In my last article, I visited the age-old problem of costing; namely how and why companies incorrectly assess their products and services.  Usually, it's because they neglect to consider all of the less-obvious activities that relate to the manufacture and/or provision of a good or service.

But let's assume now that such (costing) problems are now under control. That each and every activity has now been captured, costed, and properly allocated to the unit price of a delivered product or service. From here, business should be simple, right?

Wrong.

Because it is from here that most of our profitability problems actually begin. Why? Because all too frequently - we give the business away!

Think about it. You have gone through all of the steps of:

1. Finding a suspect
2. Turning that suspect into a prospect
3. Convincing that prospect to consider your product/service, and
4. Providing him or her with a contract that will guarantee you get paid once you have fulfilled your end of the bargain.

You have gone through all of this - weeks, months, perhaps even years have gone by while you are accomplishing all of the above. And then, you turn around and cut the price!

Why do you cut the price (and therefore, any hope of making a profit on the deal)?

There are lots of reasons why this is done, but all of them related back to one and only one disease known as "disciplinitis." In other words, the inability to hold the line, the 'price line', because of scare tactics from the buyer.

We've all been there. The customer will say, "Hell, I've got a guy who will sell me the exact same thing for thirty percent less!" Or worse, without the customer even saying anything - you pipe up, "Sign the contract right now, and I'll knock another fifteen percent from the price of the maintenance agreement." Sometimes it's just a matter of you being able to meet payroll (see last week's column).

For nearly two and a half decades now, I have been saying to my salesmen, "If I give you complete freedom to alter one of just two variables - price or constituency - you in turn, will become the greatest salesman the world has ever known.

Think about it.

This is why the following must be part and parcel of any solid and profitable organization:

• Leaders who have the courage to stand behind their pricing rationale.
• Sales folk who can and will walk if the deal simply isn't profitable to the company
  
• Staying Power - The financial strength to be able to turn down an unprofitable sale.

So - to sum up the last two columns:

1. Always know exactly what it costs you to deliver (and not just make) your product/service to the customer. To the penny.
2. Beware of the 'squeaky' customer. You know, the big mouthed one who will try to browbeat and intimidate you into building him or her some customized deliverable that, by definition, simply cannot be profitable.
3. Leave no activity or step uncosted. Each and every penny expended should somehow become part of a delivered good's price.
4. Hire salespeople who will sell what you make, for the prices that you set. If they cannot do this, get rid of them immediately. For unless they are brand-new to the job marketplace, they are going to be incorrigible.
5. Set the above example yourself. If you 'give it away', then how can you possibly expect them NOT to also do so?
6. Remember: There is no such thing as a 'Loss Leader'. Wanna argue this? Call my show @ (412) 333-1360. I'll bet you don't!