Streamline Training & Documentation: Business Acumen IX

Monday, October 16, 2006

Business Acumen IX - Profitable Sales

I recommend having a look at this Wall Street Journal article illustrating the importance of training and incentivizing salespeople to make profitable sales. In the article, Jaclyne Badal describes several examples of companies that found themselves generating considerable revenue from sales of products that were actually detracting from the bottom line.

For instance, Brazilian salespeople for Syngenta, an agribusiness company, were paid on the basis of revenue generated. Even if they had wanted to check the cost of sales, they couldn't because they didn't have access to the necessary data on items like freight charges and shifts in exchange rates.

Syngenta has now created a software tool that calculates a "pocket price" for each proposed sale and flags any order that shows a negative number; such an order passes muster only with a manager's special permission. Syngenta also "changed the incentive plan for the sales team to align it with the [company's] emphasis on earnings. The new system tied bonuses to profit margins rather than volume."

Dow Chemical also uses software to estimate each proposed deal's profitability. As Badal reports:

... Dow asked some salespeople to work with customers to cut costs — or lift prices. Executives armed the sales team with data on sale prices and costs, helping their negotiating positions.

... the conversations allowed salespeople to craft delivery or service agreements that were less expensive for Dow as well as the customers.

Helping salespeople understand and gauge the profitability of deals on which they're working is a prerequisite for restructuring compensation to incentivize meeting profit goals.¹ Trainers should consult with management concerning how they can assist with this effort.

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¹ Salespeople should not be asked to do the impossible. Companies need to analyze the cost structure of each product, and then weed out any products that simply cannot be sold at a profit and which do not contribute adequately to profitable sales of other products.

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Labels: Business acumen, Rewards and recognition

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