How to make more profitable sales is the seventh video and article in this series for subscribers only, writes Robert Clay of Marketing Wizdom.
It’s the sixth of six ways you can turbocharge your business results. That should make it interest to any entrepreneur or business leader.
Over the past 21 years I’ve done considerable research into what makes businesses market leaders in their niche. That includes how to make more profitable sales.
In that time I’ve taught more than 600 established businesses how to harness and apply these principles. And that has enabled them to outsmart the 98% of businesses that don’t. It works!!!
Today’s topic builds on what was covered in the previous video and article. That article looked at the fifth turbocharger, how you go about setting the right prices.
What if I told you that sharing information with your team about the profitability of your products, services or customers can make a massive difference? What if that results in not just more profitable sales, but can also make your business up to TEN TIMES more profitable?
Before I do here’s a quick reminder of all six Turbochargers:
Master any one of the six profit turbochargers and you can achieve significant business growth. Apply your efforts to all six and each one has a compounding effect on the others. That could boost your revenues by 175% to 365%.
So, what’s not to like about that!
The Sixth Turbocharger – Make More Profitable Sales
The cost of acquiring customers is an important factor in the financial health and wellbeing of your business.
Knowing the profitability of your individual customers, products and services is important. And focusing on those that are most profitable for you can be key to significantly increasing your profitability.
If you examine the profitability of all your customers you’ll find it varies enormously. That’s because some of your customers may need a lot more pre-sale or after sales support than others. And that affects your ability to make more profitable sales.
Your average purchase value also likely varies from customer to customer. Some tend to buy more expensive products. While others are more motivated by lower prices on commodity products. All of these factors affect the profitability of each of your sales.
As a consequence some of your products or services will undoubtedly be more profitable than others. Some deliver a higher margin. Others turn over more slowly and consume more capital to stock them.
You can significantly increase your profitability on each sale by focusing on the sale of your most profitable products or services. In addition there are many ways to reduce your selling costs.
Sales Methods and Processes
- Do you sell directly or at retail or wholesale? Do you franchise, or sell through independent distributors or agents?
- Whatever your sales method, if you pay commissions, are they high enough to attract good agents or salespeople? Are they also low enough to be practical?
- In what ways do you target only the prospects who are either most likely to buy? Or the ones who are easiest and quickest to sell to? Or those most likely to become long-term repeat customers?
- What unnecessary steps can you eliminate from your sales processes to maximise profitability?
Marketing Methods and Processes
Do you know your exact sales and marketing costs? It’s surprising how many entrepreneurs and business leaders don’t.
Similarly, do you know which of your marketing activities work, and to what extent, and which ones don’t?
Entrepreneurs and business leaders often make a seemingly obvious assumption. They assume that the only way is to increase profits is to make more sales. But that simply isn’t true if you’re making a loss on each sale. So read on to learn some ways of making more profitable sales.
First some questions:
- In what ways is your marketing collateral relevant to the way people consume information in today’s world?
- Does you provide irrefutable proof of the outcomes you can deliver?
- In what ways could you make it more compelling?
- What unnecessary steps can you eliminate from your marketing processes, to maximise profitability?
If you’re engaging in any activities that don’t work for you, you need to bite the bullet and decide to stop doing them. Or make the necessary investment to master them, if they offer serious potential.
You really need to discover what they are then constantly monitor them. Quite simply, what you don’t measure you cannot manage.
Empower Your Team
Once this information is to hand, you should empower your internal and external team members. You do that by sharing your product profitability information with them. This shows your team members how healthy or unhealthy your profits are.
Unfortunately, many people don’t really understand what profit is. Some see revenues as profit (which it isn’t!). Or they confuse gross profit with net profit. Sharing this information hammers home the message that what members of your team do every day has a significant effect on your bottom line.
Let me give you an example…
How Ford Achieved 10 X More Profitable Sales
When Ford Motor Company shared previously highly confidential product information with their sales team, the effect was astounding. They shared the variable profit on each of Ford’s vehicles. This had previously only been known to members of the finance team. The salesforce, up to that time, had no idea which products or options were the most profitable.
It had always been a sore point for the sales team that they hadn’t known this information. And it caused a sense of distrust. But once that sensitive information was shared, the salesforce finally felt like partners in the company. They no longer felt like people who had to push volume for the sake of volume. And they relished the opportunity to help Ford make more money, now they had that information.
