The purpose of a sales team is not to drive sales. It is to create profit.
The biggest hidden cost in most manufacturing businesses is the discount the sales teams give their customers. Some teams I’ve worked with have so many types of discounts, over-riders and funding agreements it’s almost impossible to see the “true price” that ends up being paid. In too many cases, discounts are badly reported, poorly understood and largely uncontrolled, and have a huge impact on profit.
Some businesses solve this by controlling it all centrally - discounts are only available if the customer meets strictly defined criteria. Beyond that, sales teams can’t influence price. This can work well for big organisations with powerful, established brands, but it simply isn’t appropriate for smaller businesses that need a more flexible and entrepreneurial approach.
Empowering Sales Teams
Instead, most businesses need to strike a balance; empowering sales teams to offer discounts, while ensuring they don’t give away the farm. To do that, there are three key ingredients that need to be in place. They are: controls, incentives and skills.
Controls: The three key things to control are: options (what discount types can be offered); floor price (minimum price after all discounts); and process (recording, reporting and recovery if targets aren’t hit).
Incentives: It’s critical that sales teams are measured and incentivised purely on the profit they make above floor price, and not on sales.
Skills: The team’s negotiating ability dictates how much profit they get above floor price; it has a direct and significant impact on profitability. Investing in these skills isn’t a nice-to-have, it’s a strategic necessity.
BOTTOM LINE: Pay your sales teams for the profit they create. If you empower them to discount, make sure you’re giving them the controls, incentives and skills they need to protect your profits. And finally, ask yourself: how much did you spend last year on negotiation training? And how much did you spend on sales discounts?