You’ve heard the saying, “Sales fixes everything”, and Guy Kawasaki explains how.
The problem is that sales do NOT fix everything.
Don’t get me wrong. Sales are important. If you’re not selling, everyone can stay home. And as Kawasaki and others will point out, sales mean cash (well, assuming you collect the cash), and cash buys you time to fix problems (but you still have to fix the problems–the cash doesn’t). Yes, sales are critical! And yes, sales buy time.
But sales can also hide opportunities to look for other ways that can also increase profitability.
Let’s illustrate this with a couple pathways to profitability.
Take Neato Green Home Improvements, a company with $1M in annual sales, making a 5% net profit (that is after the owner has been paid). That’s $50,000.
One way to grow profits to $100,000 would be to double sales. Sell $2M at 5% net profit. That assumes, of course, that all else remains equal, which isn’t necessarily a fair assumption. I’ve seen companies whose total profits dropped, after doubling and then quadrupling their sales. Sales didn’t fix everything for them. It actually made some problems even worse. And of course, doubling sales doesn’t happen over night. Where do the leads come from? Who is going to sell more and how are you going to train them? What does that all cost?
Another way for Neato Green Home Improvements to grow profits would be to look at margins and costs and operating efficiency. Every dollar that is currently wasted, could potentially be saved and dropped straight to the bottom line, whether we’re talking about operating costs and administrative costs.
And what if pricing is wrong, and you’re not making sufficient margin? What if you actually lose money–unintentionally, not as a deliberate loss leader–every time you sell certain certain services? More sales of those services might not be such a good idea. In fact, more sales there will actually hurt profits!
What if you can correct pricing errors and eliminate waste to reduce costs to add 5% to your margins?
Neato Green Home Improvements could add $50,000 to its bottom line by improving its gross margin by 5%. That might be done with a few pricing corrections here (which could also boost sales revenue!), and a little waste reduction there. They could deliver $100,000 in profits, even at $1M in sales. That level of improvement isn’t beyond the pale. It doesn’t even push them to the top of the class.
Sales matter. A lot! And most HVAC, home performance, and other home improvement companies do not do a good enough job with sales. But profitability matters, too. And quite often companies can see large and rapid returns by reducing costs and improving margins.
Boost sales. But don’t ignore profits!