Increase Your Profits by "Pruning" Your Business
When you hear people talking about sales goals, they’re almost always referring to gross sales. “I want to do $100,000 in sales. I want my company to grow to $200,000, $500,000, even $1 million.”
But, which is more important…gross sales, or net profits? They’ve probably got it wrong. Shouldn’t the goal be to dramatically increase net profits …the money you keep after paying your expenses? It just doesn’t go hand-in-hand that by doubling your sales you double your profits, does it?
In many cases quite the opposite happens. Sales may increase, but the profits lag far behind.
Perhaps a better idea is to prune your business…stop calling on the unprofitable and time consuming accounts…so you can reduce your costs and dramatically increase your profit margins.
With these thoughts in mind, let’s consider the situation a business owner we’ll call John found himself in.
John owns a manufacturing rep company, doing nearly $3 million in total sales. The manufacturers pay his company commissions of 30 percent, so his organization earns $900,000. It costs him $750,000 to pay his 50 employees and other expenses, so John takes home about $150,000.
He has nearly 400 accounts, but the bottom two hundred 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.
Doing an analysis, John discovered his 100 smallest accounts spent only $250,000 with him…but took up over one-third of his company’s available time.
-If stopped calling on these small (bottom third) accounts his sales would drop to $2.8 million.
-His commission income would be $850,000.
-He could reduce his employee count and total costs by 1/3, to $500,000, saving $250,000.
-This would increase his share to $350,000 in income…an increase of $200,000.
“Pruning” his business was the first step in John’s plan.
The second was to have all his people focus their efforts toward improving the quality of their service to their best, or “A-class” clients. This was easy to do because they were no longer wasting their time calling on, and/or servicing the unprofitable accounts.
This meant his team could easily keep their best customers very happy…making them raving fans who referred lots of other businesses to John’s company…and they were just like the “A-class” clients who had referred them. They were also able to find additional products and services they could sell to those “A” clients.
John and his sales team created a list of the top accounts they wanted to do business with...and went after them.
The attitudes and morale of his organization changed. His sales people were making more money, and everybody was having more fun because they were spending their time, energy, and effort serving their “A” customers.
And with their new-found, free time, they’re now able to look for new opportunities and clients with the same profile as their best customers.
John is now setting his sights on growing his business to $4 million, and then $6 million in sales, by doing business with only the “best” clients... and figures he’s going to have much higher profit margins.
-Prune your customer base and stop calling on those who take up lots of your time, but don’t do much business with you.
-Give your best customers incredible, outrageous levels attention and service. Under commit. Over deliver.
-Create a profile of your ideal or “best” client, then find more clients who match it.
This way, you’ll have more fun, and make lots more money…