Can a Salesperson Increase Overall Sales and Gross Profit Margins at the Same Time?

Comment

Comment by Nigel Need More Sales Woods on September 17, 2008 at 1:50am

Not sure that I can agree with your sweeping statement that telemarketing erodes margins. If you are selling to the wrong people you are eroding your margin, wasting time trying to market to people who are never going to buy from you. OK, I am biast as I run a telemarketing company, however, surely it makes financial sense to qualify your prospects, to use a sniper approach to find them and then establish their need before trying to sell to them? If by doing this activity you can get them to come to you so much the better. Suffice to say that everything has its place - even telemarketing!

Comment by Tim Rohrer on August 4, 2008 at 7:57pm

Hi Will,
I think you are correct that a salesperson can increase top line revenue and gross margin at the same time. To your list I would add: A very strong sales manager who is willing and able to turn down the occasional deal to send a message to the troops that low rates won't always be accepted.

Comment by Will on July 31, 2008 at 5:37am

I'm glad this post is getting a lot of comments. This is a very important sales & management function that does not get talked about very much on sales blogs.

Clarity (for the future) is the most important leadership function in my opinion. This goes for political, military, and business leaders. Far too often, a sales team has too little clarity from their leaders about how to move forward. This results in poor performance. How in the world can you get to your destination if you don't know where you are going?

Comment by Christian Maurer on July 31, 2008 at 12:35am

Will,

I fully agree with you that in the end we should not look at percentages but the absolute number. I also think there is no universal right or wrong answer to this debate. Eventually it always depends on the context you are working in. Repeating actions that lead to a successful outcome in the past are therefore not automatically a guarantee that we will succeed in the future

Comment by Ian Brodie on July 30, 2008 at 4:59pm

Hi Will,

I think a lot of the margin vs growth debate depends a lot on the current (and future) effectiveness of the sales team.

In theory, if the salesforce is operating reasonably effectively already, then taking on new customers does tend to result in the new customer being lower margin - since an effective salesforce will already be selling to the higher margin customers.

But if the salesforce isn't currently operating at high level of effectiveness, then by improving how they operate it should be possible for new sales to be high margin ones too. My experience has been that it is often possible to do this.

Having said that - my experience may be biased. As a consultant who helps sales teams improve their performance; mostly I get to work with sales teams who are not at high levels of effectiveness and there's plenty of scope for both margin and sales increases.

Ian

Comment by Will on July 30, 2008 at 2:30pm

Christian,

Thanks for your comments. I just think that a small margin dip is acceptable depending on the sales increase. I have taken a sales territory before and increased sales by 40%-50% on a yearly basis but only sacrificed a very small overall margin number (for instance, going from 58% to 54% in gross profit margin, but the massive sales increase resulted in much more overall gross profit dollars). Isn't this acceptable given the large sales gains that so few salespeople are able to make?

Comment by Christian Maurer on July 30, 2008 at 6:32am

Is not so, that discounting is not only hurting the margin, but also puts us at risk to reach quota. Why? With discounting, not only the margin goes down, but also the average deal size. So? To reach quota with this lower average deal size, we need to close more deals. Now we are caught in the efficiency trap. We will have to cram even more activities into our already loaded work schedule. Why did we get here? Because we are selling on price.

Will gives us some ideas on how we can escape this spiral. However he seems to focus mainly on the external context required to grow sales and margin at the same time.

But we can take the destiny in our own hands, by looking for ways to work smarter, not harder. For this, we need to shift the focus away from efficiency improvement to increased effectiveness. Maintaining price levels is one way of being more effective. The question then is how to do this. I would suggest as a sales person to bring value to each interaction with the customer. This allows you to get relationships with the individuals in the customer's organization who are interested in the business outcome your offering provides for them. These people care about the perceived in use value being higher than the cash value of the purchase (another word for your price). Where within the customer's organization do you find these people? I know the one place where I certainly would not go looking for: The purchasing department. Purchasers are trained to be immune to any value statement.

Comment by Will on July 29, 2008 at 1:13pm

Great comments Nesh...That pressure of quotas is causing so many problems in regards to maintaining good margins.

Comment by Nesh Thompson on July 29, 2008 at 8:46am

A good topic to discuss Will. I think that maintaining or even increasing margins is always going to be difficult due to the exponential rate in which the requirement of new sales is needed to fulfill the climbing trend of the company. What many people assume is that there is less pressure the more successful you get, when in fact the opposite is the case. With the greater pressures to perform for stock markets, shareholders etc. your sales people will have more pressure to make sales which consequently will affect margin as that is one of the first things to be given away in order to fulfill quota.