Business: It's not all good

You don't want every order; weeding out bad business can save you time and effort

By Tom Reilly -- Industrial Distribution, 1/1/2007

All business is not good business. There is some business you want the competition to have. The key to success is knowing the difference between good and bad business. You can gain substantial competitive advantage in your market if you help the competition acquire some of this bad business and then get out of their way.

So, what is good business for your company? There is no simple formula, but there are a couple of simple questions to stimulate your thinking: Are we giving as good as we're getting? Are we getting as good as we're giving?

Value-added selling means contributing maximum value to, and extracting maximum value from, your relationship with the customer. It's all about equity—real and perceived fairness in what you give and receive.

What do we give? What do we bring to the table? What do we invest in to acquire and maintain a piece of business? It's more than just the cost of goods sold. Your investment includes time, energy, passion, aggravation, inventory, logistics, technical support, people and systems to sustain the business.

Your investment leads to the return customers receive. To determine the impact of your investments, ask these questions: How do we deliver value? Where do we have the greatest impact? How do we make the customer's life easier? Where do we excel? Where do we want to invest our passion? Serving well is more than just investing your resources; it's also about investing your passion.

What do we get? What do we take from the negotiation? What is the return on our investment? Your return is a blend of quantitative and qualitative gain. That's the test. Is there a bottom-line benefit to your doing business with a customer? Absent a bottom-line quantitative measure of success, you're in the non-profit category. Volume, product mix and leverage with your suppliers are other quantitative measures.

Qualitative measures of return include prestige, market pull and strategic advantage. Securing a low-profit piece of business may have broader-range benefits if the customer is an opinion leader in the industry and their confidence in your solution attracts other business. But this can backfire if they're known as price shoppers. Others in the industry will assume you gave away the store to get the business. Your price negotiations with other customers may get tougher as a result.

You don't want every order. You want every opportunity. You may not want the business, but you want the opportunity to say, “No.” Saying “No” is very much like saying “Yes.” Both are easier if you have your information before making the decision. Information about your investment and return will help you make a more prudent business decision. When you say “Yes” to a piece of business, you can then pursue it with great passion because you know it is fundamentally good business for your company.