Do you know the cost of each sale for your business?

Sales are the lifeblood of any business.   Many sales people just bring in revenue…any revenue. But do you know the cost of each sale for your business?  When I am coaching business owners, most have at best a vague idea what the cost of each sale is. And yet, without a true understanding of these costs, any revenue may sound like a good idea.  You know, I need more revenue to grow my business and make more profit.

But take a moment to reflect on your “unsatisfactory customers” –  if they are slow payers, or you give them or they expect discounts to close a sale, or they always complain about the service; surely you don’t need more of these customers.  These guys suck your time, irritate you, provide cashflow stress to you, and take you away from productive and creative time to take your business to the next level.

And then there are the hard costs – wages and commission of your sales people, wages of the account management support team, car/travel, advertising, promotions/giveaways, wining/dining, gifts, your website, ….supported by admin and back office teams and systems to keep track and collect data and the cash.

So by adding these costs (an unsatisfactory customer PLUS real cash costs), knowing the cost of a sale relative to your mark up (gross profit margin) is essential to running a better business.

Imagine the wasted or down time of a sales person – waiting in a shop for a customer to come in, email/calls to cold or warm prospects, establishing relationships, travelling time to meetings….the key here is to better understand the ACTUAL time spent selling, versus the sales development time slots, versus the after sales and/or time needed for upsales/renewals.

And if your business is in high growth phase, knowing these costs becomes an essential “can’t live without” KPI. High growth companies bleed cash  – you’re funding stock, debtors, wages and overheads pending collection of the sale proceeds.  It’s easy to have a cash crisis despite your top line revenue growth looking very healthy.

The challenge as a small business owner is to identify each of the steps in the sales development and sales cycle.  And in doing so, you need to understand the customer buying cycle.

Customers start with “I need/would like this”.  They start some research (google/ask a friend etc), they educate themselves of the service/product.  Next they look into sellers and match their needs to the features/benefits of the product/service. Then customers align their wants/aspirations with the sellers offer – it is not always price that is the key buying determinant. For example, one of my clients provides a 10 year guarantee against an industry norm of 2 years,  so this feature alone is enough to change the conversation with potential buyers and educate them on the differences in product quality and why paying more is actually a better spend over a medium term outlook.

Every time I have these conversations with my business coaching clients, I see light bulbs turning on brightly, the “ah ha” moment. Yes, it takes time to  work through both the customer buying cycle, and where your business sits, and what your sales team actually do and should be doing, but I know it is empowering for businesses.  If you want to add six figures to your business, let’s start a conversation as to how you can achieve this outcome.

 

 

ABOUT THE AUTHOR

David Lockwood
I help business owners who need to work smarter but also want to know how to optimise their business. I help you work out why your business does what it does, so that you make more money, to generate more cash, and give you back more freedom.