My former employer made a decision… well, it’s sort of linked to sales, but sort of not, in a way. It’s an interesting business case study.
I worked for a large management systems registration house; ISO 9001, 14001, TS, TL-9000, that sort of thing. For the longest time it was the largest in North America, by a fairly wide margin, and the largest in both the USA and Canada if you took them separately. The fact that we were the largest was a major part of our marketing.
Anyway, after a few changes and mergers, another company, BSI, caught up to us. Which company was bigger depended on what day of the week it was; it was a neck and neck race.
The company I worked for then became very concentrated on being the biggest, which we measured by the number of registrations out there. So if your little company was registered to ISO 9001, that’s one registration. However, if you want a lot of registrations, you want big, multi-site companies with many locations, since each is technically a separate registration, even if you’re doing a sampling plan.
The company, under executive direction, started concentrating on getting really big corporate accounts, and to get them, dropped prices to bargain basement levels, or offered them with travel costs not chargeable, stuff like that.
It finally reached the point where we were signing big contracts, BIG contracts, on which is was impossible for us to make a profit. In one particular case we inked a deal for about $1.1 million a year that cost us $1.3 million to service. We had offered to cover all travel costs and charge just $50 a day for travel; I had to do one audit that involved a five-hour drive, four nights’ stay in a hotel, plus meals and all that, and we charged only $200 for five days of travel and accomodations. Even being reasonably stingy, you can’t keep your daily costs for that sort of thing below $200 or so when you count driving costs. It was plainly insane; every job an auditor was asked to do, we lost hundreds of dollars.
It continued. A big client with many registrations was shopping around and in a moment of panic we gave them free service for a year. To retain a customer we were not making any money off anyway, we essentially handed them $100,000 worth of free service. And on and on.
Of course, what happened (surprise) was that the company started losing money. Our number of registrations was going up, but our revenue wasn’t keeping up, because we were giving our service away below cost just so we could say we were giving service to a lot of people. And we’d market our size, more big customers came along, and we’d offer them money-losing deals too, since of course word gets around about what you’re charging.
Realizing they were bleeding money, the company decided - I swear I’m not making this up - to just add $300 to everyone’s bill. No reason,m no added service; we were just goinhg to add $300 to everyone’s bill, to get some more money. It was itemized as “Service charge.” Now, if you’re the big customer paying $1.1 million, $300 is nothing; it’s unnoticeable. But for the 8,000 single site customers it was a huge bill. A small company might pay $1400 all in for a surveillance audit; jacking that to $1700 is a big shot.
So, you know what I’m going to say next, right? The small customers, who we WERE making money on, start to defect. The huge multi-sites, who’re getting registration for a song, don’t. So our margins get even worse.
I jumped ship last March. The entire outfit was sold to an Australian company last month; the original parent company just plain gave up and threw the white elephant into someone else’s zoo.
So, it’s a case of a company being obsessed with sales, but not sales in terms of the amount of money they were bringing in. **They made a decision based on the number of individual sales they made without regard to whether or not the sales made any money. ** And it cost a lot of people their jobs.
