Get rid of customers – Get rid of products – Raise your prices. These ideas, while sounding a little crazy, actually can increase revenues.
Let me share the story of a commercial printer that got rid of customers, got rid of products, and grew. Previously, the printer sold pretty much anything. The lower end of the product line included business cards, stationery packages, wedding invitations, etc. At the upper end of the product line were very high-end marketing and corporate literature where design and layout services were needed and valued by customers.
The printer made a conscious choice to focus on the large volume, repeat customers; the corporate accounts where design and layout expertise and responsiveness were deliverables that mattered. Their least profitable customers, the one-off transaction buyers of business literature, business cards, etc., were directed to online outlets (think Vistaprint), or walk-up services at superstores like Staples or OfficeMax.
There was a considerable study done before these changes took effect. The financial team worked overtime with profitability analyses of each customer and all of the product offerings. The marketing and sales teams zeroed in on the relationships they had with upper-end customers. Strengthening and growing those relationships was essential if the shift of focus was going to work.
Over time, everything did begin to work. The results when the printer shifted their focus:
- Revenue growth from $8M to $12M in three years
- Net profit growth of 5% in the same time frame
- Reduction of customers from 2,200 per year who ordered at least one item, to less than 500 who order high volume, high price, high-profit items
- Reduction of products offered; transactional items phased out, and the custom design items growing in volume
Now consider the third counter-intuitive approach to growth – raise your prices. The keys to success with a price hike depend on two things.
One, don’t delude yourself. You have to be very good at what you do and focus on customers who value what you offer. And, you need to verify this. Don’t assume anything. Have customers and prospects confirm that your offerings are valued, and the customers and prospects are willing to pay the price you want.
Two, coupled with a demand for your product should be either controlled production or limited production capability. Without a possibility of scarcity of product, demand will never outpace availability, and there will be no room for price hikes.
Consider the real estate developer in South Carolina who built a Tom Fazio designed golf course, surrounded by very high-priced homes. Every time the demand for building lots flattened, the owner announced a price hike on building lots. This produced a spike in sales at the lower price, and the price point for future sales was automatically higher. He had a limited inventory and created demand for the product tied to price.
Getting rid of customers and products and being conscious about price hikes gets to the heart of what Jim Collins said in “Good to Great”- know what you can be the “best in the world” at. Focus on that, and the customers who will value it and are willing to pay for it.
Hmmm, maybe it’s not as counter-intuitive as you might think