When I consult with customers, or give sales management seminars, one of the things that I urge sales managers or company owners to do is to start thinking of their salespeople not as revenue generators, but profit generators. Think about it – the only thing we (business owners) can actually spend is the dollars generates as profit from our business operations.
Invariably, salespeople are either profit generators or profit drains. For some reason, “break even” salespeople have been very rare in my career. There’s a deeper level for us salespeople, though. The two questions we must ask ourselves are: Is our employer better off for having us represent them? And… Are our customers better off for doing business with us?
Whenever I’ve met a truly successful salesperson, the real answer to both those questions is, “yes.” Unfortunately, a lot of salespeople either don’t know the answers or don’t understand the concept. Several years ago, I was in Dallas interviewing a salesperson who proudly told me that his territory generated just over $300,000 per year in revenue. Sure, $300K sounded like a lot of money, until we started talking profits.
I knew a little about his business, and that it had small margins. Sure enough, he said his average gross margin was about 15%, so I knew that he was generating about $45,000 annually in gross margin dollars. Without mentioning his GM dollars, I asked what he was making. He proudly told me that he made $55,000 annually! That meant that, just subtracting his income from gross margin dollars (not thinking about benefit costs, delivery, overhead, or any one of a dozen other things that eat into gross margin), he was a $10,000 annual profit drain for his company – and he didn’t realize it.
If you’re trying to decide whether you’re a profit center for your company, you need to have an understanding of how your company makes money. Sometimes that’s tough, because companies don’t share that information. HINT to company owners and sales managers – if you want the best out of your salespeople, share with them how the company makes its money. It’s a little scary the first time you do it, but your salespeople really do have a better understanding of how their duties fit into the big picture – and they perform better.
I usually coach business owners that, as a rough guideline, sales compensation should be between 25% and 50% of the profit dollars generated by that salesperson. Depending on gross margins and company expenses, some companies may be less than 25% in order to generate net profit, and some may be more than 50%. What’s important for both company owners and salespeople is that there is a mutual expectation of what is appropriate.
With knowledge comes power, and with power comes responsibility. Salespeople, if your company shares this information, it’s now your responsibility to self-evaluate and make corrections to be a profit center and not a profit drain. What separates the winners from the whiners is this: The winners have the ability to see themselves as a valued resource for their company and customers, and the whiners see sales as a series of activities that fill up time in a work week. I don’t have to tell you which is more successful.
For now, start thinking about your own profitability to your company, and decide if you’re a profit center or a drain. Come up with some ways to either become profitable, or to increase your profit.
