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Tuesday, July 16, 2013

Are You a High-Margin Business?

Profits are the key to long term growth and survival for any business. Profits are what allows a business to invest and grow. Some businesses have higher profit margins than others. That can be due to the type of industry, the competitive landscape, and economic conditions.

There's often a direct correlation between the margins a business can charge and the amount of pain their products and services help to ease in the minds of the customers who buy them. Increasing this real and perceived value will directly impact profit margins.

Most businesses have a mixture of customers. To become a high-margin business, your goal must be to move the needle from lower-value customers to higher-value ones. The first step is to identify the types of customers your business attracts and pursues. Here are a few general characteristics to consider.

Low-Value Clients:
  • A large number are required in order to sustain profitability

  • Typically cause the most headaches

  • Want you to lower your prices

  • Make you feel like a commodity

  • Position you as the lower-value provider

  • Can and will leave you for a lower price at any time
High-Value Clients:
  • Provide greater profitability, so fewer are needed to help you reach your financial goals

  • Generate higher value with fewer headache

  • Help position you as an authority and valuable partner vendor

  • Give you higher credibility in the eyes of your other prospects
So how can you increase your perceived value?
  • Educate - Sell by teaching and sharing your expertise. Nothing is more powerful in positioning you as a business that is worthy of higher fees than actually showing how your products and services solve problems for your customers.


  • Show Results - Include testimonials and success stories from your past customers to help prospects understand what kind of real-world value you provide. Third-party validation works much better and is more believable than the same information stated as your own.


  • Offer a Powerful Guarantee - Guarantees not only help remove some of the doubts your prospects may have but also show that you believe in your products and services enough to stand behind them. Strong guarantees and warranties allow you to justify charging higher margins.


  • Get Endorsed - When possible, get an endorsement from a well-respected and known personality who can verify the quality and value you bring to the table. Your prospects will know that such a person would not vouch for a shoddy business or service. This increases the perceived value of your business in their eyes.


  • Promote - Promote your awards, achievements, membership associations, charitable contributions, and any other resources that will speak to your involvement in the community and the values you bring. Each of these builds further trust in the eyes of your audience. Each bit of added trust allows you to charge higher fees and margins in your business.
By increasing both the real value for your customers and the perceived value seen by your prospects, you will be able to increase your profit margins. Lots of companies can solve problems for their customers. Those that are able to tell the story of what, how, and why they solved those problems -- and to do so in a way that resonates with prospects -- are the ones that achieve higher margins.

1 comment:

Ignite Retail Design said...

Fabulous post. Very informative.