There’s nothing worse than being a non-profit organization when that was not your intention!
The first issue to address is that profit is a good thing. Companies don’t survive without it. Jobs do not endure without company profit. Yes, profit is a necessary component of your business plan, and we should be proud when we make a profit. It shows that we had the initiative to figure out how to make our revenues exceed our expenses.
With profit, we can retain some of the earnings for capital expenditures so that we can expand and produce more products or render more services over time. With profit, we can return some of it to the shareholders who enabled the entity to exist in the first place. With profit, we can entertain the idea of giving our personnel raises in pay and can hire more people to grow even more. With profit, we can expand our territory and broaden our product line to serve more people.
To make a profit we must focus on increasing revenues and decreasing expenses as best we can.
Rule number one in this entire process is for everyone in the company to be conscientious in their attempt to contribute to the organization’s profitability. In essence, the boss is buying the services of each employee at wholesale so that the fruits of their labor can be sold at retail. Everyone should have pride in the profitability of their company and the noble goal of making a profit. If we are to take advantage of the opportunity to thrive in our environment of free-market capitalism, we must believe that we are all participating in a good cause to help people (our customers) solve problems and satisfy needs.
I agree with Sr. Winston Churchill who said that “Socialism is the philosophy of failure, the creed of ignorance, the gospel of envy, and its only inherent virtue is the equal sharing of misery”. It can’t be said any better!
So, if we’re going to attempt to make a profit, we must be focused on margin. Margin is the difference between gross sales and the cost of goods sold. Factor in all the other expenses and you come up with your net margin.
All employees need to be concerned about margin so that profit can be assured. That’s the reason that salespeople should be training on how to sell value rather than cut price! And all employees need to be reminded that a dollar wasted is another dollar off the profit column.
Let’s say a company sells a $1,000 item and has a 40% gross profit ($400). If a salesperson sells the item for $900, that’s only decreasing the sale price by $100 or 10%, but it reduces the gross margin from $400 to $300 representing a 25% cut in the margin! Margin should be sacrosanct. When you give away margin you are putting into question the viability of your enterprise!
What if in a similar scenario a company’s gross margin is, say, 30%, but after all other expenses, their net margin is only 6%? If that same salesperson discounted a product by 10%, it would wipe out all profit and impose a 4% loss on the company. These are simple lessons, but salespeople need to be reminded periodically of how the math works.
I’ve known some salespeople who have worked harder to sell their sales manager on a discounted transaction than they did to sell the prospect on the value of the product offered at the quoted price! Once again remedial training is in order.
Respect your company’s ability to make a profit, contribute to the continuing effort to do so, and take great pride in the fact that your company is enduring because you have the courage and initiative to sell value rather than cut price.
