Getting down to the nitty gritty about a client's 'best sellers' is one of the first things I jump into when I start a new project. More often than not, those 'best sellers' are the source of more problems than anyone would expect.
How can that be? It's the biggest seller (which is easy to prove with revenues), the cash cow, sacred cow, the product that delivers major corporate differentiation. Right?
Sometimes it is. But more often it's not.
It may generate the most revenue - but you have to look deeper, much deeper, to find out how the product is impacting your business.
- How differentiated is this product - truly? I often learn that it's not, really. It was at one time, but it's not now. In fact, it should be well into its end-of -life. So why is it selling? Sometimes the reps are discounting it to get more revenue. The company is OK with that since well, it's revenue. Sometimes it brings a significantly bigger dollar value per sale than any other product - so even a small number of sales make it look 'big time'. Sometimes it's simply on the brink of starting its decline.
- How much is it costing to continue this product? I had a client who was measuring product success at the contribution margin level. The leading product looked like it was a real winner. The problem? Well, turns out the product required a lot of integration and testing before it was delivered. The reps were selling 'specials' more than ever - so, the costs below the line were eating up the margin - and more. But the company just kept selling more and more of this favored technology. Yes, even in business, love is blind.
- How many and which customers are using it? I'll sometimes find a handful of the best customers using the product in question. Which sounds like a good thing on the surface. But what if those customers really aren't that great for your business? What if they aren't the market of your future? What if they are a market that costs you money? Ask yourself. How much is it costing you to develop and support a product for customers who don't represent your best, or most profitable, market opportunity going forward?
- How much are reps allowed to discount? This is one of my favorites. I continue to be amazed at the number of companies who measure reps on revenue and not margins - and celebrate the $2M deal which secretly cost them money. I'm not going to get into sales incentives and motivation here. But IMHO if you have to heavily discount your 'best selling product' - you might want to think again.
- What are you NOT doing because if the investment in this product? Here's another big rub. A client was investing almost 40% of their R&D budget into a legacy product that was losing margins. The installed base was strong but small (and declining) and its applicability was growing more limited. Why? Because it was really cool technology (5 years ago), differentiated (for those who needed it) and was frankly, the client's adored 'baby'. The problem? The company's future,the set of products that were potentially game changing, were being strangled for resources by this legacy beast.
I'm not claiming this is always the case. Certainly not. Some clients point to a best seller and it is truly the lifeline for the business.
What I am saying is - Throw Everything into the Fire, test that best seller. If it rises as a key asset for your Phoenix - then ride it to the sky.
Just make sure it's a Phoenix, and not a vulture in disguise.
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