Financial Profitability, Sustainability, and Growth: From Sales Efforts to Bottom-line Returns
Business of all types and sizes face the challenge of capturing customers in increasingly competitive global markets, where more and more products are offered at lower and lower prices. Not only are companies facing downward pressures on prices, customers have ever-increasing expectations of customer service and quality, among other things. The business must have a product the market wants at a competitive price, AND it must be able to structure its business operations and activities to be sustainable under a cost structure that (when combined with the price) generates a profit. Moreover, this must be a profit that is not just at the total business bottom line, but on a sale-by-sale, customer-by-customer, business unit-by-business unit basis.
Profit, Customer by Customer
How does a business generate profit? Dollar by dollar and deal by deal, by generating revenues and controlling expenses. It is the combination of an ability to make a sale at a price that exceeds the total cost to the business.
Total Cost of Business
What does it take to stay in business? It takes more than covering the direct costs of producing a product. To stay in business, a business must generate sufficient sales to cover its core business costs, those that cannot be avoided in the near term. Revenues must also be sufficient to cover the costs of competing, e.g., sales and marketing and new product design.
Maximizing the Returns
How do you get the maximum return? A business is composed of activities. The top-line activity of sales must be focused on generating the maximum sales revenues possible for the level of effort invested. To accomplish this, the sales team must be focused on prospects and existing customers that are capable of generating profits. Investing efforts in generating deals that do not include profits doesn’t add to the bottom line and erodes the ability to compete.
What does it take to compete, succeed, sustain and grow? A business exists to generate returns to:
- Cover current operating costs
- Maintain current levels of infrastructure
- Compete for customers, resources,
- Add capacity
- Attract investment
Sales and the Profitability and Sustainability Equation
From the top-line revenues to the bottom-line profit, how does the business calculate profit? What do the numbers mean and why should the sales team understand the numbers?
VCR: Value of Customer Relationships
What is the true measure of a customer? Is it a single deal or over the life of the customer? How should the “profit” on an individual sale be calculated? Do you know the impact each customer has to the company’s bottom line? Is it a positive? Negative? Neutral? Why should the sales force be asked to not only understand but also be accountable for the real profit of each sale, when the sales force has little or no control over the price policies or cost structures of the organization?
Metrics, Measures, and Tools: Getting over Number Phobia
Whose responsibility is it? The bottom line belongs to everyone in the organization, so everyone needs to understand the financial statements and how profitability is impacted by activities, policies, and environmental factors. The “numbers” can be intimidating and the organization may be resistant to using them to improve performance. Making the numbers meaningful and implementing everyday tools in each person’s job makes the ultimate difference to the bottom line.
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