Saying No

Late on Friday afternoon, a provider is asked to make a delivery of a low-cost, low-margin product to an address 35 miles away from the warehouse. Does he say “no?”

Plenty of arguments can be given to support taking the order, while an equal number can be given to support not taking the order. One thing that is not likely to be debated is that situations like this are almost always unprofitable.

There is, however, a solution that gets the provider to the equivalent of “no” without ever being asked to say the dreaded word. That solution is not letting your company be in the position to be asked the question. Granted, this solution is easy to state but not so easy to achieve.

Following are some practical ways to create an environment where questions that should be answered with “no” are rarely, if ever, asked.

• Be sure about the solutions that should be offered. The solutions that a provider should offer must align with the vision, values and competencies of the organization, and with the needs and resources of the customer. Once those are known, the solutions that meet the test should be prioritized according to profitability.

  Profitability is not only impacted by the cost of goods but also by the cost of people doing the things necessary to process the sale, such as intake, delivery, billing, collecting, purchasing, warehousing, etc. Since the cost of labor is almost as great as the cost of goods, it is imperative to consider all of the labor costs associated with the product. Activity-based costing has been available for at least a decade and is the only way to identify the real profit associated with a product.

  It is important to remember that the profitability of any product is not the same with all payers. Some payers require activities that others do not, so even if the reimbursement is the same, the profit may not be. It is best to measure the profit of a product by payer or payer type in order to identify your company's sweet spot.

• Market only the solutions that should be offered. Once the sweet spot has been identified, the marketing team can do its magic. Marketing that works to reduce the unprofitable situations focuses on what the provider does well, who it can do well for (including geography and payer type) and why the company should be the chosen provider.

  Of course, compensation for the marketing reps should be aligned with the most profitable solutions.