Archives For net profit

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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Photo by Hannah Stelzl

I am focused on entrepreneurship!  When my wife and I first started homeschooling our children we caught the vision for a different kind of education.  One that would build the not-so-academic side of those we are raising, but still equip them with the essential reading, writing, and arithmetic skills needed to succeed.

My schooling history has made me more risk adverse than I’d like.  It’s taken me twenty-five years to unlearn the principles of:

– Mastering the No. 2 Pencil

– Only submitting what was asked for

– Never thinking outside the box – putting away all creativity

– Thinking that wisdom is somehow related to memorizing a certain number of biology terms

(and the list goes on)…

Photo by Hannah Stelzl

With this in mind, my kids are working on businesses – all the time, thinking about how to create new opportunities, serving the basic needs of those around us, establishing value, setting fees, and selling.   This year marks another year of Sarah’s annual Valentine’s Day Cookie bake.  This year she sold over 200 cookies by cold calling with a compelling message.  Some even gave additional money or donated without accepting cookies!  Of course she had help from Tiny-Tim who enjoys cooking (and perhaps even more, eating the left overs.)

Through this project we’ve studied how to discover a new opportunity, how to avoid working at McDonalds for mininum wage, how to sell to strangers (cold calling), how to develop a message that sells,…but also, how to count the cost of goods sold (COGS), the difference between sales, gross profit, net profit, and losses due to wrong or canceled orders.  Fortunately we have not had to deal with customer service issues on this particular project, but we’ve covered that in other projects, and hope to minimize this in the future.

Photo by Hannah Stelzl

What are you doing today to extend beyond what you learned in school – to think creatively, and to find business opportunities where there don’t seem to be any?

 

© 2011, David Stelzl

Resellers, VARs, Solution Providers, and Channel Managers – this is an important lesson on the profitability of services.  While your (or your partner’s) services may be very profitable, they may not be as profitable as they seem.  As the market has commoditized, I’m seeing far more short product/install contracts…less consultative, long term engagements.  This is particularly  true in the mid and smaller markets. What is the result.

Listen and see how calculations on profit, gross profit, and net profit are sometimes confusing.  To the sales rep, all GP is good – you get paid, right?  To the person with P&L responsibility, the numbers don’t always add up…I frequently run into people who initially think they have strong services margin.  When I show them how to calculate it, we find profits to be much lower apart from the product sales.

© David Stelzl, 2010

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