Don't Waste What's Left of This Crisis

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fix discretionary revenue "leakage"

As we pull out of recession, some wise company executives are already beginning to build capacity before they need it, even at the expense of short-term efficiency. As the market picks up, there is likely to be rapid demand for skilled employees. This could lead to wage inflation and a shortage of resources needed for growth. Some CEOs are planning for this now. One transportation company is paying virtually 100% of its current profits in retainers to employees. While this may seem at odds with promoting an efficient environment, it really isn't. The company is lean and has stopped all unnecessary activity. It is consciously investing for the future.

Finally, a company that uses this unique time to focus more than ever on its customers and their needs will win loyalty well into the future. A customer who is supported in difficult times is a customer who is likely to remember, in competitive times ahead, the help they were given. This does not mean companies should forego revenue. In fact, there are many creative ways to increase it. In good times, a sales force will typically have some discretion over discounts, waivers, and extended credit terms. Revenues can be increased by focusing and tightening up on discretionary revenue "leakage." One midsized auto insurer I recently met with was waiving 90% of late fees. Now the company is collecting 90% of those fees, with no adverse customer reaction.

Forward-thinking CEOs will also use the current environment to completely review pricing. They will be clear as to which features of a product or a service their customers truly value. Often a premium can be charged for time-based services. Now is the moment to start collecting that premium. Amid crisis, even the most loyal customers will respect a company's decision to collect for the true value it provides.

The past couple of years have been the most challenging in living memory for most companies. As the survival phase passes and growth again beckons, allow a little time for forward planning. It would be a shame to waste the crisis and not get a step ahead on the highly competitive environment to come.

Neil Smith is the CEO of Promontory Growth and Innovation, a New York consulting firm that helps clients increase revenues and reduce costs in innovative ways.

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