An obvious key objective in running any business is to increase revenues at a rate faster than expenses. But dealing with clients who want lower prices while employees and vendors expect more money makes achieving this goal challenging.
For nearly 20 years, I worked in or with companies supporting big Pharma / Biotech. Over time, we saw these clients demanding similar or better services at a lower cost to them. By increasingly applying purchasing department muscle, detailed cost breakout reports, and stringent master agreement or preferred vendor contracts, the threat was clear: “drop prices or you’re out.”
On top of pushing for lowing pricing for products / services, these clients were also insisting on longer payment terms. Net 30 used to be the rule, but the big companies were insisting on 60, 75, and sometimes even 90 days (and often still paid late!).
While wrestling with this downward pressure on revenues, there was upward pressure on expenses. Medical insurance providers mandated increased premiums for the same level of coverage. Landlords, utilities, and myriad subcontractors had their hands outstretched, insisting on more substantial payments (and paid net 30). And of course, wanting to retain our great employees meant increasing their comp. (The free soda just wasn’t enough.)
Well, as painful as this situation feels / sounds – and we all experience it, it’s really just the siren’s call for improving what we do and how we do it. As we look across our businesses, there are great questions we can ask to figure out how to respond. For starters:
1. Can we quantify how our new products / services are more cost-effective (for the client)?
2. Can we define or refine our work so we can use lower-cost labor, automation, or outsourcing?
3. What output are clients really looking for, and how else can we deliver it? Do clients really need the best solution, or “good enough?”
4. Why do we believe we’ll lose the order if we don’t lower our price? Is the purchasing rep really the decision maker?
5. How else can we manage employee expense and incentive? Can we get creative with compensation?
6. Can we make greater use of digital marketing for selling products / services, so we don’t need lots of feet on the street?
Managing these situations is challenging, frustrating, and/or infuriating at times. But the reality should motivate us to always think about how we can improve, challenge the status quo, and create better solutions. As with solving any problem, start by defining the current situation versus the end goal, and then brainstorm options to bridge the gap. Believe you can get there, and keep fighting until you do.
Remember, getting squeezed doesn’t have to be a bad thing.