01 Feb

You Don’t Have to Sell More to Make More Profit

I often hear, “Our sales are down…we have to hire a trainer, coach, consultant to increase our sales.”  “Our sales are up…we are doing good…look at that revenue pouring in; we don’t need any help.”   If you are basing the health of your business on your revenue, sales, or profit, you may be making a mistake.  Hopefully, you want to grow your business, and commonly that is measured in sales and profit.  You don’t have to sell more to make more profit.  There are other things you need to focus on first.

I can sum it up this way…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.  Following it can make you less profitable and ultimately ruin your company.

Let’s look at a simple example:

If a business has $400K in sales in the first year and $600K  in sales by the second year, how much did the business grow?   Most anyone would say the business grew by $200 thousand, and all was well.  Those who say sell more to make more would be leading that and smiling.  They could be wrong.

Given the same sales, what if I told you that the operating margin declined from $100K to $50 K in the same period and net profit declined from $24K to $9K, 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% annual growth, and Operating Margin should not grow more than 20% per year. You Don’t Have to Sell More to Make More Profit

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 Facing Components of a Company:

PRODUCT MANAGEMENT – focuses on the profitable delivery of single Products and Services
PRODUCTION – focuses on error-free delivery of each Product or Service
VELOCITY – focuses on the efficiency of the delivery of many Products and Services
TEAM BUILDING – focuses on the highest level of People, Performance, Commitment, and Productivity.

Consider too that you have Four Customer Facing Components of a Company:

MARKETING – defines, identifies, and locates new, first-time customer revenue opportunities.
SALES – qualifies, proposes and closes new 1st time sales
CUSTOMER SERVICE – manages Post Sale Transactions and upselling opportunities.
CUSTOMER CARE – ensures existing Customer retention.

Keeping these components in balance with each other is the basis of control for all company problems and issues.  Balance is the outcome of ensuring all components are functioning properly, and one is not receiving more emphasis than others.  Control the balance, and you control growth, you control your profitability, and you successfully compete in the external market.

Consequently, selling more goods or services no longer becomes the best or safest way to more profitability.

If you can reduce your Costs while slightly growing your sales, in balance with each other (Internal-facing combined with Customer facing), you can successfully grow your profitability without a corresponding increase in sales.  In other words, you are working smarter and not harder.  You have balanced your eight components and are operating at optimal efficiency.

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 are better…it may not be.  You Don’t Have to Sell More to Make More Profit