The Recipe For Profit | Promotional Consultant

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The Recipe For Profit
By: Cassandra Johnson
Issue: February 2010

Sometimes you learn something when you least expect it. For example, I remember one Christmas break, baking cookies with my grandmother. She said, “You know, the secret to the perfect cookie dough isn’t in your eggs or flour. You can have farm fresh eggs or the best flour in the world, and it might not make a difference. It’s how you tend to your dough.” Huh? I thought perhaps a little bit of cookie dough had gone to Grandma’s head. Little did I realize the wisdom of her advice.

As I started writing this article, my goal was to once again find the perfect recipe—this time for the most profitable customer mix. Mmm … four parts online sales, 10 parts existing accounts, six parts new accounts and perhaps a tablespoon of training. I quickly realized, however, that the recipe for sweet success in this industry doesn’t lie in the perfect mix of customers—it’s how you tend to them. That grandma of mine was one smart cookie.

As we know, it’s not an easy time to forecast business. With the housing market meltdown, corporate layoffs and well—the entire recessionary atmosphere in the U.S.—it’s difficult to know how to maximize profitability. Unfortunately, the tendency is to acquire revenue by gathering as many customers as possible, but that’s not always the best way. Again, it’s how you tend to your current customer portfolio.

Bart Christensen, consultant for Certified Marketing Consultants, a firm that provides business management consulting exclusively for the promotional products industry, says we should focus on building relationships and keeping customers, as opposed to chasing product orders.

In order to do this and maximize profitability, Christensen recommends the following steps:

Know The Costs
One of the most critical steps to maximizing the profitability of your customer portfolio is to understand your company or business’s profit and loss.

“Many times clients do not know what their real costs are,” says Christensen. “They may spend way too much for the real profit dollars. If you are giving away 10 percent, pretty soon you haven’t covered your overhead.”

In a recession when there’s even more pressure to stay in business, the tendency is to be happy to write an order of any kind and get any revenue through the system. But as Christensen points out, “A lot of times, sales people don’t take into consideration all the costs that need to be paid out of the gross margin. Most sales reps have car expenses, insurance, payments and more. If you haven’t identified the right margin, then you could be operating in the red. This mistake can easily happen when you have the mentality of chasing orders instead of building customer loyalty.”

Position Yourself As A Specialist
In order to gain new business or grow current business, you’ll have the competitive edge if you position yourself as the specialist or expert, versus the generalist who is focused only on the product. “Vendors that know the most about their client will get the order,” says Christensen. “Good salespeople should learn to skillfully interview their prospects or existing accounts. Don’t just take the order for what it’s worth. Instead, take the time to interview [your clients] and learn their real needs. Ask open-ended questions that will draw out what they’re facing every day.”

Kerri Gorman, owner of GormanFoy, (UPIC: gormfoy) a Dallas, Texas-based print and promotion company whose business mix is approximately 60 percent print and 40 percent promotional products, agrees that being a specialist is critical to growing the business.
“Find out who the target audience is and what the client is trying to achieve. Ask what they’ve done before, and if it was successful,” says Gorman. “Get as much information as possible, and then provide the solution, because that’s what sells—the solution.”

Redirect The Way Unprofitable Accounts Are Handled
Salespeople often have the tendency to think if they write orders they’ll be profitable, even if the margins are low. For this strategy to work, the focus has to be on high volume, which can be difficult. But we all know some low-margin orders are a necessary evil for doing business. Instead of spending time on a low-margin order, have a customer service rep, an inside sales person or even a receptionist handle these orders. The order needs to be taken, but it shouldn’t drain your other valuable resource—time.

Make Time To Prospect
Another mistake that Christensen and his colleagues see time and again is the lack of time spent on prospecting. As a general rule, most sales people are looking for the most productive—and profitable—way to spend their time. And, if you’re deciding between spending your time on existing versus new accounts, you should always be prospecting a little bit.

“We try to reach out to new clients through an on-going marketing campaign where we’ll ask for referrals or solicit someone new. We put our name out there in front of people on a weekly basis,” says Gorman.

If you allocate just 10 percent of your time to look for new accounts, in a 40-hour week that’s four hours of prospecting. This means spending just half a day each week toward adding new clients to the mix and the other four and a half days to serving and expanding existing accounts,” Christensen says.

Use The Opportunity To Penetrate Existing Customers
Another way to maximize profitability is by earning the trust of your existing clients. By proving your expertise and service level to clients, you can earn the right to penetrate other divisions within that corporation.

“I always ask if there’s someone else that I can help within the organization. You can always penetrate your existing client on all different levels—human resources, marketing, membership—all of it,” Gorman says. “Offer to be a resource for them, put yourself out there by giving them help. There’s always a problem that comes up, so you want to be there when the time is right. It’s all about timing,” she says.

“It’s also important to sell the real benefits of your service,” Christensen says. “Benefits might include things like saving time, saving money, increasing profit, increasing their competitive advantage, as opposed to the way something works or what colors it comes in. If I can prove the benefits, then I’m really adding value to the relationship and will be given more opportunities.”

Now that you’ve received these great tips for sweet success, are you ready to cook up some real profit for your business? Remember, it’s not who your clients are or where they came from that you need to worry about. When it comes to maximizing real profit, it comes down to how you tend the dough.

During her 15 years as a marketing communications consultant, Cassandra Johnson has collected many recipes for success—many she uses with her own clients. As a freelance writer, Johnson reports on the latest trends in the promotional products industry, public relations, direct marketing, e-marketing and more. She supports clients in a variety of industries, including promotional products, hospitality, financial services and technology.

Margin Vs. Cost: Know Your Threshold
Know your marginal threshold when making a sale. If an order is discounted too low, you can actually lose money. Keep an eye on margins versus costs and this will help you to maximize customer profitability.

	Scenario A	Scenario B	Scenario C
Cost Of Goods Sold	$65	$65	$65
Sale Price	$100	$80	$120
Gross Margin	$35	$15	$55
Rep's Commission	$17.5	$7.5	$27.5
House Commission	$17.5	$7.5	$27.5
Overhead Cost	$17.5	$7.5	$7.5
Operating Income	$7.5	$0	$20