Business Coach learnings about Unprofitable Sales
Business Coach learnings about Unprofitable Sales
Dominic Rubino
The next time one of your sales reps comes in after landing a big sale, will you be left wondering how much money you lost on the deal?
You’re in business to make a profit. Yet if you’re still paying your salespeople based on the volume instead of the profitability of the deals they generate, you’re doing so at the sake of your bottom line.
Sending your sales team out to hit the streets without a specific profit directive is as bad an idea as if a football team were to run an east-west play that didn’t gain any yards. What’s the point?
Perhaps your company falls into one of these common categories of why compensation isn’t tied to deal profitability:
Your supplier measures your performance based on unit sales, and that cascades down into your own sales offering
You don’t know your COGS (cost of goods sold) or COS (cost of sales), because you figure it’s too hard to measure
It’s harder to train your people on the basis of maximizing profits than revenue, and may require changing your compensation plan
Your competitors have convinced you that you’re selling a commodity
You believe you have nothing unique to add to your offering to add value (and profits)
You allow too much variability or special pricing on a deal
You don’t have the right CFO to keep you in check
You’re afraid to raise your prices
You figure “we haven’t run out of money yet…”
Any one of those reasons could be the choke point for you. Unfortunately, it can happen very easily. Consider the case of an off-road sporting goods company I know that asked the manufacturer for exclusivity on a new product line, and in return was asked to maximize unit volume. Sounds reasonable, doesn’t it? Yet the deal meant this company had to sell a huge volume of this product year after year, just to retain its precious “exclusive rights.” And the deal itself completely ignored profitability.
The firm’s sales reps, armed with the lowest-priced product in the market, did a great job, and sold tons of inventory. But the company constantly suffered cash-flow issues.
When its senior executives sat down to discuss this problem, someone asked, “How can our competitors even stay in business? They barely sell any of these compared to us!“ But quick math around the boardroom table revealed that the competition only had to sell one unit for every three this company did to make the same profit. In other words, this company was working three times as hard for the same result. The owner was paying three times as much in wages per dollar of profit, devoting more floor space and a larger line of credit to stock that much inventory and so on.
Even so, the owner resisted change. Like so many other business managers, he found it hard to move past the customary focus on selling as much as possible and figure out what it might take to shift to a focus on profitability. “How will we tell our sales team that we have to raise our prices that high, and not have them all quit?” he asked.
A fair point. But how does a farmer explain to his neighbour that his cow ate the other guy’s cabbage? “Hey neighbour, my cow ate your cabbage. Sorry about that.” Just tell them!
In the end, the owner bit the bullet, and was glad he did. He ended up paying his reps more per deal at a newer, more profitable price. After some explaining and a few weeks’ trial, he didn’t lose a single rep, and his profits (not units sold) went up. It turns out the exclusivity wasn’t such a big deal after all.
It comes down to having the discipline to look at your profit numbers and base your decisions on them. When I was a student painting franchisee during university, one thing the franchisor taught me was to do a job-by-job analysis after the job was done and I’d been paid. Wow, did I ever learn about profitability versus unit sales from that!
I also learned that it’s not as hard as you might think to convert to paying salespeople based on profitability. True, you’ll need to sell the concept to your team, and make sure you don’t cross any legal/HR boundaries. You might need to amend your employment contracts, and you should be careful to treat past and “in process” deals fairly and pay all commissions. And if you suddenly realize that you’re losing money on current deals, it’s unethical to penalize your reps for working in a system you created. However, once you know your profit per sale, you might even find you can pay your reps more.
Wondering where to start? List all your C.O.S. items, such as wages, office-rent allocation, benefits, phone, car, mileage, training etc. Commission is probably a variable. Then look at how many units a salesperson sells in the same period. Based on their total sales, how much total profit do you make from them? Divide the profit into their total units sold and you have gross profit per item.
By the time you get this far, you’ll have already asked, “Are my reps making me money?” If not, don’t be too quick to blame them. After all, you set the price they’re selling at. But have a look at profit per deal. Are you leaving money on the table?
Where I live, there is a specialty custom stereo retailer who understands this profit game really well. Since it allows its sales reps (and customers) some pricing flexibility, it wanted a pricing structure that would permit some leeway without requiring the owner to look at every deal before approving it.
