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Does high margin mean you are gouging your customer?

Have you ever heard these expressions:

“That price would be gouging my customer” or

“That is not a fair price” or

“I think we are taking advantage”?

If any of those beliefs are in existence within your organization … Snuff them out. Fast!

It is interesting that the people who believe “gouging” is wrong are usually NOT the people who are responsible for the payroll at the end of the month.

Nor are they the people who have their assets at stake with the bank.

As the great Zig Ziglar once quipped. “That is stinking thinking”

The minute we believe that the margin we charge reflects the VALUE we create, the concept of gouging disappears very fast.

We need to reframe our thinking (and that of your salespeople if they are uncomfortable with higher margins).

Our industry struggles to squeeze out an average 4% operating profit margin so we are barely scraping a return for the risk we are taking!

The higher the margins we achieve the greater the value we are delivering. And vice versa.  The more value we create, the more comfortable we should be with commanding a fair price for that value.

Gross Margins are something:

  • We should be proud of
  • We should want to fight for
  • Our customers are happy paying for because you are the best solution for their needs.

If you are dealing with customers who don’t immediately recognize the value, reengineer your offer. Reduce what they get and offer them the lower price and see how acceptable that is.  Let them calibrate it.

For example, you could say to your customer—”of course I can lower my offer if you accept the following”:

  • No onsite supervision
  • No quality assurance 
  • You manage the logistics.
  • No warranties
  • We will respond to any onsite problems when it is convenient for us, not you.
  • You manage all scheduling requirements.
  • Installers that may or may not be qualified to do the work.
  • You deal with any punch requirements
  • etc

The above list is not exhaustive.  Sometimes the customer does not appreciate everything that is built into your service.  Occasionally it is good to remind them (and you) of the complete value package.

We have met many people who don’t believe that some or all of the above drivers have any value.

When a competitor undercuts us, our knee jerk reaction is to reduce our margins yet deliver the same amount of value.  Often the competitor is not offering the same value.

The challenge is the customer does not know until they have experienced it!  Unless we proactively make it clear to them!

Instead of capitulating on price, a more effective strategy would be show value by educating the customer so they can make a more informed decision.

Some of you may think this is all fluff and nonsense.

However, we see it daily.

Andre and I are very privileged to have gone behind the scenes in over 60 flooring companies.  We have seen certain companies and individuals within them consistently achieve higher (10-15 % more) by having a focus on value not price.

Here’s something to think about.  The quality of your sales relationship with your customer is directly proportional to the gross margin of your bid.

Quote and hope—low margin

Intentional bidding- high margin.

Own your value!  Believe in it and stand up for it.