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Spending more money on advertising in not always the answer


With the talk of the economy getting tighter and consumer spending on the decline, it is important that your business is making the most of every selling opportunity.

If you have read any of my previous articles you would know that training professional staff is a passion of mine. Professionalism of a company's sales team is something that is overlooked by most business owners and can make or break your business.

I frequently pose the question to managers and CEO's, how much is your staff really costing you? When asking this question I receive various replies, anything from an hourly rate, a wage plus super figure, sometimes even, "you'll have to ask the book keeper". Regardless of the response, very few people actually stop and think about how much ineffective staff can impact your bottom line.

Marketing and advertising can be one of the largest expenses of any business. In a slowing market one can justify increasing this budget in an attempt to retain their share of the marketplace. However, very few business owners look at the effectiveness of their sales staff.
I need to clear something up from the start. When I use the term sales staff, I am not limiting this term to your stereotypical sales industries such as the motor, property and insurance industries. A sales staff member can be anyone from an estimator for a construction company, to a waitress in a restaurant. If a staff member is in direct contact with a client or potential client and has some role in the order taking process, they are a part of the sales team.

So, how many customers is each one of your sales people talking to, to make the number of sales they are making? How many quotes are they providing to win the number of jobs you are winning? Why is knowing that important? For example, if you are spending $1000 a week on advertising and that is generating 100 leads a week, what percentage of those leads are your staff converting into sales? 10%, 20%, 30%? Do you know the answer? Most business owners do not!
Let's say that your staff are converting 20%, that is, for every ten customers that walk in the door they will sell two of your products or services. Using the example above ($1000 of advertising to generate 100 leads), it is therefore costing you $10 per lead. With a conversion ratio of 20%, each sale is costing you $50 in adverting. This is before any other cost of goods.
In this example we will say that the average gross profit per sale is $300. By increasing the effectiveness of your sales staff and improving their conversion ratio from 20% to 30%, not only has each sale become cheaper, ($50 per sale to $33 per sale) but for the same annual advertising budget you have increased your gross profit from $312,000 to $468,000. That is $156,000 extra profit each year, by simply working with your existing sales staff to increase their effectiveness, and not by increasing your advertising or marketing budget.

Let's take it one step further. Let's say that due to the professional nature in which each of your clients are treated, they each told 5 of their friends or colleagues. Out of those friends or colleagues (1560 people over twelve months), 10% decide to buy your product or service. Still with an average profit of $300, the gross profit of your business in that year alone has just increased another $46,800.

Remember, your advertising and marketing budget has remained the same, leaving a good portion of the $202,800 increase, as net profit. Now, knowing that improving your sale staff's effectiveness will increase your net profit is one thing, but where do you start looking?

What areas of the sales process need work and what areas are working fine? Have you broken the sales process into stages? Do you have an effective referral system in place? Does your staff take every opportunity to up sell or cross sell? Are they leaving your clients feeling valued and appreciated?

It is difficult for you as a business owner to keep track of all of these factors and the hundred and one other areas of your business you need to maintain on a daily basis. The bottom line is, if you have a problem with your accounts you employ the services of an accountant. If you have a legal issue the first call is your solicitor. But who do you call when you're not selling as much of your product or service as you would like?

Employing the services of a professional to analyse your current sales process, can not only increase your profitability, but can allow you to work on other areas of your business with confidence, knowing that your sales team are maximising the return on your investment.


By Simon Bell

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