims of secret solutions (if you pay) ring not so true in this era of openness and sharing. I haven't read his materials, but suspect -- reading between the lines -- that Rick is advocating a variation of a theme I've repeated here several times: Your best business will come from connecting/relating to current and former clients -- and variations of the free inspection or service call to former clients can produce more return on time/investment than any other form of residential marketing I know about.

Rick still gets a free hyperlink from me and if he wishes to provide a review copy of his material/system, I'll be glad to share it with you.

And, yes, you really need to get away from thinking "lowering your price" is the solution to recession challenges. Think marketing, think relationships, and think value, and think Wal-Mart (not!). Don't "roll back" your prices -- Roll them up, and up some more (but always deliver real value).

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