The Downward Spiral of Gross Profit Blindness and Write offs

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AMB-gross-profitMaybe your company is within a segment that provides innovation and leading edge products so you can use premium pricing. But far more companies function around mature products and aren’t viewed as “cutting edge”. Their (maybe your?) pricing is under pressure every day.

Two businesses that contacted us recently each need to generate a minimum of 33% gross profit on their projects to cover reasonable operating expenses and produce a modest net profit. But they each keep finding themselves responding to corporate bids that provide a skinny 5-7% gross profit. That’s if everything goes well! If they win the bids, they’ll end up with a net loss of 25 – 27%.  In other words, every time they go after those bids, they are unknowingly volunteering to donate huge sums of money to corporate clients.

How can bright executives of midsized companies do that?  Gross profit blindness happens when folks are in survival mode for too long. These two companies are both involved with commercial facilities. The recession of 2008 impacted the commercial facility industry hard.  That recession was the implosion of the financial and real estate markets. So, yes, in many ways, the cannibalization of the facility management industry is a lagging side effect of the recession of 6 years ago!

Lingering high unemployment within an industry can also fuel gross profit blindness. Purchasing agents and operations managers have increasingly taken vendors for granted. When abusive behavior becomes “the norm,” vendors can actually develop a “victim” mentality.  It is a powerful downward spiral. A vendor that has tolerated verbal abuse and below reasonable pricing can also lose objectivity about the value of their products and services. When customers yell, the vendor can have a knee jerk reaction and quickly accept the blame. Increased “write offs” make low gross profit contracts even worse. Every time the vendor does that, the customer is rewarded for negative behavior…so, like a spoiled child who gets what he/she wants when he/she has a temper tantrum, the abusive behavior escalates.

We have recommended different approaches to each of these businesses. No two situations are exactly the same.  In one case, we recommended that the executives start targeting their marketing and sales to a completely different industry.  We suggested that they do some field trips/site visits to see how people in other industries treat one another. They have tolerated so much blame, last minute changes, screamed demands, and unreasonable pricing they have lost perspective and think everyone is awful everywhere.

The other company has connections with trade association leaders who want to spearhead an initiative addressing culture, behavior, values, ethics, shared responsibility, fairness, etc.

What would you tell a woman who lives in an abusive marriage to do? She has lost her self-esteem. She has come to believe that she doesn’t deserve any better. She has lost objectivity about her skills, abilities, and value. Business owners who become beaten down and think/act like victims also need to go elsewhere to recover!

About Aldonna Ambler:
Known as The Growth Strategist®, Aldonna Ambler built and grew a suite of companies to help midsized B2B companies achieve accelerated growth with sustained profitability® A Certified Speaking Professional (CSP), Ambler has addressed over 2000 audiences and hosted a syndicated online talk show about growth strategies for 9 years. As a growth financing intermediary, Ambler raised over $1 Bil dollars for midsized companies. The winner of over 2 dozen prestigious national and statewide "entrepreneur of the year" awards, Ambler is available to speak about “profitable growth during any economy” and/or serve on the board of a growth-oriented privately-held company.

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Aldonna Ambler played a key role in driving the rapid growth of MarketingWorks, Inc. [In addition to having] a strategic growth plan in place, we obtained appropriate growth financing, have a much stronger management team; we have expanded our services and are already profiting from our new marketing department.

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