15 Dec

More Sales? Not Necessarily

 

 

REVENUE (SALES) IS ONLY A BENCHMARK AND IS NOT DIRECTLY RELATED TO GROWTH OF YOUR BUSINESS…OR IT’S SUCCESS.

 Pretty profound words that run against everything we have been told in every business development, marketing, sales or anything else program.  Sell more to make more.  Marketing will increase your sales so you can make more.

Yet that cleverly worded and seemingly logical mantra is not very accurate.  In fact, following it can actually make you less profitable and ultimately ruin your company. 

Let’s look at a simple example…. 

If a business has 1 million in sales in the first year and 3 million in sales by the third year, how much did the business grow? 

 Most anyone would say the business grew by $2 Million dollars and all was well.  Those who say sell more to make more would be leading that and smiling.  Yet we don’t have all of the information.

 

Given the same sales, what if I told you that the operating margin declined from $500K to $300K in the same period… and net profit declined from $165K to $100K, would you have the same opinion?  That increase in operating margin and the resulting decline in profits is exactly WHY selling more to make more is an idea fraught with risk and danger for your business.  Revenue growth doesn’t mean as much, although it should not exceed 50% and Operating Margin should not grow more than 20% per year.   Too rapid of growth could drain more profit reinvestment cash than the business might have.  This can happen through a variety of things occurring, most often in Cost of Goods sold. 

So what is the solution?    Leading and managing your company systemically, in balance, is one way.  Consider that you have FOUR Internal Delivery Focal Points of a Company. 

PROCESS ASSESSMENT – focuses on the profitable delivery of single Products and Services
PROCESS MANAGEMENT – focuses on error free delivery of each Product or Service
PROCESS IMPROVEMENT  – Waste Management focuses on the efficiency of delivery of many Products and Services
LEADERSHIIP – focuses on the highest level of People Performance, Commitment, and
Productivity. 

Consider too that you have Four Pre-Sale and Post Sale External Customer Touch Points of a Company. 

MARKETING – defines, identifies and locates new, first time customer revenue opportunities.
SALES – qualifies, proposes and closes highest possible margins
CUSTOMER SERVICE – manages Post Sale Transactions and sell up opportunities.
CUSTOMER RETENTION – ensures existing Customer retention and increases customer margins.

Each of the areas above contributes something either through revenue or cost reduction to grow the business.  That action ensures that you control your growth in a manner that helps ensure your sales do not exceed production and your production does not exceed your sales.  Your new business and repeat business is working together and you have the appropriate Team under proper leadership to ensure it all comes together as it should.

Ensuring that these areas are each contributing in a controlled manner is the basis of management for all company problems, and issues.  It ensures that the company equally balances its TOTAL operation and not favoring one over the other.  Control the balance and you control growth, you control everything, including your external market.

Consequently selling more or making more revenue no longer becomes the best or safest way to more profitability.

Remember our example from above?  Let’s illustrate exactly what I mean.  Sales are declining from $3 million in the first year, $2 million in the second year, to 1 million in the third year?  Now, what are your thoughts about company growth?  Many would say there is no growth and that this company is in decline.  But what if….

 Your operating Margin was able to increase from $300K to $500K, that would increase your profitability from $100K to $165K. 

Now what is better for your business?  Approaching growth as strictly an issue of sales and marketing or approaching your business holistically…running your business components as equal and inseparable Interdependent parts, when in balance, produce a synergistic performance result.

  

Don’t fall into the trap that more sales is better…it may not be.

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