Profits are down: quick, get more sales!

This stimulus-response connection is just about hard-wired in us. Unfortunately it's sometimes dangerously wrong. As consultants we encounter it so often, we've had to invent a name for it. Our working title is I'm drowning! Please push me under.

Here's how it works...

The organisation is under pressure. People are working longer hours, they can't seem to catch up. They say things like, You want it when?

As they tire and lose enthusiasm, people start to make mistakes. The number of transactions requiring post-sale repair increases. And profits fall.

The reality is that the organisation has exceeded its sales capacity. It:

• cannot make and process more sales
• cannot create the product
• cannot spend enough time with the client.

Management however focuses on the profit fall and seeks to increase sales. Should they succeed, delivery times will blow out and the fulfilment error rate will increase, consuming more time and further reducing capacity, in a vicious cycle.

More likely, if customer pressure is increased by a successful promotion, the inquiry conversion rate will fall to maintain the same sales outcome (see What happens when the client meets the sale person?).

An actual increase in sales will reduce outcomes, increase costs, destroy staff morale and, if it is sustained, seriously damage the company.

Customers will learn, Oh, don't go there, they're too busy to serve you and they always stuff everything up.

I'm drowning! Please push me under...

The lesson we have learned is that more sales do not solve every problem, especially if the problem is to do with sales capacity.

Before you launch a major sales push, you should check that you have spare capacity to deliver those sales with.

Even a currently successful organisation can be damaged by a sales increase beyond capacity, where overload degrades its previous high efficiency.

When resources do not equal profitable capacity...

Just increasing resources to sales and fulfilment may not be the answer, if this increases costs beyond market pricing.

When production and sales costs exceed market pricing, it's time to look at your systems; to work on improving their efficiency so you can meet the market. Take a look at how your competitors are managing. Try a brainstorm. In desperation, ask your workers.

If you are in business, you are going to have problems. The trick is to have a better class of problem. Working out how to meet customer demand is a better class of problem.

At Glide, we have the experience, attention to detail and analytic skills to help you develop more efficient, reliable systems.