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1 ARE YOU SURE YOU WANT TO BOOST SALES?
If you donât look for new leads (often called prospects) continuously, itâs likely that your business will end up in a âfeast or famineâ cycle: you either have no work at all or so much that you canât keep on top of it. Eventually, though, your business will become overly dependent on a small number of customers. Then margins start to get crushed because the few customers you have are critically important to your business, so when they ask for lower prices it is hard to refuse. The other problem is that no buyer stays around for ever; even loyal customers move on to other suppliers for any number of reasons (none of which you can control), and they leave a void when they go. When times get hard in your market, as they surely will from time to time, a crisis point is reached when something has to be done but by then there is no money left in the pot to do it with.
Youâre presumably reading this book because you feel the need to grow sales but donât have a lot of cash to invest in that activity. This is most likely because the above is horribly familiar. Itâs probable that:
youâre running an established business that needs more sales, but not generating sufficient profit to fund the process and canât get the money to do it from elsewhere.
youâre operating a new, or relatively new, business with hardly any spare money. Youâre not alone, though: nearly all young businesses have this problem! youâre cautious about investing funds and donât believe that money spent on marketing activity is guaranteed to deliver results, so you resent spending it because itâs all a bit of a gamble.
Sound familiar?
Do you want to boost sales on a shoestring? If the answer is yes, then this book is for you. Except that the title is misleading. It should really be called Boosting Profitability ⌠on a Shoestring. Why? Because improving profit is what this is really all about; increasing the right sort of sales is simply one mechanism for achieving profitable growth.
Warning signs
When youâre planning to boost sales there are many potential traps to look out for, hence our focus on improving profitability as an integral part of growing sales. Itâs much safer. Many a business has gone bust whilst increasing sales turnover and itâs a fact that fast-growth businesses are more prone to failure.1
I believe that rapidly increasing sales is the second most dangerous thing a business can do (after not selling enough!).
Profits slump and overheads hump
Small businesses are particularly vulnerable because they are usually short of important resources like cash. But draw comfort from the fact that the very high risks of rapid sales growth can affect big businesses as well as smaller ones.
For example, in the 1980s, the luxury leather brand, Gucci, set out to grow revenue aggressively on the back of its prestigious name by adding lower-priced canvas products to its range. It pushed products into department stores and duty-free channels while simultaneously licensing its name to appear on a range of items like watches, sunglasses and perfumes.
Gucciâs revenue soared but sales of its most expensive and lucrative products fell away, leading to a dramatic fall in overall profitability. Gucci recovered but had alienated its most profitable customers and attracted a larger but much less attractive mix of customers from the profitability point of view.2
The Gucci lesson highlights an important problem with boosting sales: the strategies that many businesses have adopted to grow revenue have actually eroded profit margins and reduced the bottom line â in other words, theyâre selling more but making much less money!
Gross profit
Gross profit is the money you have left over once you have sold your goods or services and youâve paid for the cost of providing or creating them. Itâs critically important because itâs used to pay for the costs of running the business â the overheads â and whatâs left can be used to help the business grow. The âoverheadsâ include things such as the rent, heat, light, marketing and so on. Gross profit is so important because if you donât earn enough of it, then you canât pay these bills â itâs as simple as that. Once the overheads have been paid for, anything left is called net profit. Net profit is what youâre after, because once youâve given Her Majestyâs Revenue and Customs their share, you can give some to the shareholders, save it or spend it on anything you like.
Many business operators today focus on boosting revenues, believing that increased sales will bring more profits. This assumption is deeply flawed unless maintaining gross margin percentage is an integral part of the plan. Gross margin percentage is the gross profit divided by the ÂŁ value of sales and it is frequently used to indicate how effective a business is at making money from what it does.
Gross margin is the percentage of gross profit related to the amount of sales. So if you sold something for ÂŁ100 and it cost ÂŁ70 to produce:
the gross profit is ÂŁ30 (ÂŁ100 LESS ÂŁ70) the gross margin is 30% (ÂŁ30 DIVIDED BY ÂŁ100) Itâs easy to visualise what happens if sales are doubled but the gross margin percentage is halved in the process: the amount of profit will remain the same. If, simultaneously, overheads have increased to handle the growth in trade (more administrative staff, bigger buildings, larger fleet of vehicles and so on) then the outcome can be a fall in overall net profitability.
The result is a dis-economy of scale, which can easily happen if things are not very carefully managed. The little outfit that was profitably operating with 8â9 people could comfortably ass...
