“THE THREE RULES"
How Exceptional Companies Think” [Michael E. Raynor, Mumtaz Ahmed]
I have to say, “I felt like I could have written the 3 rules”! I didn’t buy the book then and yet I will buy an e-copy…… I always believe there is more to learn! Okay…… the three rules:
1. BETTER BEFORE CHEAPER
2. REVENUE BEFORE COST….. DRIVE PROFIT THROUGH PRICE AND VOLUME,
NOT THRIFT!!!
3. THERE ARE NO OTHER RULES!
Simple ………or is it?
Rule 1: Seems easy and I agree….. I always want to be the best and give my best, even if I’m not the best. Nothing about “ME” wants to be cheap. It is nearly impossible to be the cheapest…. Every day, someone will lower Quality and Standards to be cheap and tell you the market demands lower pricing….. not in my experience. On the other hand, being the best demands Quality, Standards, Rules and Agreements, all working together to create true Value that a customer will happily pay the price for, knowing the value is part of everything that is associated with any product or service provided by the business supplying the product or service. Price must allow for profit.
Rule 2: Was a little harder to get my brain around. Revenue before cost…. What that means to “ME” is…. make sales and keep making sales, knowing that profit must be scaled against cost (as described above) on a well thought-out pricing schedule, taking into account both cost and volume over time.
Rule 3: Is a bit strong and may take “ME” some time to agree with. Certainly, pricing and sales must fit into this thought process. The only business rules? I don’t think so. I have my 4 rules that include the 1 golden rule. Like everything I do, I find it hard to take on board someone else’s thought. I guess that is why I’m such a Struggledork!
Any rate, that leads “ME” to products and to how I consider my pricing.
I look at all the prices in the market and do my best to understand what my competitors are charging. To “ME”, THERE IS NO shortage of competitors, variable prices or similar products. Get over the idea you are the one and only and nobody can do what you do…. I want to be the best and I price accordingly. For 30 years in business, I have had the same argument put to me; “Nobody will pay the price”. I’m still in business and I still make a profit. What I have always found is that the customer doesn’t really want to be sold on price….. they always buy on the perceived value. In other words, if you don’t get the pricing right, cheap or expensive it will not matter.
When you sell on being the cheapest, there is a race to go broke. I find it pure stupidity not to put in the time to get your optimal business pricing policy worked out.
(You must then constantly monitor the subject of pricing…. no exceptions).
I spent 3 years in an organization that had total disregard for the thinking around pricing and value. I have seen the company ride a boom of profit for about the first 4 years of doing business and then I watched as the company’s’ profits got eroded because of no sound thinking around the pricing of products. Even worse than their poor product pricing….. the volume of money is down by greater than half…….In other words, they had to double the number of sales just to thread water on the volume of money. The result of lower volumes of money = employees lose their jobs and the business risks not doing business tomorrow.
I understand everyone looks at market pricing…… so what!
TAKE A MARKET POSITION
I price to be the best I can be!!!!!!! I want to be the best and I price to force myself not to be cheap. I want to provide the best products and the best service of the products or service, period. If my pricing happens to be lower than yours, so be it. If it is higher, that’s where I like to be.
What I consider when setting price:
1. What volume of product will I be selling?
2. Do I have a holding cost for product? (I have a 35% on the price I pay for product to hold stock and additional 35% for staff)
3. How long do I have to hold stock?
4. Do I have terms on paying for the stock? (I allow 12% to administrate the transactions)
5. Is there a spread of MONEY IN to MONEY OUT? (I calculate 2% a month for money differential on any spread)
These are only some of my thoughts on pricing. It takes a lot of thought to really work out how to create money over time and deal with the real issues…….
How well do you know your MARKET, BUSINESS, PRODUCTS, and CUSTOMERS?
NEXT WEEK, I WILL SHOW HOW I SET PRICING FOR A COMPANY I’M INVOLVED WITH.
INTERGENERATIONAL WEALTH IS REPEATING THE PROCESS,
DOING EVER MORE WITH EVER LESS.
IF YOU WANT TO WIN THE GAME
AND CREATE MONEY,
STAY TUNED
SABEF Struggledork, OUT
