The most frequent comment I get on starting a consulting assignment is "How can I increase sales?" So when I ask "why?" the answer is always "To increase profits!" The 'stupid' is usually left unsaid. So that is the real reason - to increase profits, and perfectly understandable it is too.
But is increasing sales the quickest and easiest way to do this?
To increase sales we have three options:
- Persuade our existing customers to buy more. Some customers may be spreading their purchases around to avoid being dependent on one supplier. Others may not, for example, service their equipment as often as they should. The opportunity will depend on the nature of your market and product offering. There may be some room to move here.
- Find new customers. Most customers have their existing suppliers. You have to give them good reasons to drop their current supplier (as long as they
are performing) and change to you. So a new marketing campaign (and its associated costs) is called for.
- Finding new uses for our capability, products or services. Market research is required to identify the right market.
This is the old "Usage, Users and Uses" adage.
Some companies have capacity restrictions - they don't have the space or workforce or capital to handle more sales.
Instead of increasing sales, is it easier to increase Gross Profit margins, and what is the impact?
Let's have a look at the alternatives around a hypothetical company.
Promisealot Pty. Ltd. has a turnover of $250,000 with a Gross Profit of $87,500 (35%) and a Nett Profit of $25,000.
Suppose Promisealot Pty. Ltd. increases sales by 5% with no change to their Gross Profit Margin, and assuming no increase in costs such as advertising (unlikely) to achieve the higher sales: