Do More Sales Cure All?
Don’t Be Fooled, More Sales Only Help to Hide Deficiencies
In today’s episode: We discuss the fallacy of the saying “Sales Cures All”. While sales can help cover up some deficiencies but it doesn’t solve the problems. In many cases, more sales can make things even worse. Let’s discuss why.
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Episode 75: Do More Sales Cure All?
Welcome back to the Local Small Business Coach Podcast. I am your coach, Tammy Adams.
Today we are going to take a look at a common saying: Sales Cures All and how true it is in your local small business.
Have you ever heard the saying “sales cures all”? It’s a popular saying that basically means that you can fix anything that’s wrong with your business if you just find a way to create more sales. The theory is, if you have more sales you create more profit. Need to buy more inventory? Create more sales. Need more money to cover your expenses, just create more sales. Basically, if you create more sales, it will offset any issues you are having in your business. Many folks believe, sales cures all.
Now I’m not going to deny that when you have a lot of sales it offers you a lot of opportunity to help offset the weaknesses in your business. After all, it brings cash into your company. And there have been many companies that have succeeded by just doing more and more sales because it hides so many inefficiencies and broken processes.
The problem with this theory is, it assumes that you are running a good solid business. However, in many cases, this is not the case and unfortunately, these extra sales do not add as much bottom-line profit as much as it does just sales. Let’s face it, if you do not have the right processes in place to ensure that the majority of the sales go to your bottom line, then all you’re doing is working twice as hard to make either the same amount of money or very little extra profit.
Let’s talk about what sales will not cure
Sales will not cure broken processes like I mentioned. If you have inefficiencies throughout your business that are costing you profit, then all that will happen is, these issues will magnify and grow. For example, if you are behind in your quotes, this will only get worse. If you have a terrible follow up system, it sure isn’t going to improve with more sales. If anything, it will magnify. More than likely, If, you are behind on things it will continue to take you twice as long to do thing as these sales will probably make it more difficult since you will be constantly hustling to stay ahead.
More sales does not guarantee more profit.
In past episodes, we talked about how some products or services make you little money and some items make you a lot of money. So, if you are driving sales on products or services with very little margin, you aren’t making as much money as you think. Let’s take a look at an example. Say you double your sales but your margin drops due to the items that you are pushing. If your sales are coming from low margin items or services you actually could bring down the amount of profits that you make. Let’s say you do $50,000 at 40% and now you do $100,000 at 30% you may have doubled your sales but you did not double your profit. In fact, you did 100% more sales but only 50% more profit dollars.
Sales will not cure people problems
If anything, it may magnify them for many reasons. More sales typically bring more employees if you have them. More people increases the changes for employee issues. If you people are dissatisfied before the sales take off, then adding the extra pressure might actually increase your turnover and create even more employee dissatisfaction.
Not to mention, more employees require more time on hiring, training and development. Here you are in a fire storm of sales yet this one piece is pulling you back. Plus, what if you hire too many people in relation to the sales you get? There goes more profit losses as well.
Many times, you don’t need more people, but rather you need better performing people working at a much higher level. This allows you to double those sales with a lower employee payroll percentage with the new sales.
My Past Experience with “Sales Cures All”
When I was with Home Depot one of the things that was exciting and fantastic, is how everything we did was turning to gold in those early years. Sales were coming faster and faster. We kept growing and growing. Sure, we had inefficiencies, but for many of us, we knew that “sales cure all”. However, when the time came to change out the leadership of the company, all of a sudden, the focus went off sales and went into improving our processes and growing our profits. Wall Street was looking at us in a completely different way, especially since we had just been put on the DOW / NY Stock Exchange
For the next few years, we changed our focus and took a deeper look at all of our expenses within the company. This was very difficult for many long-term people who were used to spending money like crazy. The more we sold, the more they thought it was ok to spend wastefully. For some people, it was like cutting them off at the knees. You would have thought their favorite toy was taken away.
Our relocation processes got changed, our petty cash processes got changed, and all of the merchants were told to go back to our vendors and really dial down our purchasing costs. We even started learning about six Sigma. Most of you will never run across this in your life, but it is a GE process that really dials down inefficiencies to get to the root of the broken process and improve processes exponentially. Great process but just too complicated in its current form. But, in the end, all of this made us a much better company. While it was painful and difficult for those that thought sales cured all, in the end, we realized sales are great, but you must consistently work on improving profits as well.
Impact of Improving Deficiencies vs Just Driving Sales
Let’s say you take your sales from $50,000 at 40% and you jump too $100,000 at the same 40%. Your net profit will go from $20,000 to $40,000. Now, let’s just say you work on getting a 5% increase in profit by improving your processes and controlling those expenses. The original sales of $50,000 now jump to $22,500. That is a $2,500 increase without needing more sales. Even better, if you got the sales and the improved processes then your $40,000 becomes $45,000. That is an extra $5,000.
Sales Cures All or Sales Hides All
I used to believe that sales cured all, but the reality is sales hides all. On one hand, yes it does cure most of our problems. Even at the same margins, you do get more money flowing into the business. However, it still doesn’t address the issues within your company. Plus it can exacerbate bubbling problems within your business.
If you need more sales so that you can generate more profit for your family and for your company, then sales is the quick fix. All I’m stressing is that you work smarter not harder and do not fall into the trap that more sales are going to solve all of your problems.
Now I’m not going tell you that having more sales is a bad thing. Quite the contrary. It is an excellent thing. But what I do want to stress is do not fall into the mentality that sales cures all. It makes you more of what you already are. There is a reason that when people hit the lottery, so many of them lose all the money in a matter of years. If you have poor money management prior to become a millionaire, you will have them afterwards.
Just like money will not make you a nicer, happier person. If you are miserable before you have money, odds are you are going to be miserable after you have money. Like I said, all money does is make us more of what we already are. It is no different in your business. If things are broken or if your people aren’t happy, the money will not cure that.
The Key is to Work Both Ends of the Problem
Do I want you to drive sales? Absolutely. But you also want to make sure that while you’re driving sales you are fixing your broken processes and you are developing really strong teams. Not to mention going through each of your expenses and product costs and continually improving them. This way when you add the sales, you maximize your bottom line versus multiplying your problems and deficiencies
And as we wrap up this episode I want you to know, that I realize being a local small business owner can be a lonely gig at times. But you don’t have to do it alone. Just know, I’m always here for you.
By the way, If you like what we are taking about, then make sure to subscribe to the podcast so you don’t miss an episode, if you love the podcast and what we are talking about, then please leave a 5 star review so other local small business owners know this is a podcast that they can’t miss.
And don’t forget to visit the website at LocalSmallBusinessCoach.com to leave your question for me to possibly answer on the podcast in the future. You can leave it via the Speakpipe button or just shoot me an email.
Meanwhile, I wish you the best in your business and remember: Great Customer Service, coupled with Great business practices will set you on the path to Great Profits!
Bye for now…..
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