When you hear people talking about sales goals, they’re almost always referring to gross sales, i.e., “I want to do $1,000,000 in sales. But what is more important — gross sales or net profits?
Increasing net profits, the money you keep after paying expenses, should always be the goal. Doubling sales does not necessarily mean doubling profits. In many cases, quite the opposite happens. Sales may increase, but profits lag far behind.
Pruning your business is a better idea. Stop calling on the unprofitable, time-consuming accounts.
Consider the situation a business owner we’ll call John finds himself in:
John owns a manufacturing rep company that does nearly $6 million in total sales a year. The manufacturers pay his company commissions of 30 percent, so his organization earns $1,800,000. It costs him $1,500,000 to pay his 50 employees and other expenses, so John takes home about $300,000.
He has nearly 600 accounts, but 200 don’t do much business with him. They do, however, take up a lot of the sales and service department’s time, effort and attention. After analyzing his business, John discovers that these 200 accounts spent only $500,000 with him but took up over one-third of his company’s available time.
He concludes that if he stops calling on these small (bottom third) accounts, the following would happen:
- His sales would drop to $5.5 million
- The organization would earn $1,700,000
- His employee count and total costs could be reduced by one-third, to $1,000,000, resulting in a savings of $500,000
- His take-home income would increase to $700,000, an increase of $400,000
Target Your “A-class” Customers
After John prunes his business, he focuses on improving the quality of service his A-class clients receive. This is easy to do because his employees are no longer wasting their time servicing the unprofitable accounts.
Because his best customers are very happy, they became raving fans who refer lots of other A-class businesses to John’s company.
The attitude of his entire organization changes. His sales people start making more money, and everybody has more fun because they are spending their time, energy, and efforts serving great customers.
And with their new-found free time, they are able to look for new opportunities and clients with the same profiles as their best customers.
John is now setting his sights on making $8 million and then $10 million in sales a year by doing business with only the best clients, and he figures he’s going to have much higher profit margins.
Grow Your Business
Here are three things you can do to make more money:
1. Prune your customer base and stop calling on those who take up lots of your time but don’t do much business with you.
2. Give your best customers outrageous levels of attention and service. Undercommit. Overdeliver.
3. Create a profile of your ideal client, then find clients who match it.
You’ll have more fun, and make lots more money.