Pricing

How Do I Make My Margin Improvement Goal?

By Jennifer Maul
September 5, 2013

I am confident most of us have performance objectives we need to meet on an annual basis, and much of the time, meeting and exceeding those goals drives a personal annual bonus. Companies set objectives for a reason – to drive the business in the direction it needs to go. Our objectives then drive both company and personal performance. As the year draws to a close in just over a quarter, where do you stand on your objectives? How close are you to meeting your metrics? Have you already exceeded them? I suspect many of us are still striving to meet our company and personal objectives for the year.

During my flight to Europe today (with jet lag, that may have been yesterday!), I contemplated one of my personal objectives, and I suspect that readers of this blog have a similar goal. I have three objectives in my personal performance plan at Vendavo, and those three also drive company performance. The one that is likely similar to one of yours is improve margins.  Since I run our global sales team, I am in the hot seat because everything I sell has a margin target. If I exceed it on a given deal, all is well. If I don’t, problems further downstream in the business will result. However, whether I miss, meet, or exceed the target margin, there is always room for improving it. And to do that, you have to understand your business using the construct of a price waterfall.

As a sales leader, I look at improving margins in these three steps:

Step #1: Take ownership for your company’s sales transaction data. It is your team that creates these transactions. Most sales leaders don’t think of this data as theirs, but rather as IT’s. That is not the case – it is sales data, and it is yours as its business owner. Sure, you have partners in IT to help you make sense of the data, but it is your job to treat it like an asset, just like you do with your sales team, process, and product differentiation assets.

Step #2: Now that you have made that subtle, but very important mental shift about your sales transaction data, make it an asset. Make it a highly productive asset. Crazy, right? Data as a productive asset – yes, it can be done! An elegant, yet simple way to leverage your sales data is to craft it into a price waterfall to show you where in your business you are leaking margin. By this step alone, you are assured to find about 0.5% return on sales using a simple waterfall. I bet that 0.5% return on sales can help you meet or exceed your margin improvement goal for the year. Moreover, crafting a price waterfall is no longer rocket science, and it can help you improve margin leakage quickly (where are you discounting too heavily, are you giving away value-added services, what low margin products can be replaced by higher margin comparable ones, and more). This means higher transaction values – more revenue -– to you, your sellers, and your company. Check out Vendavo Profit Finder approach – 0.5% ROS in 30 days. Can you go wrong?

waterfall

Step #3: Every year, we work on specific programs to make our sales team more effective – better negotiating, better messaging, being more persuasive, delivering killer demos, and better differentiating. This idea of sharpening the saw (thank you, Stephen Covey, for teaching us how to sharpen the saw) is critical to maintaining your edge. How do you sharpen this newly found sales data asset? How do you take it to the next level? Segment it. Using the same data in your waterfall, you can easily apply pricing science principles to it, and in a matter of minutes, you will have a new segmentation model based on the patterns in your data and not on subjective lines of thought. It will make you consider your business differently. With the Vendavo Power and Risk approach to scientific pricing, we help you segment your data, so we can then tell you where you have the Power to push price for a deal in a particular segment or where you Risk your deal if you push price in a particular segment. The Risk equation of our approach is very compelling because we can show you where you will lose. With Vendavo Power and Risk, the price we target for you is the winning price. Now, imagine your sellers having access to the winning price for any deal in any segment? It’s compelling, isn’t it? Compelling to the tune of about 1% return on sales (our customers typically report even more).

With these three steps, you have taken business ownership of sales transaction data (what a mind shift), you crafted that data into a powerful price waterfall to show you where your team is leaking margin (generates at least .5% return on sales), and then applied Power and Risk to the data to target the winning price for a deal (generates at least 1% return on sales). Your data has become not only an asset, but a high-producing one that could net you 1.5% return on sales. I believe these steps are a business epiphany for sales leaders charged with improving margins. Think about it in terms of the benefit to you – what would a 1.5% return on sales improvement in margin mean for your bonus check?

  • margin improvement , power and risk , price waterfall , Profit Finder , segmentation

    Jennifer Maul

    Jennifer holds Bachelor of Science degrees, magna cum laude, in Business Management and Management Information Systems from the University of Maryland. Follow her on Twitter: @jmaul_svp