Understanding how different selling strategies impact your top line and bottom line
Michael Royal, CEO & Founder, BIR Solutions
BIR Comment: When you are looking at developing quick and effective sales strategies, you can use this quick checklist to see what levers in your business you will need to pull. And, what the likely result is going to be from a profitability and cashflow perspective.
Our free plug: When we advise business owners on how to Build or Improve their business, and even when trying to get some quick wins when you are Restructuring your business, we go through this process with them. Sometimes there are some low hanging fruit they can harvest to generate some quick win sales.
An increase in sales will either come from your existing customers buying more or new customers being attracted to buy from you.
Most of us recognise that our existing customers should be our #1 priority (you might argue that does not always seem to be the case with some major corporations but I digress!). And, for most of us, the sales of existing customers (and existing products for that matter) are more than likely to remain the cornerstone of our business for the years to come – if we look after them that is….
And of interest to you in particular is, if your existing customers and products do remain the cornerstone of your business, an interesting thing happens – your costs will remain lower than a business which chases new customers with new products to increase sales.
Now, I know that is not always possible to only focus on selling to our existing customers but it is worth bearing in mind the next time you are chasing the next big thing. And, in some industries, it can be easier to do than in others.
I actually turned around a flailing business with the simple recommendation ‘stop chasing the next big thing’ and the business went from being on death’s door (literally) – the bank was considering appointing receivers to get back its loans; to having so much cash that the bank became a happy ‘borrower’ instead of an anxious lender.
increasing sales to Existing Customers
Ok, back to your existing customers. The thing about our existing customers is that you can look at a number of strategies to increase your top line which are relatively easy to implement because the hard part has already been done: you already have the customer talking to you.
Using a well known food retailer who uses these strategies all the time, let’s summarise the common ways you can increase sales to your existing customers.
The first 3 are all volume based strategies. That is, you are physically going to be shipping more product or performing more services to get the increase in sales.
They will have an impact on your top line, but, and this can be important, the flow through effect to your bottom line is the margin you make after allocating all your costs of sale (not just your cost of product but your costs of outbound freight, discounts, rebates and perhaps even stock warehousing costs, customer service costs and cash collection costs (we all know a sale is not a sale until the cash is received, correct?).
The last strategy flows straight through to your bottom line – that is, for every extra dollar of revenue you get, your Net Profit increases by the same amount. However, there might be a trade-off of higher sales prices Vs lower sales volume (as well as a longer term perspective of your competitiveness in the industry) UNLESS you understand that PRICE IS NOT VALUE.
If you get your value equation clear for your customers to understand, then the price they have to pay is less relevant. Creating value for a customer is not always about changing something – it can be as simple as showing your customers what is your real value you deliver to them. Or in the case of the example I have shown, make it look like there is an increase in value
Mea culpa, I have to admit, I had one of these new value add/higher priced products recently and there was still the same sludge feeling in my stomach at the end of the experience. I now know why I only go back when my memory fails to remind me of my last experience!!
Despite the risk of losing customers following a price increase, you can see why short term turnaround strategies which are used to kick start a flailing business, often resort to to an increase prices. BANG! Your cash and profits increase. (As long as you don’t get BOOM! as your customers leave you!!!).
but wait, there’s more: aka the forgotten strategy when selling to existing customers
For many businesses, particularly SMEs without a strong brand presence in their industry, there is a residual and often untapped benefit which you can employ with existing customers (and your other stakeholders such as trade suppliers, service suppliers) to increase your sales.
You ask them (or at least those of them who you know think highly of you) for referrals.
Now, we know referrals are already very important for SMEs, as every time we ask them where do they get new business from, they often say the single largest source is from referrals.
So, what we suggest you need is a pro-active system for harvesting referrals. If you want to find out a little more on this, we have set up an article to help you think through all the issues – click here.