Recently, I was presenting to a large group of CEOs, discussing how the commoditization trap was devastating company profits. As I was sharing the key indicators of a company in the cross-hairs of commoditization, I was asked how could you tell if you were effectively avoiding/fighting the commoditization trap.
Here’s my answer:
I call these key indicators your Sales Process Vital Signs. There are three primary indicators that will tell you if you are in the cross-hairs or if you are avoiding commoditization:
- Cost of sales. If it costs you less and less to acquire new revenue (as a percentage of revenue), it’s a very good indication that you are avoiding commoditization. If it costs you more to acquire new revenue, you’re being commoditized.
- Sales cycle times. If sales cycle times are going down, you are most likely avoiding commoditization; if they’re getting longer (or if you don’t know what they are), you’re probably getting commoditized.
- Margin growth. If you’re margins are growing, it’s a good bet you’re avoiding the impacts of commoditization; if there’s pressure on margins, commoditization is most likely the cause.
If all three indicators are working in your favor, keep up the good work. If one or more indicators are working against you, make sure you have a strategy to combat commoditization, or prepare for the consequences.