Three Ways to Increase Sales Profitability
Originally published: 09.01.16 by Ruth King
Your immediate thought might be: “Just sell more and close more.”
It may not be a sell more/close more issue, however. What if you sell at $1 and it costs you $1.02 to fulfill that sale? Sell more/close more will put your company out of business. Slowly, but it will.
I worked with a contractor who started at zero and grew his business to $2 million in revenue. Once he hit $2 million, growth stopped. Within six months he noticed he couldn’t always take his vendor discounts and cash was tighter. He was a $2 million contractor and for the first time in 12 year he was having cash flow problems.
Something was wrong. My analysis showed that he was losing a nickel for every dollar he took in the door.
Growth masked a lot of cash problems. While that company was growing, there was always cash to pay vendor discounts, payroll and much more. The cash from one job started the next. As long as more jobs kept coming in the door, the cash was plentiful. But it was about 5 percent less than it should have been. This company had growth; but not profitable growth.
You might think, “how could he not know?” When you run your business on a cash basis, this can happen. When you don’t pay attention to purchases, inventory and material usage, this can happen. When you don’t pay attention to budgeted hours on a job vs. actual hours on a job, this can happen.
My first clue that something was wrong was when I walked in the door and the owner asked, “How much inventory do you think I have?” If you know how much inventory you have and accurately account for it monthly, you probably have a better handle on your company’s profitability than this contractor did.
So, first, make sure you have profitable sales. Second, ride with your salespeople. This is the only way you know if your salespeople are talking to the customer the way you want them to, presenting your company properly, asking the proper closing questions and selling the way you want equipment sold.
The good salespeople are always looking for ways to improve. If you are with that salesperson you might see something he or she missed. You can jump in strategically and maybe save a sale. A good sales person will appreciate it and learn from it.
As a rule, the weaker the salesperson, the less he wants someone with him on a sales call. These are the people who definitely need coaching and help. There are many great sales trainers in our industry who will ride with your salespeople and it’s a great investment.
Third, track everything in the sales process: the number of leads that come in, where they came from, the number of referrals, the number of leads from service technicians, the number of appointments set, the number of proposals made and the number of sales made.
What if a salesperson decides not to make a proposal? In the discovery phase of the presentation he found that the customer couldn’t afford a system, or another reason that a proposal wasn’t appropriate? Track these events. See if they are a frequent or infrequent happening. It’s still a lead that came in the door.
Track the closing ratios three ways: service-generated leads, marketing-generated leads and referral-generated leads. Your referral-generated leads and service-generated leads should be higher than marketing-generated leads.
If you know your company closes more referral-generated leads than any other type, put a marketing plan in place to generate more referral leads. Ideas to increase referrals through marketing activities will be part of next month’s article.
Post the service lead tracking results. Technicians want to see more leads given, as long as they get a SPIF for those leads. Generally the SPIF is $25 per lead and a dollar amount or percentage if the lead turns into a sales. To receive the $25, a sales person must propose a system to the people the service technician recommended.
Post the overall closing ratios of your salespeople as well as their closing ratios for each type of sale. NO salesperson wants to be on the bottom.
You will discover which of your sales people, and hopefully none, are burning precious leads, and wasting your time and money.
Selling profitably, riding with your salespeople and tracking results will improve your company’s sales profitability.
Ruth King is president of HVAC Channel TV and holds a Class II (unrestricted) contractors license in Georgia. She has more than 25 years of experience in the HVACR industry, working with contractors, distributors and manufacturers to help grow their companies and make them profitable. Contact her at firstname.lastname@example.org or call 770-729-0258.