UNDERSTANDING THE IMPACT
OF YOUR PROFIT PER SALE Make Sure You’re Dedicating Your Resources to the Right Clients By Jill J. Johnson, MBA
Few enterprises truly understand the actual profits generated by the individual sales they make. Most metrics for sales effectiveness are monitored by reviewing top line revenue results. Yet the most critical determinant of on-going business viability is understanding what revenue actually drops to the bottom line after all costs have been taken into account. You must understand what profit is generated by sales to each of your clients. Ten consider the benefits and vulnerabilities the cumulative impact of these sales mean to your business. Knowing the breakdown of the profitability by the individual sales to your clients can have a significant impact on your ability to achieve your business goals.
1.Understand the Impact of the Profit Per Sale
Tere are many expenses that go into determining profitability for a company. Te same is true for determining the profitability of a sale. Each sale has multiple components impacting its final profit. You should consider your total cost of goods sold, including investments in promotion and delivery expenses. Factoring in the costs associated with the staff time required to generate a sale is a must, too. Unfortunately, few companies consider all these expenses when developing their marketing and sales strategies. Whether you are working on growing your business or you are struggling financially, the impact of the true profits generated by each individual sale takes on greater importance.
2. Know Your Profit Per Client Frankly, not all clients are worth the effort to generate the sale. Sometimes your growth goals for your business mean you also are growing beyond clients you have historically served. Tis transition period is a very vulnerable point for any enterprise. It is also very stressful because you might be wrong and wind up losing a client that could have provided even more revenue value if you had not been afraid to maximize your relationship.
Carefully study the costs associated with serving each client. Perhaps you have long-term clients
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you like personally, but if you have not taken the time to explore the costs of the sale, their value to your business may have changed dramatically over the years. Before abandoning these clients, try to identify options to trim your expenses without jeopardizing your quality. But it may be time to move on if they are not generating any real profit to your company.
3. Review Your Customer Segments Revenue
Using a target marketing approach to grouping your customers into similar client segments provides you with a more detailed understanding of what is working and what is not. Te key to effective target marketing is to focus your sales activities and expenditures toward those types of customers who can best be served by your enterprise, who will stay with you over the long- term and who will generate solid profitability.
4. Evaluate Individual Sales Profitability
Tere are two ways of looking at your sales profitability data. One is by the individual clients. Te other is by combining clients using some specific target marketing components. Grouping clients by similar characteristics makes it easier to identify trends in the data that you can use to assess the profitability of each of these major segments.
Tere are many options for grouping your customers into segments. For a B2B client, you could group them by their industry sector, number of employees, location, etc. For a B2C customer, you could group them by where they live, personal attitudes, age, family size, income level, etc.
If Client Segment A generates solid profits for you, but all of your marketing efforts are being devoted to Client Segment B who are barely break-even, the choice is obvious. You must retool your marketing and sales activity to attract more prospects from Client Segment A.
TPI Turf News July/August 2019
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