When More Deals Lead to Bigger Loses

December 31, 2010 — Leave a comment

Traditional thinking says that more sales will lead to a higher income.  Here is one more example demonstrating the deception in this type of thinking.  I frequently come across sales people working for smaller VARs, selling into small mom & pop companies.  These customers don’t spend much, so the deals are smaller, yet the VAR model was built on high-involvement sales; making calls onsite, taking people out to lunch, and perhaps performing demos or providing evaluations of the products being represented.  The problem is, they are transactional, and so volume becomes a focus.

So let’s say each deal is priced in the neighborhood of $1500 (which is typical),  and most of the deals are product install.  For argument sake, we’ll say the product is two-thirds of the deal, with a half  day install.

Total Deal Price: $1500

Margin: $350 (Assuming ten points on product and the balance on services)

Income based on 10% payout: $35

(and all if this assumes that the rep priced the services correctly and didn’t go over)

So how many of these transactions do you need to make a reasonable income?  With a 30K base, you would have to do about 166 of these each month to make 100K annually!  You can extrapolate from there, but the point is, you don’t want more deals, you want larger deals, recurring deals, and margin-rich deals.  Stop selling transactions and start solving big problems.

In a recent discussion I had with a young entrepreneur, he asked, “But can this company afford the larger project?”  Great question!  If it’s central to his Twenty Million Dollar business, he can.  If it’s just some new cool technology, he can’t.  So once again, you have to ask, “What problems am I solving, and how much are they worth?”

© 2010, David Stelzl

P.S.: Happy New Year Everyone!

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