Last week I assessed a gross margin challenge of one of my customers, and some things stood out that are worth sharing.

Let’s first get to basics: Gross margin compares cost with sales.

If the margin is too low, the typical reaction in a business (sadly enough…) is to adjust the cost base in line with the top line. You know – cutting budgets, reorganizations, layoffs… the stuff we all despise.

Another ‘quick win’ I’ve seen too often is to ‘simply’ increase pricing for existing customers. Unfortunately, neither are solutions – they’re just a short-term plaster against the bleeding.

So, what if we’d solve this at the core? 

Hardly ever is the connection made to the positioning of our SaaS product. Yet, positioning offers a significant opportunity to solve the problem at the core.

Here’s how:

It defines how your product is a leader at delivering something that a well-defined set of customers cares a lot about

• Something that your ideal customer cares about a lot is often both valuable and critical to them
• If something is valuable and critical, we’re prepared to pay a premium
• Something that we can sell at a premium drives margin like nothing else.

Question to reflect upon this Friday:

On a scale of 1-10: How does the positioning of your SaaS solution contribute to a top-tier gross margin?

 

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