Too Many Sales

Monthly invoices are late getting to customers!

Customer service is deteriorating!

The back office is breaking down!

Customer acquisition is burning up too much cash!Not good things! Do they reflect that the company may be growing but not with sustained growth?

The Mindset

Companies in the entrepreneurial stage are typically ‘sales oriented’, acquiring customers is an all consuming task. Within reason (sometimes not) ‘all customers are good customers’. But, as applies to many things, as a company matures what worked very well in the early days will not work so well as the company grows. Sales alone do not sustain companies.

By definition, a growing company is acquiring a lot of customers. The reasons are very obvious … more customers mean more revenue; more revenue means more profit. Right?

Obviously not. The problems listed above are usually a combination of several dynamics working together … sometimes subtle, sometimes not subtle at all:

> The ‘any customer is a good customer’ strategy outlives its usefulness as segmentation evolves; the ‘some customers are better than others’ begins to take hold.
> Implementation, production and customer support functions do not grow with the pace of sales increases.
> Revenue growth is emphasized more than profit growth.
> Growing companies are faced with another set of inevitable juggling acts: identifying niches and developing segmentation strategies; balancing support capabilities with sales growth; emphasizing the bottom line more than the top.

Realization

> Growth companies facing the three change issues identified above arrive at several conclusions:
> All revenue is not equal
> All sales are not equal
> Margin must be managed on the ‘sell’ side as well as the ‘buy’ side.
> All customers are not equal.

The Shift

With realization comes additional/new emphasis on evolving competences and capabilities in the business:

Margin Analysis

The company undertakes a much more detailed and granular analysis of its products, market segments and individual customers to determine the margin contributions of each sub-element. It is highly likely large disparities in contribution are discovered. Competitive
conditions in specific geographic areas may have driven prices down. Sales management in some places is discounting more than others. The actual cost of goods varies from one place to another.

Many surprises will be forthcoming, but they provide the data with which to make informed pricing, channel and distribution decisions.

Sales Cost Analysis

Detailed analysis of acquisition costs discloses disparities similar to what’s uncovered in assessing the margin. Analysis of everything from commissions and spiffs to travel costs identifies anomalies when compared to the company norm. They may be related to varying selling requirements based on the product/market, different approaches utilized by channel management or just plain mismanagement. More surprises come from this analysis.

Production/Fulfillment Analysis

Since market segments customers' service requirements are not homogeneous, analysis should be undertaken to determine just how great the variances are. Many companies do not attempt to prorate G&A costs across specific market segments, products or customers. Therefore, if any consume a significantly higher proportion of support, a profit drain exists.

Still more surprises.

Summary

Growth is a learning process. Changes in thinking and emphasis are essential as a company moves out of entrepreneurship. Recognize the requisite changes … before old thinking stops new growth.

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