Tuesday, February 21, 2006

Sales - Its all about Money

Till date I have written only about marketing in this blog. It does not mean that I don’t know about sales. Nor does that imply that sales is not important. Being in marketing, I have a lot to say about sales - especially about B2B sales. So this blog is the first in the series on sales.

Anyone who has sold any thing in their life will know that the final sale depends on the selling price. Also one notices that there are different factors that can influence the selling price (in either direction). But in the end - it boils down to one thing - Money!!

A sale is completed only when goods or services is exchanged for some money. ( I am talking about capitalist economy here - and not referring to barter). This understanding often creates an impression that sales is all about deciding on the final selling price - and hence all the hard bargaining is concentrated on the price. While this is true, it does not depict the full picture. In reality, a sale happens only when both the parties agree on the final price, payment terms and a contract is drawn that binds both the parties into doing an exchange.

It is all about Money

Money is the lifeline of any business and in all businesses it is the sale which brings in the money i.e., the income for any firm is derived from sales alone. (either sale of products or services or ideas. Even royalty income is based on sales)

Sales department is therefore solely responsible for bringing in the money (or bringing home the beacon). The rest of the organization is there to help sales or manage the money. Here again, I must say that bringing in the money is not a challenge for sales. The real challenge is bringing in more money in exchange for a product or service which costs lesser to produce internally i.e., the selling price must be greater than the cost of producing the goods or services - And this is a HUGE challenge.

The performance of the firm is measured in terms of Money. Investors use the terms Return on Equity, Return on Assets, Earnings per Share, gross margin, top line growth, Return on Investments etc.., to measure the performance of the firm. Note that all these parameters are based on money (coming in & going out). Sales is therefore playing a vital role in the success of an organization.

A good salesman understands that a firm must sell its products or services at a profit. Let me tell you a street smart business statement from my Gujrathi friend: "No Profit - No sale". He was very clear that he will not sell if there is no profit in that deal - And this is a fundamental truth of business. There are occasions when firms sell at a loss - this is done for various reasons: getting a strategic customer or gaining market share etc.. But this in pure business definition selling at a loss is not a sale - and must be rightfully called as "buying the customer".

Basic idea of sales

The basic idea is that all sales must be profitable. The final selling price must be above the reserve price - selling below the reserve price will incur a loss. Knowing the reserve price is very important for every sales person because that is the BATNA-Best Alternative To Negotiated Agreement. ( I will write more about BATNA later in this blog.)

Another important thing every sales person should know is what are the financial objectives of the buyer. In a B2B sale, all purchases can be classified into 2 categories:

  1. Necessary expenses - such as payroll, insurance, rents etc.
  2. Investment related expenses - such as capital equipment, raw materials etc.

And the customer will buy only if:

  1. Your Product/Service reduces customer’s expenses without lowering performance/quality
  2. Your product/Service enables the customer to maximize his profits or ROI
  3. Your product/service reduces the business risks

Therefore to make a sale, a salesman should be able to relate his product/service offering to the customer’s bottom line and convince the customer about the benefits. In other words, a salesman should be able to talk about the impact in $$ terms - i.e., "Its all about Money"

Closing Thoughts

Business to business sales is a very complex process. Money definetly plays a major role - but there is lot more to closing a deal than moeny alone. I will be writing more about sales in the future blogs.


shakti said...

The sales strategy is good enough when the funnel / prospects are large. How these funnels can be increased ? iam new to uae IT security market and would like to increase my funnel to do so. Can you let me know how i can start addressing this market as i had worked in India in large telecom firms but i feel the international market is different so as the approach too.

jayanit said...

iBow is a leading IT Services company, headquartered in Oslo, Norway with presence across the globe. iBow offer's technology led business solutions across two SBU’s i.e. Application Software Services and Technology Infrastructure Management Services (Technology IMS).

jayanit said...
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