Cure Sagging Profits

March 2, 2012 — Leave a comment

Sales seem to be building for some companies – perhaps business will grow this year.  But will it be profitable?  I was talking with a client yesterday about this – their sales are growing, and their company’s reputation is strong; however, despite a long history being “in the black”, they admit, it’s getting harder.

I expect to see more resellers pulling out of the market this year.  After a couple of down years, those who have failed to build recurring revenue, cash in on higher level consulting business, and who have continued to partner with the low margin, big iron companies, may not have the cash to continue.  You can’t simply sell your way out of this one.

If you are in sales management, or better yet, running the company, make sure you are applying wise financial principles to your sales organization.

  1. First, make sure you keep your top sellers.  Raising the bar on the entire team, in order to make up for lackluster sales reps, is not the answer.  I’d rather have 4 top performers than 8 mixed performers;  4 on the verge of bankruptcy, while the other four are considering a move to the competition.  It’s a hard job, but an obvious solution.
  2. Jack Eckerd wrote an interesting book back in 1994 called, Why America Doesn’t Work.  Amazon shows 5 stars but only 7 readers rated it.  People in leadership should read this book – have you noticed a lack of diligence among your team?  Read this and find out why – it has a lot to do with acknowledging achievements and compensation; but it’s never just a matter of raising everyone’s pay.
  3. Are you watching and reporting on sales?  Big mistake for the small / medium sized reseller.  GP should be top of mind at all times.  Who cares about revenue when margins threaten to creep into the single digits?  Fix this – start watching monthly GP, compensating on GP, and pushing higher GP projects.  This may require some retooling of the team; those that continues to look at big iron with no services, but are lacking in sales.  Also, take note, GP on services means that you understand your burden rates and are calculating the hours used on each project.  What many call GP based compensation, is actually paying based on sales in disguise.
  4. What about recurring revenue?  There was a time people would pay a multiple of a reseller’s sales to acquire them.  I don’t see that coming back any time soon.  Valuation requires recurring revenue – too many acquisitions have ended with the newly acquired people heading for the exit sign.  If you don’t build your recurring revenue, your valuation is likely low.
  5. Evaluate your customers.  There are customers and their are leeches.  Customers understand the balance of fair pricing and profit.  They know that your services will be better if you are making a profit.  Those that pay late, shop your prices, and stretch payments out are not your friends.  Fire them!  At the same time, look for ways to constantly improve customer service for your customers.

Sales may flatten or decline while making some of these changes, especially if you are making a new move into managed services.  That’s great, sales are secondary.  Build your profits, save your cash, and look for ways to grow through improved marketing programs and by building more profitable adjacent markets.  2012 has great potential as we focus on the right things.

© 2012, David Stelzl

 

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