Where Profit Margins Are Hiding From You
At least a few times a year, I’ll be reviewing a forecast with a leader and hear this pained expression: “Why are we wasting our time with these kinds of opportunities?” Most companies have a few clients who don’t fit their stated strategic profile. But if your sales team is pursuing business from many clients who seem like a waste of time, it’s a problem. It’s a problem that could be costing you at least a few points of profit margin. These costs are hiding in plain sight, in an unexpected place: on sales calls.
But your sales team can’t solve this problem on their own. They need executive leadership to drive the solution. Here’s a couple of ways you can do that:
- Don’t focus solely on numbers. Focus on the right numbers. If you are concerned with strategic growth, be clear about the kind of business the sales organization should and should NOT pursue. Too often, the pressure to make this month’s or quarter’s forecast “no matter what” overrides smart decision making. That’s how you end up with unprofitable clients.
- Limit business activity that is focused on a mirage. Don’t permit continued pursuit efforts if the prospect is not the person making the decision. The amount of time and money wasted pursuing prospects who can only say “no” to you and don’t have the authority to say “yes” to a contract is eye-popping. This is often the profile of opportunities that continually languish in the pipeline.
I’m not suggesting that you shouldn’t be opportunistic about acquiring new business. Take all of it that you can. As long as it requires little to no sales effort and it’s easy to implement, go for it. But there’s a whipsaw effect on your profits when you focus active pursuit efforts on clients outside your sweet spot in the market. The result is significant dollars spent on business development, unspectacular results to show for it, and maybe worst of all, the opportunity cost of effort, time, and money that didn’t go toward your target market.
This isn’t money slipping through the cracks. These are considerable dollars and future value falling through big holes. As an executive, you provide the leadership that enables the sales function to execute your strategy and plug those holes.
For additional insight on this topic click here to read my latest Forbes article Profit Margins Are Hiding In Your Sales Calls.
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