Focus on cost management and margin optimization
The year 2023 has begun in a climate of economic uncertainty related to a possible upcoming recession. To address the impact that such a situation can have on an organization’s sales function, Celsius Halifax North America is offering a series of three articles on the trends to watch for in order to react and position yourself favorably in such an environment.
To get through the next 18 months without losing too many feathers, we must focus on managing sales costs and optimizing profit margins. Since we have already agreed not to focus on sales during this period but rather on market share, we must think carefully about the mandates we hold and the products we have to offer.
Let’s focus on the cost of sales. The first step is to ensure that, at the functional level, the costs of sales are optimized. These costs must be established in relation to several functions of your operations. Therefore, in addition to sales activities, we must also consider staff recruitment and the efficiency of the structure, as well as the number of salespeople in the field. In a downturn, you may want to consider reducing the number of field salespeople and compensating with inside sales by a team that would be responsible for nurturing qualified prospects.
Once this exercise is done, we must now act where there are the most gains to be made, i.e. in the margins. To understand the concept, let’s take the example of a company we work with that does about 100 projects a year. For most of them, we end up lowering the price so that the client signs, we estimate that on average we give $5,000 per project, and well in the end the company will have given $500,000 in profit. Not only does this amount represent a huge loss of profit, but the relationship with the clients will now be tainted in the long term by a reduced margin. When you open that door, you set a precedent that can hurt you for a long time.
It is not uncommon to see sales teams with poor negotiation skills. They let too much money slip through their fingers because they don’t know how to negotiate well. It is so important to rely on the strength of negotiation! We must not allow ourselves to be maneuvered by the client and sign under pressure by lowering our prices or our conditions. The impact on the profit margin is then direct. Such a bad decision will have a consequence on the relationship with the customer. If you offer them a gift one day, they will ask you to do it again later, you are setting a precedent that will hurt your margin in the long term with this customer.
Negotiating the price with you is the client’s job, not the vendor’s. Unfortunately, all too often we see projects that have already been negotiated internally and the client doesn’t even know that we have lowered the price. Have you ever heard the phrase “the client won’t sign at this price, we have to lower it…”? The seller must defend his prices and conditions. Make sure the team is well trained in negotiation so that all projects are optimized. Keep in mind that on average, a 20% increase in margin is achieved with good negotiation skills.
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