by | Jul 10, 2018 | Sales Solution | 0 comments

What is it worth to focus on sales growth rather than on cost savings? I am not proposing for a minute that we should not be careful with expenses, but what if we direct that energy rather to growing sales?

Let’s say your business is doing R50 million sales per annum, you’re a typical good manufacturing concern and you make 50% margin on your raw materials. You buy material for R1 and sell for R2 after your manufacturing process has changed it into a saleable product.

Most businesses achieve about 10% operating profit. This means that your high level numbers will look something like this:

If you have employed about R35 million in assets – building, equipment and materials – your business will yield a Return on Investment (ROI) of about 14,3%

Achieving a 10% growth in sales without changes in margin and operating expenses will a result in a bit of a different picture:

If we define “making money” as simultaneously improving cash, profit and return on investment, your business has just started making money. You have increased profit from 5 million to 7,5 million, generating an additional 2,5 million cash and improved your ROI from 14,3 % to 21,4 %.

But let’s say your sales team develops the ability to increase the market’s perception of the value that your company’s offer brings them and you can increase prices by 5%. This is done without increasing your cost base but by changing the way your business sells. Now the financial picture looks something like this:

By achieving a higher margin, revenue grew without an increase in material cost. Doing this on the same operating expenses and with the same assets, your picture has again changed for the better and your business is making even more money. Now, with an increase in sales volumes and selling price, you have increased profit from 5 million to 10,25 million, cash by 5,25 million (yes yes – I know, some of that cash will sit for a while longer in your debtors book) and the return on investment is now 29,3%.

Is it really possible to double profit by just selling 10% more and increasing prices by 5%? Does this sound too good to be true? For most of us it is because we only have experience in managing and, even, cutting costs. Very few of us have experienced the power of a persistent and results-driven sales process that really leverages the right parts of our business.

Yes – there are many other things that we cannot control and that may challenge some of the simplifications used in this example. But even if we could support you in achieving only half of it, you will still MAKE MORE MONEY.

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