He therefore adds his target profit to his costs before he shares pricing with his team. He calls this his wholesale list price. So if he buys a product from his supplier for $10, he presents it to his team internally at a $13 wholesale cost.
He also gives his team pricing flexibility with a minimum and maximum markup percentage. So he instructs them to sell it in the range of $28 to $32. The salesperson is paid a very generous 10% commission for selling at the high end of the profit range, 5% for selling at the low end, and 0% for selling below $28. Incidentally, selling a product at the high end of the range gives the reps bragging rights among the team.
At first glance, you might be asking: what’s the difference? He still makes a sale and pays a commission. But look at the difference in profit!
And this kind of result doesn’t come about by accident. Profits have a way of getting away from us if we don’t focus sharply on them. The bottom-line question you need to ask yourself is about the bottom line itself. Are you in business to make money? If you are, then why wouldn’t you design your sales compensation to deliver that?
Dominic Rubino, FocalPoint Business Coaching, powered by Brian Tracy
Business Coach learnings about Unprofitable Sales - To learn more about this author, visit Dominic Rubino's Website.
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Stop chasing unprofitable sales
Dominic Rubino
The next time one of your sales reps comes in after landing a big sale, will you be left wondering how much money you lost on the deal?
You’re in business to make a profit. Yet if you’re still paying your salespeople based on the volume instead of the profitability of the deals they generate, you’re doing so at the sake of your bottom line.
Sending your sales team out to hit the streets without a specific profit directive is as bad an idea as if a football team were to run an east-west play that didn’t gain any yards. What’s the point?
Perhaps your company falls into one of these common categories of why compensation isn’t tied to deal profitability:
Your supplier measures your performance based on unit sales, and that cascades down into your own sales offering
You don’t know your COGS (cost of goods sold) or COS (cost of sales), because you figure it’s too hard to measure
It’s harder to train your people on the basis of maximizing profits than revenue, and may require changing your compensation plan
Your competitors have convinced you that you’re selling a commodity
You believe you have nothing unique to add to your offering to add value (and profits)
You allow too much variability or special pricing on a deal
You don’t have the right CFO to keep you in check
You’re afraid to raise your prices
You figure “we haven’t run out of money yet…”
Any one of those reasons could be the choke point for you. Unfortunately, it can happen very easily. Consider the case of an off-road sporting goods company I know that asked the manufacturer for exclusivity on a new product line, and in return was asked to maximize unit volume. Sounds reasonable, doesn’t it? Yet the deal meant this company had to sell a huge volume of this product year after year, just to retain its precious “exclusive rights.” And the deal itself completely ignored profitability.
The firm’s sales reps, armed with the lowest-priced product in the market, did a great job, and sold tons of inventory. But the company constantly suffered cash-flow issues.
When its senior executives sat down to discuss this problem, someone asked, “How can our competitors even stay in business? They barely sell any of these compared to us!“ But quick math around the boardroom table revealed that the competition only had to sell one unit for every three this company did to make the same profit. In other words, this company was working three times as hard for the same result. The owner was paying three times as much in wages per dollar of profit, devoting more floor space and a larger line of credit to stock that much inventory and so on.
Even so, the owner resisted change. Like so many other business managers, he found it hard to move past the customary focus on selling as much as possible and figure out what it might take to shift to a focus on profitability. “How will we tell our sales team that we have to raise our prices that high, and not have them all quit?” he asked.
A fair point. But how does a farmer explain to his neighbour that his cow ate the other guy’s cabbage? “Hey neighbour, my cow ate your cabbage. Sorry about that.” Just tell them!
In the end, the owner bit the bullet, and was glad he did. He ended up paying his reps more per deal at a newer, more profitable price. After some explaining and a few weeks’ trial, he didn’t lose a single rep, and his profits (not units sold) went up. It turns out the exclusivity wasn’t such a big deal after all.
It comes down to having the discipline to look at your profit numbers and base your decisions on them. When I was a student painting franchisee during university, one thing the franchisor taught me was to do a job-by-job analysis after the job was done and I’d been paid. Wow, did I ever learn about profitability versus unit sales from that!