The newly re-energised salesforce focused their efforts on making sales that were in the best interests of both Ford and its customers.
There were some fascinating discoveries. One of them was that the Mustang was 10 times more profitable than another coupe they were selling at the time, the Ford Probe. Nobody would ever have imagined that the difference between the two models would be so great.
Before being granted access to this profitability information, the salesforce was spending a disproportionate amount of time selling the Probe. And the Probe was actually much harder to sell then the Mustang.
Ford Started Re-Focusing on The Mustang
Once armed with that profitability information, Ford’s salesforce changed their focus to the Mustang. And they developed compelling arguments for customers to upgrade to the higher margin vehicle.
Soon after that information was revealed to the sales force, production of the Probe was stopped, while Mustangs started to fly out of the door.
By sharing this previously confidential information with their sales teams, Ford enabled everyone to focus on the same goal which was to maximise profitability. And make more money for the same, if not less, effort.
More recently the Mustang was redeveloped into a world car to be sold globally. It became an instant hit, it was soon sold out in the UK, most of Europe and Australia. And, surprisingly, it soon became the biggest selling sporting car in Europe.
More Transparency = More Profitable Sales
This sort of transparency can also significantly increase morale in your team. That’s because everyone knows they can make a difference by choosing how best to maximise the outcome for your business.
Beyond the power of persuasion, you and your team members should be investing your time on your most profitable customers, products and services. Or on those with the most profit potential.
Most businesses don’t realise how much team members who directly interact with customers can impact their profits.
But once your team are clued up about the profitability of all your offerings, they’ll generate much greater revenues and profitability. And by not keeping them in the dark, your success could well parallel what happened with the Mustang.
What Else Can You Do to Make More Profitable Sales?
Your team members can profitably enhance a customer’s experience in many other ways.
Going the extra mile to assist customers usually results in the same sense of happiness that would occur when an unexpected discount is offered. It also engenders loyalty. Just think of companies like John Lewis in the UK and Nordstrom in the US who routinely do this.
Whilst you always want satisfied customers, your team members should also understand how their actions affect the bottom line of your business.
The Real Cost of Giving Discounts
Do your team routinely offer discounts? Few people in business realise that the biggest cost in their business can be something that doesn’t even show up in their accounts. It’s the cost of giving discounts.
Lets take a brief look at this…
A lot of businesses throw discounts around like confetti. This jeopardises their very existence because discounts are as significant a business cost as rates, utilities, salaries and so on.
For example, if you have a 20% gross margin now, and you’re tempted to discount by 10%, you’ll have to DOUBLE your sales just to stand still.
If you routinely offer discounts what can you do to control or eliminate them and thus maximise profitability?
Let me share something with you…
How 25% Reduction in Discounts Resulted in 900% More Profitable Sales
I came across a business having a hard time. They’d already reduced costs drastically, but were still struggling to make £50K profit. Their results were transformed by a number that appeared nowhere in their accounts. It turns out that their £2.3 million revenues were made up of £3.8 million at list price, less an average discount of 40%.
These discounts were just “given away” by their sales people, and were costing the company £1.5 million a year.
To make matters worse, much of this uncontrolled hand-out was completely unnecessary.
They couldn’t eliminate all discounts at a stroke because they’d trained their customers to expect them. But they managed to reduce their average discount to 30% with no significant loss of customers.
By controlling their discounts they instantly went from £50K profit to nearly £450K—a nine-fold increase.
How much higher would your profits be if you started controlling your discounts right now? This alone can make a serious difference!
So, if you do all of the above, how will that impact your profitability?
Now that’s something to think about!
What Ideas Have You Had to Make More Profitable Sales? Please Comment Below
Please share with us below the ways in which you already maximise your profitability. What else could you do? How can you maximise the profitability of each customer while still delivering high value? Let’s have your thoughts, observations and ideas in a comment below.
Please also comment if you’ve found this article on making more profitable sales helpful. And if you have any of your own ideas, insights, perspectives and experiences to contribute, please add your comment below.
And let us know below if you have any questions relating to making more profitable sales Or if there are any specific topics you’d like us to cover in future videos and articles.
I’m Robert Clay. Thank you for joining me today. I look forward to sharing the awesome power of compounding with you in my next article and video.