The very nature of sales means that teams are under constant pressure to meet financial targets, in order to support an overall increase in revenue for their employer. But with UK economic growth slowing to 0.4% in the first quarter of the new financial year and yet another report from the Office for National Statistics lambasting UK workers for poor productivity, this pressure is set to continue increasing.
Revenues rely heavily on margins. However recent findings from a recent report I’ve been working on with profit performance experts Vendavo suggest that sales teams and senior managers aren’t working as well as they can together on margins to ensure business success. The Margin Matters report is based on a poll of 200 C-Level executives from larger enterprises with revenues over $1 billion across Europe and highlighted a need for businesses to…
1. Define what margin means – According to the research the way that margin is defined within an organisation is vital, with a startling 80% reporting inconsistencies across their business. Those with one completely consistent definition of margin within their business are most likely to be growing ahead of market expectations, while 57% who report that growth is behind have no agreed definition of margin, compared to 8% of those ahead of expectations. This will of course vary depending upon the type of organisation and its objectives. But clarity across the business is clearly key. Working towards a common goal is impossible without a common understanding of what that goal actually is.
2. Base pricing on hard-facts, not gut feeling – Margin is inextricably linked to pricing and deal sizes. Yet those surveyed believe their sales teams still rely on gut feeling and personal relationships to agree the price of deals. Again, the study suggests this is having an impact on financial performance: CFOs that have made low gains for their shareholders are most likely to report that their sales team still base prices on gut feeling (62%), while CFOs that have made high gains are most likely to report that sales team use up to the minute data (45%). Tools are available which analysis business data to set and deliver optimised pricing to the front lines. Sales teams can then take these boundaries and fine-tune deals within them according to the needs of their specific customer.
3. Use pricing as a profit lever – Further analysis of the Margin Matters results suggests that pricing could also be used more effectively as a profit lever. In the last five years, nearly half (49%) of all organisations have applied price increases or price reductions, yet less than a quarter (22%) found it to be the most effective lever. The research indicates that having relevant up to the minute pricing data in the hands of sales teams would support profit growth – an organisation’s ability to drive growth in profit margin is higher and they are more likely to be growing ahead of market expectations – 55% of these organisations are using real-time data to make pricing decisions.
In conclusion, it’s those businesses which communicate clearly and equip their sales teams with the most useful real-time business data that will be the most successful. To find out more, register to receive the full report in May 2016 at www.marginmatters.eu.