Thought Tweet #675 The 3 prongs of innovation: invention, discovery, and stumbling upon.

The Thinking Behind The Tweet

P=2S+O...for every Problem [P], think of at least 2 Solutions [2S] and keep your eyes peeled for Opportunities [O].

Taking a P=2S+O approach to problems: that's a proven way to invent, discover, and stumble upon innovation.

A related article…  Think About Your Clients' Clients

The @GKWCC #P2P series of thought tweets contains ideas, quotes, & suggestions provided by local business leaders at "CEO Peer-to-Peer" group meetings, sponsored by the Greater Kitchener Waterloo Chamber of Commerce.

The goals of the thought tweets: to help local business leaders and to promote the sharing of business thoughts.

The thoughts expressed are not opinions of the Greater Kitchener Waterloo Chamber of Commerce...they are opinions of local business leaders who are Chamber members and participate in the Chamber's CEO P2P program.

Is your gross margin growing?

I'm assuming you have a concrete definition of gross margin, you measure performance against a gross margin target/goal, and your gross margin contributes to growth of cash-flow.

Is your gross margin growing?

If not, Why not?

You may sum up your answer in 2 words - "competitive pressures", which typically involve price competition. Your competition is offering lower prices and you feel pressure to do something to react to the competitive pressure.

When your prices are under competitive pressure you often react 2 ways:

1. You drop your price "to meet the competition" and 
2. You hold your price and lose the client to the competitor who offered the lower price. 

When you drop your price in response to competitive price pressures and you keep the client, one of 4 situations exist:

1.  You are still able to meet your gross margin target...and your cash-flow is not impaired

2. You make a positive gross margin but it fall shorts of meeting your gross margin target...and your cash-flow falls short of expectations
3. You make a negative gross margin...and your cash-flow is reduced
4. You are not sure about your gross margin because you do not measure it...and you are equally unsure about your cash-flow.

When you hold your price and lose the client: sometimes they depart quickly, they slip away without fanfare; sometimes they leave following an agonizing energy-eating sales process. Either way, the client is gone. The gross margin you forecast is gone. And, the cash-flow you forecast is gone.

In all of the above scenarios your gross margin is not growing.

If the above scenarios are what you are experiencing on a day-to-day basis then your gross margin is not growing. 

And that's not where you want your business to be.

You want to make some adjustments so:

• you have an accurate understanding of your gross margin
• you know how exposed your gross margin is to price competition, the less exposed the better
• you have strategies for growing gross margin
• you communicate those strategies to your people, especially your sales people

Gross margin is intimately linked to Value proposition...Value as seen by your clients, that is.