When it comes to sales “the top line is vanity, the bottom line is sanity”. Sales do not always lead to profit. In some cases, not making the sale is the best choice. For a business to stay afloat, each sale needs to cost less than the amount charged.
Not all sales are created equal. By tweaking your top line, a business can flip the bottom line from a loss to a profit. It is difficult to be all things to all people! By focusing your marketing and sales effort to your most profitable line and utilizing your company’s strengths miracles can happen.
The first step is knowing your numbers and your business. Each business is unique. The offerings can be unique, the delivery system, management team and the entire process is different in every business. Identify what you have to work with:
- Identify your current income or sales streams. Break it down into different types of sales. Consider streams such as products, installation, training, warranty, etc.
- Look at each sales stream to see how it contributes to the total sales. For example, product sales may account for 60%, installation 10%, training 25% and warranty 5%. This is your sales mix.
- Determine how much of each income stream you keep to cover your overhead. This is the gross margin by type of sale. For example –
- on product sales, you keep 50% of the sale for overhead,
- for installation and training staffing and training take 75% leaving 25%
- warranty sales may take 10% leaving you 90%
Second step is taking a step back and reviewing your internal situation. Determine which income stream to focus your efforts to get the most benefit.
- Which sales stream can provide the most income to cover your overhead?
- Which sales stream is the easiest for you to sell or promote?
- Which sales stream creates repeat business?
Third step – look to the outside and adjust. Unless you have unlimited supply of time, energy, talent and money you will achieve more by focusing on your most desirable sale. Identify your most desirable sale and create a process that works with your most desirable customer.
- Identify the target customer for the desired income stream. Look through your current customers and select the best ones. Note age, location, stage in life, values, philosophies, the pain they are in, the hope they are looking for, etc.
- Identify the benefits you provide – in their terms. Do you reduce their stress, eliminate surprises, make them feel better about themselves, etc.
- Draft a system to attract the best prospects. Then a sales process to present and move them into customers. Next a system to build the relationships and keep them as your customers.
Fourth step – take action. Everyone has a sales system in place. It may not be much of one. Start with the biggest hole. Focus on one change at a time. Then build.
Fifth step – measure your progress. Measure your sales mix and the applicable gross margin and see the changes.
|GM%||Sales $||GM $||Sales $||GM $|
|Product||50%||$ 1,000||$ 500||$ 1,000||$ 500|
|Installation||25%||$ 100||$ 25||$ 100||$ 25|
|Training||25%||$ 500||$ 125||$ 300||$ 75|
|Warranty||90%||$ 200||$ 180||$ 400||$ 360|
|$ 1,800||$ 830||$ 1,800||$ 960|
|$ Increase in total Gross Margin||$ 130|
|% Increase in total Gross Margin||16%|
|$ Increase in total Sales||$ –|
|% Increase in total Sales||0%|
At FOCUS CPA we work with business owners to help them work smarter – not harder. Call and setup an appointment for a financial review. They start at $500 and go up depending on the information we have to work with.
By Mary Guldan-Lindstrom, CPA