Tag Archives | profitable sales

It’s All About Profitable Sales, The Rest Are Just Details

Many times, when we come into a company, we find that there are three buckets: sales, operations, and finance/accounting. Those buckets create silos – no one goes in and no one goes out. But over the years, we have found that the most successful companies do not have these silos at all. While their title may be in one of these three areas, their duties should always include wanting profitable sales. In business, it’s all about profitable sales, this drives everything else.

It's all about profitable salesIt’s All About Profitable Sales

Business is a game… Not life. What does that mean? There are rules and boundaries. Every company has very similar cards to play. Although you can get creative in how to win the game, there are general obstacles that you will face, including:

You have all these people or variables in the game, but driving profitable sales will help win the game. Increased sales with the proper margin increase profitability. As part of management in an enterprise we should all be concerned about sales and margins. Professionals in the finance and accounting department should be equally concerned about sales and margins.

Don’t Get Caught in the “Pitfall”

The Pitfall is that any sales are good sales. Time and time again we have seen enterprises make sales with no margin, or even at a loss. The reasoning for this is that sometimes sales people or management find themselves in a cash crunch and believe that any sale is a good sale. A sale with no margin or a loss actually pressures the bottom part of the cash flow statement. Yes it is true, any sale if collected will drive a cash collection. But if this comes at a no margin or loss of margin this pressures the rest of the cash flow statement and takes away from net cash.

If you have sales and your margins are positive, the rest are just details.

If you struggle with the concept that any sale is a good thing, you are not alone. Under cash flow pressure most managers and owners get caught in the trap that any sale is a good sale because that leads to a collection. A sale without a profitable margin does more harm than good. It eats into your net cash available.

With a sale that contains a positive margin, now you have something to manage. Below the gross margin line you can now manage the details. Are my fixed costs to high? Are my sales and administrative costs under control? Do I have options to bring in cash from debt sources?

If the focus of your company is on profitable sales, then it’s crucial that you forecast or project your sales accurately. Click here to access our Goldilocks Sales Method whitepaper to build your sales pipeline and project accurately.

It's all about profitable salesDouble Your Sales

In April, some of our team went to a large marketing conference in Arizona, called ICON. During one of the breakout sessions, they mentioned that there are four ways to double sales. Since it’s all about profitable sales and the rest are just details, we want to use this week to discuss how to double your sales (and grow your company).

For the purpose of this section, we need to go back to Marketing 101. First, you have your traffic. These are the hits on your website or the company’s in your target market. Then you have your leads. These are the individuals or companies that you have qualified and are already in discussion with. Next, you have your conversions – the clients you convert from leads to sales. Finally, you have your sales price. While this is extremely hard to do when you are established, we’ll go into more detail of how to accomplish that last option to double your sales.

Double Traffic

Traffic is the largest section of your sales pipeline. The more amount of potential clients you have in your funnel, the more likely you are to convert them into sales. For example, if you double your traffic from 1000 to 2000 with a 40% conversion rate to lead and a 10% conversion rate to sales, then you’ve doubled your sales. Let’s work that out though.

Current Sales Pipeline:

1000 in Traffic

40% Conversion Rate

400 Leads

10% Conversion Rate

40 Sales @ $100 per widget equals $4000

Doubled Sales Pipeline:

2000 in Traffic

40% Conversion Rate

800 Leads

10% Conversion Rate

80 Sales @ $100 per widget equals $8000

As technology advances and competition increases, a low-hanging fruit is to optimize your website for search engines, put more Call to Actions on the site, and then improve your sales pipeline. Other options include:

  • Networking events
  • Referral partners
  • Increasing social media presence
  • Guest blogging
  • Pay Per Click
When you double your sales with traffic, it can be difficult to put together your sales projections. Click here to download our Goldilocks Sales Method whitepaper to learn how project accurately.

Double Leads

Get fanatical about doubling your leads! The more leads, the more sales. As we move down the pipeline, it’s going to be more difficult to accomplish (and project). When you double your leads, it qualifies them as a prospective buyer. For example, a candle supply distributor offers a $0-1 wick. That’s a low cost buy-in that qualifies that lead for wanting candle supplies to make candles. Eventually, those leads will be wicks wholesale, along with other candle supplies (wax, aromas, containers, etc.).

Using the same example as above, let’s work out how doubling your leads can double your sales.