I also learned that it’s not as hard as you might think to convert to paying salespeople based on profitability. True, you’ll need to sell the concept to your team, and make sure you don’t cross any legal/HR boundaries. You might need to amend your employment contracts, and you should be careful to treat past and “in process” deals fairly and pay all commissions. And if you suddenly realize that you’re losing money on current deals, it’s unethical to penalize your reps for working in a system you created. However, once you know your profit per sale, you might even find you can pay your reps more.
Wondering where to start? List all your C.O.S. items, such as wages, office-rent allocation, benefits, phone, car, mileage, training etc. Commission is probably a variable. Then look at how many units a salesperson sells in the same period. Based on their total sales, how much total profit do you make from them? Divide the profit into their total units sold and you have gross profit per item.
By the time you get this far, you’ll have already asked, “Are my reps making me money?” If not, don’t be too quick to blame them. After all, you set the price they’re selling at. But have a look at profit per deal. Are you leaving money on the table?
Where I live, there is a specialty custom stereo retailer who understands this profit game really well. Since it allows its sales reps (and customers) some pricing flexibility, it wanted a pricing structure that would permit some leeway without requiring the owner to look at every deal before approving it.
He therefore adds his target profit to his costs before he shares pricing with his team. He calls this his wholesale list price. So if he buys a product from his supplier for $10, he presents it to his team internally at a $13 wholesale cost.
He also gives his team pricing flexibility with a minimum and maximum markup percentage. So he instructs them to sell it in the range of $28 to $32. The salesperson is paid a very generous 10% commission for selling at the high end of the profit range, 5% for selling at the low end, and 0% for selling below $28. Incidentally, selling a product at the high end of the range gives the reps bragging rights among the team.
At first glance, you might be asking: what’s the difference? He still makes a sale and pays a commission. But look at the difference in profit!
And this kind of result doesn’t come about by accident. Profits have a way of getting away from us if we don’t focus sharply on them. The bottom-line question you need to ask yourself is about the bottom line itself. Are you in business to make money? If you are, then why wouldn’t you design your sales compensation to deliver that?
Dominic Rubino, FocalPoint Business Coaching, powered by Brian Tracy
Business Coach learnings about Unprofitable Sales - To learn more about this author, visit Dominic Rubino's Website.
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Linda RichardsonLinda Richardson is the Founder and Executive Chairwoman of Richardson, a global sales training and performance improvement company. As a recognized leader in the industry, she has won the coveted Stevie Award for Lifetime Achievement in Sales Excellence and she was identified by Training Industry, Inc. as one of the “Top 20 Most Influential Training Professionals.” Ms. Richardson is credited with the movement to Consultative Selling and is the author of ten books on selling and sales management, including Sales Coaching — Making the Great Leap from Sales Manager to Sales Coach, and Stop Telling, Start Selling. She teaches sales and management at the Wharton Graduate School of the University of Pennsylvania and the Wharton Executive Development Center. Linda is a frequent speaker at industry and client conferences, has been published extensively in industry and training journals, and has been featured in numerous publications, including The Wall Street Journal, Forbes, Nation’s Business, Selling Power, Success, and The Conference Board Magazine. Learn more about Richardson's sales training and performance improvement solutions at http://www.richardson.com web - Visit Linda Richardson's Website |
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David AchesonDavid Acheson is the founder of DCJA Consultancy. DCJA Consultancy is a management consultancy business specialising in B2B sales consultancy. They offer bespoke and packaged sales consultancy including Sales Optimisation Review, Interim Sales Management, Sales & Marketing Review, 1:1 Sales & Management Staff Analysis, Management Training, Solution Sales Training, Creation of New Pay Plan, KPI's, run Customer Feedback Campaigns, assist with Recruitment, Coaching, Appraisals and set up Strategic Marketing Campaigns. David spent his early career in accountancy and then moved into sales in 1982, working in Office Equipment, IT, Advertising, Training, Outsourcing and Consultancy. He has held many Senior Positions in SMBs and Global Organisations including Head of Sales Operations & Head of Business Development. His knowledge, skills and great experience of the Sales Industry has led to David making keynote speeches and running educational sessions to key businesses through organisations including The Chamber of Commerce and Business Link. - Visit David Acheson's Website |
