In my last post we examined the pitfalls of an Aggressive Sales Growth strategy. But now let’s focus on two other growth options that will let you sleep at night and yet consistently followed will still safely make you wealthy!
Scenario #2: Moderate but Consistent Sales Growth
In this example, moderate growth is defined as 15% to 30% per year. (Not bad in today’s economy!) This growth strategy is ideal for companies that want to maintain market position while focusing their resources on organizational, service quality, or profitability issues.
Sure, it may be sexier and more exciting to hit that 50%-100% sales increase for next year that we examined last week in my “Aggressive Growth Strategy” post. But remember, by shifting your focus away from big increases in sales you can invest your resources—both money and people programs for staff training, customer-retention and cost reduction. And all these consistent efforts will absolutely translate into higher profits!
For example, did you know that increasing your sales just 20% per year will double your sales in less than four years? Work the numbers: Current Year: $400,000; Year 1: $480,000; Year 2: $576,000; Year 3: $691,000; Year 4: $829,440. WOW!
The advantages to this moderate growth scenario are that you can be more selective with the people you hire plus have more time to carefully train them and you can usually finance this growth without taking on a lot of debt. Not to mention your blood pressure will go down too!
Scenario #3: Focus on Profit Rather than Sales Growth
Focusing on profits instead of gross sales it actually makes sense for a lot of cleaning and restoration companies.
Consider this situation. Let’s say your company’s sales have increased year after year, but your profits haven’t. So now you are struggling to be profitable. So instead of throwing away more advertising dollars at to attract new unprofitable customers why not focus on extracting the profits from the book of business you already have?
Start by weeding out your unprofitable customers. This will give you more time to invest in your loyal and profitable ones. You should also work on shrinking your expenses. Focus especially your direct costs such as labor and vehicle and machine expenses. (Remember that you are going to have fewer but more profitable places to visit.) And naturally, your advertising expenses will be reduced dramatically.
Here’s how the numbers work. If your company currently does $300,000.00 per year in sales, and you earn a 15% net profit including your salary, you’ve earned $45,000.00. A pretty skinny income for anyone!
So let’s say you chose (from last week) Scenario #1: Aggressive Sales Growth and increased your sales 50% to 450,000.00. If your your net profit percentage stays the same you will have earned $67,500.00 net profit. Better, but still not where you want it and especially given the stress and the “collateral damage” your family will likely endure!
But what if you decide to implement Strategy #3: Focus on Profit rather than just sales growth? Likely your net profit on the same $300,000.00 in sales would double which means you will now earn $90,000.00 net profit! Now you are getting somewhere! Plus you will put less wear and tear on your vehicles, equipment, and people! And you might even get to spend a stress-free night or two at home with your family!
At the end of the day your business planning up to you. The important thing to remember is that growing sales just for the sake of bragging rights is meaningless, dangerous and just possibly may be fatal to your company!
Always focus first on profits and then decide which sales strategy is best for you. (And that is exactly what we will be doing in my SFS Business Planning Seminar December 12th and 13th and Jon-Don’s headquarters in Chicago. You really need to be there!)
Chuck Violand (more about Chuck)
SFS Instructor
CEO Violand Management Associates