Profitable relationships

“The customer is always right” is a saying everyone in business knows. I’ve been pondering this statement over the years, trying to figure out if I always agree with it.

In business, for the most part, we strive for a win-win relationship with our customers, one in which everyone is satisfied with the outcome. Unfortunately, with increased pressure from overseas competition, we have been forced to do more with less. Companies are becoming much more demanding in many ways.

Value seems to be less important and is taking a back seat to pricing so the win-win relationship is diminishing as a result.

In the leadership position, you must make hard decisions regarding pricing. We are all in business to make a profit, and most of us cannot afford to sell something at a loss. The question is, just how far will you go to keep a customer when its demands cross your threshold for a reasonable profit?

Here are three things to consider when making your decision.

1. Know your profit centers. Many companies don’t really understand their pricing or how it affects profits. To compete in this global marketplace, you need to understand your pricing and what kind of leeway you have to make changes to it that will not hurt your company. You have to decide how far you can go before the deal is no longer worth your while.

2. Know your competition. Knowledge is power. Do the research to know who your competition is and how it is different from your company. Good negotiators will bluff, and you need to know when to call their hand. Know what pricing structures your competitors use, and be able to explain why you offer a better overall value.

3. Know your timing. Sometimes it is better to sell to someone at a loss for a short time rather than not sell them at all. A short-term loss may lead to a long-term gain. Don’t let pride get in the way and lose a customer before you are ready for it to go. Stay in control of the process and understand all the ramifications any potential price cut will have on your organization.

Keep your company financially sound so that you can afford to lose a customer if you have to. If your company is desperate for business, you might have larger issues to consider.

The customer may be right, but maybe that customer isn’t right for you.

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