Current Sales Pipeline:

1000 in Traffic

40% Conversion Rate

400 Leads

10% Conversion Rate

40 Sales @ $100 per widget equals $4000

Doubled Sales Pipeline:

1000 in Traffic

80% Conversion Rate

800 Leads

10% Conversion Rate

80 Sales @ $100 per widget equals $8000

Double Conversions

Conversion rates should be a financial leader’s best friend! Once you set a conversion rate goal with your sales teams, it’s a great way to hold them accountable and track the likelihood of converting a lead into a sale. You can double your conversions in a variety of ways, including:

  • Offering something for free in exchange for an email address, a phone call, etc.
  • Asking a lead to purchase something for a small amount (i.e. $7)
  • Offering a lot of value for an affordable price (i.e. $50)
  • Giving a lot more value for a higher price (i.e. $200)

When you have multiple steps in your sales funnel, it makes it easier to project your sales pipeline. For example, 50% of leads will buy into the first offer (free). 50% of those buy-ins will get the $7 widget. 30% of those will pay $50. And %20 of those will pay $200. But to actually double your conversions, you need to focus on the top first. Then push boundaries to create a vulnerable connection. We’re learning that customers all over are wanting something authentic.

Let’s see how doubling the conversions will double sales:

Current Sales Pipeline:

1000 in Traffic

40% Conversion Rate

400 Leads

10% Conversion Rate

40 Sales @ $100 per widget equals $4000

Doubled Sales Pipeline:

1000 in Traffic

40% Conversion Rate

400 Leads

20% Conversion Rate

80 Sales @ $100 per widget equals $8000

Double Sales Price

Doubling your sales price is extremely difficult to do, especially if you are already established in an industry. But it’s a way to double your sales! For example, Netflix just increased it’s price 10% for some of its memberships. Even though, that only equates $1-2, many were outraged while others were okay. Mckinsey & Company says that, “Pricing right is the fastest and most effective way for managers to increase profits.” There are many variables, including timing and value, that need to be assessed before you double your sales price.

Goldilocks Sales Method – Building Your Sales Pipeline

Regardless of whether you want to double your traffic, leads, or conversions, it’s essential that you now how to forecast your sales. After all, it’s all about profitable sales. This not only protects the cash, inventory, operations, and sales teams, but it protects the executive team from uncertainty.  Click here to rebuild your sales pipeline and project accurately with our Goldilocks Sales Method whitepaper.

It's all about profitable sales

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Improving Profitability – Fuel for Growth

How do you focus on improving profitability instead of just boosting sales? 2016 wasn’t the best year for some of us, but the new year provides a perfect opportunity to reassess goals. An entrepreneur’s natural tendency is to increase sales in order to balance out last year’s financials. But what many entrepreneurs fail to consider is are those sales actually profitable?

There’s Only So Much Cash

Why is improving profitability instead of simply increasing sales so important? Because, believe it or not, you can actually grow yourself into bankruptcy.

Huh?

Many are quick to say that more sales is the solution – however, there are a lot of factors you have to consider before you start selling everything. One of the most important metrics you must know is your cash conversion cycle. The cash conversion cycle is the length of time it takes a company to convert resource inputs into cash flows.

Cash Conversion Cycle Formula:

Cash Conversion Cycle (CCC) =Days Sales Outstanding (DSO) + Days Inventory Outstanding (DIO) – Days Payable Outstanding (DPO)

– or –

CCC = DSO + DIO – DPO

improving profitability instead of salesDaily Sales Outstanding (DSO): This metric measures the number of days it takes to convert your receivables into cash. Ideally, the faster you can collect, the faster you can use the cash to fuel growth.

Days Inventory Outstanding (DIO): This is an indicator of how quickly you can turn your inventory into cash. Reducing DIO is good. If all of your cash is tied up in inventory that isn’t moving, then you might have a problem.

Days Payable Outstanding (DPO): This measures how quickly you are paying your vendors. If you are consistently paying your vendors more quickly than you are getting paid by your customers, then you risk running out of cash. If your vendors aren’t giving you a discount for paying early, then why are you paying early? If you have 30 days to pay, then why pay on the second day? Use that cash for the other 28 days you have for other vendors who offer you discounts or to fuel growth.

Managing the cash conversion cycle is a key way you can enable your company to grow.  And we all know how fond entrepreneurs are of growth…

(Click here to learn How to be a Wingman and be the trusted advisor to your team.)

