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.
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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.
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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.
In some cases it may be appropriate to eliminate product lines. Many providers have done it over the years and succeeded, in spite of the fear that they would lose referrals for not having as many product lines.
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Ask for the business you want from the sources that can give it. Who a company offers a solution to is as important as what is offered. When a provider has identified the sweet spot, it can answer both who and what.
With this information, the provider should identify and categorize the referral sources that: (1) are requesting the most profitable solutions; (2) can but are not; and (3) are not in a position to refer profitable solutions. Then the marketing team can reallocate time and effort immediately from the third group to the first.
There is also one step remaining on the second group — those who can request the most profitable solutions but are not. These referral sources need to be divided into (a) those that will change easily and (b) those that will not. Most of the effort being given to the (b) group can be reallocated to finding new referral sources and reinforcing the best sources.
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Craft alternative solutions for the customer. Providers who do the best job of helping people give their prospective customers information about sources for problems they don't solve. Some providers have had good success in forming alliances with other providers as alternative sources based on geography, payer type or product.
Two thoughts accompany this strategy for better business. One is, “If you don't want to get wet, stay out of the water.” The other is that this strategy is really about getting the best customer, not the next customer.
Wallace Weeks is founder and president of Weeks Group Inc., a Melbourne, Fla.-based strategy consulting firm. He can be reached at 321/752-4514 or by e-mail at wweeks@weeksgroup.com.
