Walking away from a sale is something that is tough for most business people to do . . . particularly in a tight economy when selling opportunities may be few and far between . . . but sometimes it’s the right move. A business is set up to effectively and efficiently serve a certain market segment in whatever way the demands of that market segment require. In other words, it is set up to deliver certain products or services with specific pricing, delivery schedules, payment terms, etc. However, sometimes an opportunity presents itself that doesn’t fit neatly into the way our business is organized. Should we take it? For more on this, please read below.
Awhile ago, I heard a presentation on pricing. In that presentation, the speaker admonished his audience to know your “Kenny Rogers” . . . the point at which a price gets negotiated down and passes from profitable to unprofitable. More broadly, it’s the price point at which making the sale is no longer attractive. The old pricing joke is, “Sure, I lose a little on every transaction, but I’ll make it up on volume.” You better know where your Kenny Rogers is, and painful as it may be, walk away if your customer is trying to push you beyond it.
Think of the big box stores like Walmart or Home Depot. They are famous for demanding deep discounts from their suppliers. More than one of those suppliers went out-of-business because they were seduced by the promise of huge volumes and allowed themselves to be pushed below their Kenny Rogers.
But the Kenny Rogers concept doesn’t apply only to pricing. It can apply to any of your normal business practices. For instance, let’s say your normal payment terms are net 30 days. What do you do when you can land a very large new customer, but that customer demands 120 day terms? Or let’s say you’re set up for 2-week delivery times. Now comes a high-volume potential customer who requires next day delivery. Do you take it?
There are no right or wrong responses to these situations. As business people, we need to recognize and seize opportunities that come our way. However, when the opportunity requires that we step outside of our normal operating parameters, there’s probably a Kenny Rogers in there someplace and we need to make sure we’re not being asked to go below it.
Opportunity almost always carries some level of risk, and we need to be prepared to evaluate whether the risk is worth the reward. But let’s not get caught betting the whole ranch when we thought we were only betting the south forty. Knowing your Kenny Rogers will prevent that.
If you don’t know where your Kenny Rogers is or how to find it, call me. We should talk.