Cash is like Jet Fuel

Often, entrepreneurs (especially those from a sales background) focus on improving sales. What many fail to realize is you can actually sell yourself into bankruptcy.

Let’s compare a business to a jet. If a jet is moving at a constant pace, then the fuel used to power the jet runs out at a constant pace. From a business perspective, if the sales in a company are constant, then the cash and assets required to fuel the company is also constant and predictable.
improving profitability instead of salesHowever, if a company decides to increase sales, then this requires more “fuel” or cash.

But if an entrepreneur decides to increase sales to a greater degree than cash flow, almost vertically, then the business may run out of fuel (cash) and can ultimately crash and burn.
improving profitability instead of sales

The quicker you grow, the quicker you burn cash.

improving profitability instead of sales

Sustainability is Key

The sustainable growth rate of a company is a measure of how much a company can grow based upon its current return on assets. The sustainable growth rate of a company is like the wind turbine of a jet. Naturally, the wind turbine gives the jet a 5-10% incline. But what if you want to grow to 25%? Or 50%?

To grow faster than your return on assets, you’ll need to take on additional debt or seek equity financing. Either you pay for it, or someone else does. To avoid increasing debt or giving up control, it’s important to maximize your current asset velocity (think managing CCC) and make sure your sales are profitable.

(Be more than overhead. Be the wingman to your CEO by increasing cash flow!)

How to Grow Your Business

If you want to grow your business, there are a couple of things you can do:

(1) Increase your profitable sales. This means deciding which projects have the lowest risk, but highest reward for your business. Time is money, so which customers are worth your time? In exploring this, you might have to conduct some market research for your target market.

For example, if you have some customers who are slow to pay, they’re straining your liquidity. Although it may be difficult, you might have to fire some customers and focus your resources on customers that aren’t such a drain.

(2) Increase capital. Capital is the funding you need to grow the business. Capital can be an investment from an outsider, or it can be cash generated internally by increasing cash flows and maximizing profitability.

Internally: A company can increase cash flow by managing the cash conversion cycle. Collect your receivables faster and manage inventory levels and payables. It is a good idea for a company to grow as organically as possible, meaning growing cash internally.

Externally: If you’ve tightened up your CCC as much as possible, it might be necessary to look for outside sources of cash. However, having external sources of cash is a trade-off; you’ll have debt with a bank, and you might have to give up part of your company to investors (depending on the terms).

Conclusion

So when your business owner says, “let’s increase sales!”, remember focus on making profitable sales. Look at improving the Cash Conversion Cycle to make the most of your internal resources.  Consider outside financing when/if your existing return on assets won’t get you where you want to be.

Don’t crash and burn – make sure your company has the fuel it needs. Your business owner is looking to you to help them grow their business. To learn how to do it, access the free How to be a Wingman whitepaper here.

improving profitability

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Don’t Let Your Business Lose Money for Too Long!

Over the holidays we were asked by an investor to examine a company and determine if it could survive. We reviewed the financial records and met with management. At the end of our review both we and management agreed that we were about a year too late in saving the company! What difference does a year make?

The Difference of a Year

What was different one year ago? The company had a profitable business surrounded by money losing products and high overhead. Action could have been taken to shed the unprofitable business, reduce expenses and grow the profitable sales. Unfortunately, time had run out!

Don’t Let Your Business Lose Money for Too Long!

One year ago the company had positive working capital and a good relationship with their vendors. Over the past year, they consumed their cash and disappointed their vendors to the point that no one was willing to work with them. The best analogy would be to imagine you are flying an airplane and the engine stops. As the plane plummets toward the earth you don’t wait until 1000 feet over the ground to bring it out of a dive! Same thing with a company!

If you find your company in a dive and losing money you should remember two rules:

Rule #1: Don’t Lose Money!
Rule #2: See Rule #1!

It is imperative to take corrective action early in the crisis. Most entrepreneurs do not want to take one step backward. Unfortunately, it is sometimes necessary in order to survive a recession.

Don’t let your business lose money for too long! If you are seeking more ways to make a big impact in your company, download the free 25 Ways To Improve Cash Flow whitepaper to find other ways to improve your cash flow within 24 hours.

Don't Let Your Business Lose Money for Too Long!

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Access your Cash Flow Tuneup Execution Plan in SCFO Lab. This tool enables you to quantify the cash unlocked in your company.

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