Is one of your goals to “lose” some excess weight? Why not have the same goals for your business?
When you hear people talking about sales goals, they’re almost always referring to gross sales. “I want to do $500,000 in revenues. I want my company to grow to $1 million, $10 million, etc.”
But which is more important, sales or profits? Shouldn’t the goal be to increase profits? The money you keep after paying your expenses? Doubling your revenues doesn’t equate to doubling your profits, does it? In many cases quite the opposite happens. Sales may increase, but the profits lag far behind.
Perhaps a better idea is to “trim” your business – stop calling on the unprofitable and time consuming accounts – so you can reduce your costs and dramatically increase your profit margins. This in mind, let’s look at company XYZ, Inc.
XYZ Inc. is a Mfg Rep Company. It does nearly $6 million in total sales. The manufacturers pay commissions of 30 percent, so the company earns $1.8 million. The company pays out $1.5 million to its 30 employees and other expenses, leaving a $300,000 net profit. XYZ Inc. has nearly 600 accounts, but the bottom 200 accounts don’t do much business with them. They do, however, take up a lot of the sales and service time, effort and attention.
Doing an analysis, XYZ Inc. discovered their 200 smallest accounts spend only $500,000 annually, but take up more than one-third of the sales staff’s available time.
Considering the implications they came to these conclusions:
If they stopped calling on these small (the bottom third) accounts, sales would drop to $5.5 million Commission income would drop to $1.65 million from $1.8
However, they could reduce their employee count and related expenses by 1/3, or $1 million (a $500,000 savings). The result would be a $350,000 increase in profit to $650,000. “Trimming” the business was step one.
Step two was to have the entire company focus their efforts toward improving the quality of service to their best, or their “A” Class customers. This meant the team could easily keep their best customers very happy, turning them into raving fans that referred additional business to the company. The bonus was that the prospective customers referred by the “A” Class customers were just like them – also “A” Class. They were also able to find additional products and services they could sell to those “A” Class customers.
The sales team identified their “ideal customers,” their qualities, size, values, culture, etc. – customers they wanted to do business with, and then went after them. The attitudes and morale of the organization changed. The salespeople were making more money, and everybody was having more fun because they were spending their time, energy, and effort serving their “A” Class customers. And, with their new found free time, they are able to look for new opportunities and clients with the same profile as their “ideal customers.”
XYZ Inc. can now set its sights on the goal of growing the company to $8 million, and then $10 million in sales, by doing business with only the “best” customers, with much higher profit margins.
So, how can you reduce some excess weight in your business this year?
Here are the three things we just went over:
Trim your customer base. Stop calling on those who take up lots of your time, are hard to deal with, price shop, etc., and don’t do much business with you anyway.
Create a profile of your “ideal customer,” and then find more clients who fit that profile.
Give your best customers a consistently incredible, “wow” level of attention and service.
Then of course use a business plan system that is easy, fast, sustainable and therefore entirely practical to focus on, and be accountable for, the activities that will truly advance your business to new levels of SUCCESS!
WHAT’S THE NEXT STEP?
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