Today, I want to address one of the most common questions I hear from business owners:
How do I increase sales?
While it may seem like a reasonable and straightforward question, frankly, I think it’s the wrong question to ask. So, naturally, I will usually question the business owner further to better understand what they mean: “Why do you want to increase sales?”
At this point, they will usually explain to me that they want to make more money and grow their businesses.
This is where the issue lies. Many businesses are so sales-minded that they falsely equate an increase in sales with an increase in profits. When I ask them, “how is business?”, they will often say something along the lines of “sales are up!” or “sales are down.”
Because of this heavy emphasis on sales, business owners will work relentlessly to grow their sales numbers—only to find that their businesses aren’t that much better off for it. The reason for this? They haven’t actually addressed their profits at all.
Now, this isn’t to say that increasing sales isn’t important or that more sales can’t be a good thing for business. Are sales numbers important? Yes, of course; but it’s not the only thing business owners should worry about, and it certainly shouldn’t be the main objective of the business.
Increased sales aren’t always a reliable measure of success; and sometimes, they can create more problems. There are times when more sales can actually hurt the business’s bottom line.
After all, there are all kinds of implications to consider when you push for an increase in sales:
- More sales means more vendors and payables. Even if you are able to increase sales and manage those demands in house, there is no guarantee that your vendors will be able to keep up with your new sales numbers. This means that you may need to go out and find more vendors to help you.
- More sales means more inventory. If you hope to keep getting your products and services delivered to customers on time—even after you increase sales—you’re going to need to make sure you have more of them in house. Loading up on inventory is an expense you incur before you are ever able to reap the financial benefit of more sales.
- More sales means more employees. There are only so many additional customers you can take on before you will need to bring on more manpower to properly service those customers. Of course, this is going to increase your payroll and overhead.
- More sales may necessitate a sharp drop-off in quality. This is because the business owner is no longer able to offer the personalized customer service that they may have been able to provide in the past. They won’t be able to meet with customers face to face or over the phone. In fact, a hike in sales tends to turn the sales-minded business owner into a manager—a transition that many business owners struggle with.
There are two times when businesses most often go bankrupt—within their first 12 months of being in business, and believe it or not, shortly after a dramatic increase in sales. For businesses that sell a product, this is usually around the $1 million or 10-employee mark. For businesses that sell a service, this is usually around the $250,000 or five-employee mark.
One thing I tell business owners during tough times—whether it’s a time when inflation is high, material costs are skyrocketing, or a full-blown recession—is that the bad companies go bankrupt, the good companies just barely survive, and the great companies actually improve.
So, this begs the question—what are you going to do to avoid hitting the wall? Continue your education by purchasing a few books and even enrolling in a course or two. Find a trusted business advisor to walk alongside you and offer timely advice.
When I work with clients on helping them increase profits, we first focus on bringing their costs down. Rather than increasing sales by 10%, we work on reducing costs by 10%. Once costs are in order, we can work on increasing sales. This will allow more of the money from their increased sales to positively impact their bottom line.