Losing business for reasons other than price

For those who are interested in maths and spreadsheet simulations, here’s a slightly more detailed explanation of the percentages you should be aiming to lose on price.

I have simulated different levels of lost business, for example what if you are losing 20% on price and 20% because of bad service / long lead times / poor product design etc – should you put your price up?   And you can see the results as follows:

If I’m losing nothing on all the non-price factors, which I have lumped together as “service”, then my price should be, as expected, at the “lose 50% on price” point.

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If I’m losing 10% on service then the sweet spot is still at 50.  

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But if I’m losing 20% on service then it becomes better for me to lose only 40% on price, 

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and if I’m losing  40% on service then clearly I can’t afford to lose another 50 on price, I’d only be selling 10% – the sweet spot is to lose 30% on price, losing a total of 70% of my potential business.  

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What I MUSTN’T do is cut my price, say to the point where I am only losing 10% on price and 40% on other things – that would be disastrous for my profit.  But imagine the courage you need to lose another 30% on price when you’re already losing 40% on everything else!

So I have made a summary table where you can look at your percentage lost-on-other-things and then based on that, you can see the ideal percentage you should be losing on price:

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You can see that if we are losing more than fifteen percent of business for non-price reasons then the ideal point seems to be that we lose only 40% on price, and if we are losing more than 35% of business for non-price reasons then the ideal point seems to be that we lose only 30% on price.  And we should start by fixing that appalling 35% of business being lost for whatever reason!   

I would suggest that for most companies the lost sales for non-price reasons won’t be more than 25%, so losing 40% instead of 50% is perhaps a better rough target, …but remember that a REPORTED 50% loss-because-of-price is probably really 40%, so I think you could still aim for 50.

A final point is that you can see on the spreadsheet there is always a RANGE of green cells rather than just one, basically the profit graph is quite flat at the top, so the difference in profit from losing 40 or 50% is not very much – it’s trying to lose only 10 or 20% on price that’s the fatal strategy.  

So that’s a detailed examination of your options, and YOUR first job now is to make a spreadsheet for your own numbers, and then do some research to find out how much you really are losing on price and on other things, and then do some testing to estimate how much you WOULD lose if you raised your prices. I bet you’ll find it extremely enlightening!

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P.S. to answer that question: “if you are losing 20% of your potential deals on lead time or quality, and another 20% on price, should you put your price up?” Yes. You should raise it to the point where you are losing 40% of your deals on price, so that’s a total of 60% of your deals don’t happen. The price increase will mean that you make more on the remaining 40% than you would have on the remaining 60% when you were cheaper. And for less work done. Hike it up!

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