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Dave KurlanDave Kurlan is the founder and CEO of Objective Management Group, Inc., the industry leader in sales assessments and sales force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, the Sales & Marketing Management Conference and the Gazelles Sales & Marketing Summit. He has been featured on radio and TV, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, Sales & Marketing Management Magazine and Incentive Magazine. He is the author of Mindless Selling and Baseline Selling – How to Become a Sales Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the Sales Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling and 101 Great Ways to Improve Your Life, Volume 2. - Visit Dave Kurlan's Website |
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Leanne Hoagland-SmithAre your sales where you want them to be? Will you be one of the few who achieves sales or business success or one of the many who have failed to change? Are you tired of being told you are like everyone else? Then you may find my first book on sales of interest. Be the Red Jacket in the Sea of Gray Suits, The Keys to Unlocking Sales available at Amazon or at http://www.processspecialist.com/red-jacket.htm. This book is a reflection of my no-nonsense approach to improving sales to overall business results. If you are truly committed to making sustainable changes, then I can help you secure a positive return on your investment because I focus on executable solutions not telling you the problems you already know you have. From training to corporate (group) coaching to executive one on one coaching, my approach is to assess, create awareness, build a goal driven action plan and then execute. The bottom line question is "Not do you or your employees know it, but do you or they want to do it?" Please call for a free strategy session at 219.759.5601. - Visit Leanne Hoagland-Smith's Website |
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John BrennanJohn Brennan Ed.D. Dr. Brennan is President of Interpersonal Development, LLC, a training and development firm. Interpersonal Development has provided sales training and coaching to more than 3,000 sales reps from over 100 companies. A native of Australia, Dr. Brennan received his doctorate from the University of Rochester. His dissertation researched the effectiveness of Behavioral Modeling Technology in training people in interpersonal skills. While he has spent most of his career designing or delivering training, he was also a Vice-President of Sales of a training and development franchise with operations in 25 markets. Dr. Brennan has designed and delivered sales training in North America, Asia, Europe, Australia and the Middle East. He has been a guest speaker at numerous national and regional professional conferences. When Microsoft wanted Best Practices articles on sales for their web site, they called Dr. Brennan. The results are at http://office.microsoft.com/en-us/FX011387391033.aspx His firm’s clients have included Volvo, The Prudential, Merrill Lynch, Eastman Kodak, Gannett, Equifax Europe, the Economist Group and countless small businesses. - Visit John Brennan's Website |
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George LudwigGeorge Ludwig is a recognized authority on sales strategy and peak performance psychology. An international speaker, trainer, and corporate consultant, he helps clients like Johnson & Johnson, Abbott Laboratories, Northwestern Mutual, CIGNA, and numerous others improve sales force effectiveness and performance. Though it's George's strategies and processes that help corporations increase productivity and performance, it's his tremendous energy and dynamism that spark the transformation. Again and again, clients remark on his amazing ability to unleash human capacity and inspire men and women to break out of their comfort zones. The result is a whole new type of salesperson. His customized presentations teach achievers to make stunning advances in their lives. From helping salespeople realize cherished dreams to helping corporations exponentially accelerate revenue streams, George Ludwig leaves audiences and individuals empowered, emboldened, and clamoring for more. George is the best-selling author of Power Selling: Seven Strategies for Cracking the Sales Code and Wise Moves: 60 Quick Tips to Improve Your Position in Life & Business. - Visit George Ludwig's Website |
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Anne BarrAnne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations, networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
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Cheryl MatthynssensCheryl is a life skills coach, licensed Chemical Dependency Counselor and a 20 year entrepreneur. Cheryl's dedication to achieving a life of balance led to her expanding her teaching from the simple managing of life's daily challenges to adding financial well being as well. A direct marketer with DrinkACT, she is gaining ground in the online community with her concepts of making sure business owners, entreprenuers and employees have well rounded life styles. She opened up a small affiliate site - The Balance Guide- to help others find resources for mental and emotional well being. Visit Cheryl's blog to see more of the diversity beyond business she has began offering online at www.thebalanceguide.blogspot.com - Visit Cheryl Matthynssens's Website |
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