We talked about launching New Products last week. This week I want to step a bit back into why those products were launched and that is the topic of Portfolio Management. What is Portfolio Management? It is the understanding of the positioning of Products and Services that you have to sell. For most every business, things break down by Pareto: 80% of the Money comes from 20% of the Products. I have been in places where we had to offer things that did not sell very well so that we could let our customers meet their regulatory obligations. But no matter what the Gross Margin was on those Products, we never recovered the investment in them directly.
I want to explore this from two standpoints. First, I want to talk about reducing the number of Products and Services that you offer. Then, I want to talk to you about how to grow them more efficiently.
No matter what you do, you should be keeping track of the total Sales by individual Product Category or SKU (Stock Keeping Unit). Over time, you should be evaluating what Products and Services make the most amount of money for you. You should be looking at the lower 1/2 of that list and deciding which Products you will stop selling. This is especially true for products that are close in the customers eyes. By having some additional differentiation, it helps customers to choose the right thing for them. Think of going into a grocery store. Which one of literally a dozen competitors is the right one for you. In the store's case, it is watching inventory to see what works. If Products don't move, then they are no longer sold. What are you doing to watch your Products?
But for a lot of companies the easiest way to expand sales is to look for companion purchases. These are natural extensions for people that buy a particular Product or Service. For Cell Phones, that might be cases or insurance. When a customer buys a Phone they might want to protect their purchase. This can be done physically with a case or financially with insurance. In either case (or sometimes both), there is a natural point in the Sale where the customer can be asked about this. These type of add-ons can be extremely profitable. They have almost no cost of sale. You are marketing them to customers who you are having direct conversations about the Product they just bought and you don't have to have a high take rate (the percentage of customers that buy an add-on) to have a significant financial impact on your business.
Before you thinking about launching a new Product or Service, let's take a look at the performance of our current portfolio. If you ever have questions on this, feel free to contact me. Have a great day!
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