There are a lot of people in business who either believe more sales equals more profit or want you to believe more sales equals more profit. Let me share this – more sales does not equal more profit.
Certainly, sales are important and I am in no way suggesting it isn’t. However, sales are but 1 part of a business. If used correctly it can be an important contributor, if allowed to go forth and sell, sell, sell, it can destroy your business. Understanding both how it can do that and what to do about it to prevent that is an important step to developing sustainable sales revenue and sustainable profit.
Let’s start with the basics, when sales people are actively contacting as many customers as they can with the hopes of generating more quote requests and as a result more sales, they are not helping your business. They are practicing the old and tired theory that more activity equals more sales. Yes, more sales equal more revenue, but should revenue be the focus of your sales force?
It’s real simple – being busy does not achieve the desired results. If your sales people are running all over their territories talking to people, meeting new people and so on, they are busy. This busy will create quote activity and that, in turn, will create revenue. It will not generate profit. Profit is the purpose of the business, not sales.
So, what do you do about it?
It starts with what you are selling. You may have a variety of products or services that you offer. Some are easier to sell for any one of a variety of reasons, some are more profitable for any variety of reasons. The key is to sell the right product or service in the right volumes. In other words, sell what makes you money and money, in this case, is profit. Let me give you an example:
CHANGE THE FOCUS OF YOUR SALES FORCE FROM REVENUE TO PROFIT
I worked for a company that provided in home health care. We made good money and our gross profit on our traditional services was about 42%. We had a particular service that amounted to nothing more than being a sitter or companion to the client. They did not offer treatment, they did not offer any hands on medical care or advice. This group was popular with the affluent market because the services were being requested for aging parents and disabled family members. To make a long story short, that particular category was incredibly profitable for us with gross profits averaging over 75%. Some of our sales force objected to selling this type of service preferring to sell more glamorous healthcare services with larger per sale commissions. That wasn’t helping our profitability. Certainly, larger sales gave us larger revenues; it did not give us larger profits. So, we restructured our sales compensation to give better rewards for the more profitable and fewer rewards for the less profitable. We changed the focus of our sales force from revenue to profit.
We often view sales as the measure of growth in a business. In some regards it is but the true measure is something entirely different.
Let me be very clear…REVENUE (SALES) IS ONLY A BENCHMARK AND IS NOT DIRECTLY RELATED TO GROWTH OF YOUR BUSINESS…OR IT’S SUCCESS.
Even in my example above, profitability focus alone is not a predictor of business success. Success, especially sustainable success, means focusing on those things that drive the quality delivery of your product or services. It means being efficient and promoting a culture of efficiency (and yes that culture drives your sales strategy too) Being efficient involves the management of:
- Waste – like it or not all businesses produce waste. From the wrong size materials to the standard by-product of making anything, waste is natural.
- Continuous Work Flow – How your process works, step by step, will impact your efficiency and add or decrease costs.
- Idle Time – Waiting to work is either unpaid time or time you have to pay an employee who is waiting on another employee. This is a loss.
- Delivery – Getting your product or service to the customer has a cost involved, getting your materials to you has a cost involved.
- Problem Solving – The ability to solve a problem quickly and efficiently with a more efficient process, material or product is critical.
There are many ways of addressing those 5 areas and each requires effort and commitment. Once you do, then your sales will not only happen more efficiently, what you sell will be delivered and provided more efficiently, resulting in sustainable growth. That is the measure of business success.