Are your sales team focused on Revenue or Profit?
Do you focus your sales team on revenue or profit gains?
After closing, what at the time, was the biggest deal personally in our business Company Shortcuts, when my Chairman responded with:
“But surely you must have had deals of this size before in your corporate career when you were working for Gucci or P&G”,
…and of course I have, so why did this deal feel so different?
I realised it's the way I’d been focused previously in my career roles AND looking back, that the way I’d been targeted or what numbers I’d been asked to deliver on would have had a massive impact on the profitability of my productivity. Sadly, many businesses also fall into this trap and don't focus their teams on profit.
In my previous corporate sales career the focus primarily had always been on Number of Units Sold. When selling new fragrance launches into some of the biggest UK retailers I, along with my other sales counterparts, were always given an allocation of units (or SKUs) and our job was simply to sell on volume and match the stock sold in against the stock allocation we have been given. Selling stock we didn't have caused as many headaches as ending up with large volumes of one size product left over, which was always a challenge as often the product came in 3 sizes and retailers obviously wanted higher volumes in the most popular one.
Ask me back in those days, the sales revenue of these deals (never mind the profit margin) and I wouldn’t have had a clue. That information was never shared. I had no idea on the revenue generated for our company, let alone the costs of sale or the direct costs of the business. I did, of course, know the RRPs of my product range, but as I was asked to deliver on Unit Sales – that’s what I did. Madness when I look back now.
Roll forward into other roles in my career and very often I was simply asked to deliver against a Top Line Sales Number, and often we would sacrifice margin to get a deal closed. Again, often because the business I was working for hadn’t costed their services properly or shared that information with me, I was unable to make decisions based on profit. As long as I hit my number I felt I should be duly rewarded, even if my actions had had negative cashflow implications or my deals were loss making – as long as I hit my number I didn't care.
Think carefully about how you target your teams, as that is ultimately what they’ll deliver.
So when we closed this particular deal in Company Shortcuts, the reason I was on a high is that since running my own businesses for the past 10 years and having lived through the self learnt pain of understanding the relationship between sales, margin, profit and cash and what can be devastating implications of losing focus of any one of these - this particular deal was the biggest we have closed to date, or at least the biggest since I’ve started to appreciate sales revenue in this way and the relationship between money at the top and profit dropping through to the bottom line.
We see so many other businesses of all sizes, from the micro businesses through to the large corporates, where teams are so detached from Profit Generating Activities that they misdirect their sales teams activity and end up, at best, increasing revenue but not profit, or at worst increasing revenue but to the detriment of profit and cashflow.
The solution is simple - share this information with your team!
Here are some thoughts on how:
- Give them access to accurate costing’s, so they can understand how to structure a deal AND maintain target margin. A really good excel spreadsheet stored in a shared drive is a good start.
- Target them on both revenue AND margin. Put in place a minimum margin per deal managed by protocols so that if they want to sign something off, below the agreed level, they must seek higher approval.
- Put in place a profit share bonus. I always advocate both individual and team targets & rewards, to create both a cohesive yet competitive team – BUT make sure at least one of your metrics of success is profit driven.
- Build a culture (so it needs to be constantly communicated) that profit is a result of both increased sales AND reduced costing’s. How can your team help reduce wastage and bring down the cost of sale? You want to reward behaviour, for example, if they choose to take a train home 15 minutes later than planned after a client meeting, if it saves you £30 off their travel expenses. Must they attend every client meeting face to face? We deliver as many pitches using Skype or similar online platforms – a massive cost of sale saving.
- And finally, when you have your annual, quarterly or monthly Team Reviews/Strategy days, make sure you share and celebrate not just increased growth on the topline, but increased profit on your bottom line.
We all know to grow your business into an asset; your focus needs to be on profit, so why not make this everyone’s focus in your business too!
Download our complimentary framework number A3, maximising the value of your business and you’ll see point 1 (of many) is of course PROFIT!
Nicola Cook is an award winning entrepreneur and twice published international best-selling author. To find out more on how Company Shortcuts can help your organisation growth accelerate email email@example.com, call the team on +44 (0) 203 397 6714. Find out details of our upcoming events.