Or would you be afraid to?
I have worked with many companies over the years and this is one area that always leaves a bitter taste in their mouths. While bitter, however very necessary!
And more often than not, when they actually calculate this true cost, they discover that the service is costing them money as opposed to making it. This can be alarming at the best of times, however the opportunity lies in reducing the True Cost and turning it full circle into a profit model.
When you enter a new customer relationship sometimes it can be very difficult to accurately cost the service you are going to provide and with that you also don’t want to price yourself out of the market. Or should you? At the very least you should have a clear indication of whether this business is actually going to be good for your business or not.
And with your previous business experience, this is something you can pre plan before you enter a new relationship. While this isn’t 100% accurate, you can certainly give yourself a good understanding of your actual margin model – taking into account hidden costs etc.
So what is true cost?
While there are many things you can’t charge a customer for, these things are still going to cost your business money and eat away at your precious profit. Things like
- Continuous to-ing and fro-ing of customer emails and phonecalls
- Customers adding on small extras here and there
- Hidden costs
- Loose Service Level Agreements (SLAs)
- Adhoc communication
- Extra carriage to avoid late deliveries
- Problem Solving
- Poor pricing
- Sales Team commission
- And so many more…
With that, once a contract has finished, you are not finished. Before you close the book on this one, you should conduct a true cost analysis to assess the actual performance of the contract compared to what was initially quoted. This is a critical step in understanding should you enter another relationship with your customer or not. It’s also critical in terms of taking what you learnt, what mistakes you made so for your next contract, whoever that may be with, your service will be executed more effectively.
It’s not just good enough to be busy in this day and age, it’s imperative to have a business full of the right type of customers so the outcome is a Win – Win. This is instrumental for long term, sustainable success. When you understand your true cost, in turn you can learn how to control your costs, your customers and also your future customers. AND you can then decide whether you want to pursue a relationship or let it slide.
So what happens when you measure True Cost?
As they say, what gets measured gets improved so when you measure your true cost you improve areas of your business like
– More effective communication sessions
– Tighter SLAs
– Better Forecasting
– More effective pricing & selling strategies
– Better relationships with the RIGHT Customers that blend with your business
Conduct this process post every customer engagement and you will continuously improve your bottom line. This is one of the simplest processes you can execute in your business without any external assistance. The sooner you make the habit of it, the sooner you will see the improvements.