maximize profits format 2 r4
TRANSCRIPT
Introducing . . .
SPA
SPA Sales Performance AssociatesMaximizing ProfitsDeveloped by Bill VanSickleand Robin Bryer
Performance the Key to Success
SPA
Copyright Sales Performance Associates 2009 www.SalesPerformanceAssociates.com 214-641-9336 800-873-SELL 1Im BVS with Sales Performance Associates. This presentation, Maximizing Profits, was co-developed by Robin Bryer and I. Robin is a consultant with Blue Sky Group, Columbus, OHThere is actually quite a long story behind this presentation, however, I try to spare you all of the details and give you the condensed version.Robin and I meet in Chicago. We happened to be working for the same client only on different projects He was consulting on some financial software and I was conducting sales training.
The Location
Copyright Sales Performance Associates 2009 www.SalesPerformanceAssociates.com 214-641-9336 800-873-SELL
2
3
Product CostOverheadSales VolumeSales Price
Copyright Sales Performance Associates 2009 www.SalesPerformanceAssociates.com 214-641-9336 800-873-SELL And he wrote the following:OverheadProduct CostSales VolumeSales Price3
4
Product CostOverheadSales VolumeSales PriceIf we decrease or increase each of these things by 10%, which one will have the Greatest Impact as a means of Increasing Profits?
Copyright Sales Performance Associates 2009 www.SalesPerformanceAssociates.com 214-641-9336 800-873-SELL Then he preceded to ask meIf we decrease or increase each of these things by 10%, which one will have the Greatest Impact as a means of Increasing Profits? Well give me a scenario.
One thing I omited telling you about Robin is that he has a strong financial background and is a non-practicing CPA
So he grabbed a napkin and wrote the following scenario4
5
Base ScenarioSales$1,000,000Product Cost 350,000Labor 150,000Commission 80,000Gross Profit$ 420,000Overhead 360,000Net Profit$ 60,0002.0 Mark-up on Product & Labor8% Commission$360,000 Overhead
5
6
Base ScenarioSales$1,000,000Product Cost 350,000Labor 150,000Commission 80,000Gross Profit$ 420,000Overhead 360,000Net Profit$ 60,0002.0 Mark-up on Product & Labor8% Commission$360,000 OverheadDecrease Product Cost 10%Decrease Overhead 10%Increase Sales Volume 10%Increase Sales Price 10%Which factor will have the Greatest Impact on Increasing Profits?
I took an educated guess which Ill tell you later in this presentation.
Why dont you select a factor and as I continue the presentation youll see if your answer is correct.6
Net Profit$ 60,000 Sales$1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit$ 420,000 Overhead 360,000 1,000,000 315,000 150,000 80,000
455,000360,000
95,000Base Scenario
DecreaseCost
DecreaseOverhead
IncreaseVolume
IncreasePrice
Decreasing Product Cost by 10%
Copyright Sales Performance Associates 2009 www.SalesPerformanceAssociates.com 214-641-9336 800-873-SELL
7
Net Profit$ 60,000 Sales$1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit$ 420,000 Overhead 360,000 Base Scenario
IncreaseVolume
IncreasePrice
DecreaseCost
DecreaseOverhead
1,000,000
324,000
96,000 350,000 150,000 80,000 420,0001,000,000 315,000 150,000 80,000
455,000360,000
95,000Decreasing Overhead by 10%
Copyright Sales Performance Associates 2009 www.SalesPerformanceAssociates.com 214-641-9336 800-873-SELL Then we ran the numbers on Decreasing Product Cost and as you can see it didnt impact profits any more than Overhead.8
Increasing Sales Volume by 10%
Net Profit$ 60,000 Sales$1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit$ 420,000 Overhead 360,000 1,100,000
360,000
102,000 385,000 462,000 165,000 88,000Base Scenario
IncreaseVolume
IncreasePrice
DecreaseCost
DecreaseOverhead
1,000,000
324,000
96,000 350,000 150,000 80,000 420,0001,000,000 315,000 150,000 80,000
455,000360,000
95,000
Copyright Sales Performance Associates 2009 www.SalesPerformanceAssociates.com 214-641-9336 800-873-SELL Then we went to Increasing Sales Volume. As you can see, when we increased sales volume we also had to increase Product and Labor cost and commissions.
Unfortunately when times get tough companies often only look at ways of cutting costs and overhead. So might be asking yourself, at these time, should I continue to invest in my sales resources? And clearly this model shows that increasing sales volume will yield a higher return on investment.Finally, we ran the numbers on Increasing Price.And Ill tell you now that this is the one I picked. 9
Increasing Sales Price by 10%
Base Scenario
Net Profit$ 60,000 Sales$1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit$ 420,000 Overhead 360,000 IncreaseVolume
IncreasePrice
1,100,000
360,000
152,000 350,000 150,000 88,000 512,0001,100,000
360,000
102,000 385,000 462,000 165,000 88,000DecreaseCost
DecreaseOverhead
1,000,000
324,000
96,000 350,000 150,000 80,000 420,0001,000,000 315,000 150,000 80,000
455,000360,000
95,000
Copyright Sales Performance Associates 2009 www.SalesPerformanceAssociates.com 214-641-9336 800-873-SELL However, when I saw how much Increasing Price impacted profits, quite frankly I was blown away. I had no idea that a 10% increase in price going from a million to a million 1 hundred thousand increased profits by over 250%As you can see the other factors arent even close to Increasing Price. So did you select the correct factor? and if you did were you surprised at the impact Increasing Price had on profits?Im somewhat curious - since it had such a dramatic impact I wanted to see what affect paying a larger commission had on profits10
Profits and Pizza11
Base ScenarioSales$1,000,000Product Cost 350,000Labor 150,000Commission 80,000Gross Profit$ 420,000Overhear 360,000Net Profit$ 60,0002.0 Mark-up on Product & Labor8% Commission$360,000 Overhead
Copyright Sales Performance Associates 2009 www.SalesPerformanceAssociates.com 214-641-9336 800-873-SELL
11
Increasing Sales Price by 10%
Base Scenario
Net Profit$ 60,000 Sales$1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit$ 420,000 Overhead 360,000 IncreaseVolume
IncreasePrice
1,100,000
360,000
152,000 350,000 150,000 88,000 512,0001,100,000
360,000
102,000 385,000 462,000 165,000 88,000DecreaseCost
DecreaseOverhead
1,000,000
324,000
96,000 350,000 150,000 80,000 420,0001,000,000 315,000 150,000 80,000
455,000360,000
95,000
Copyright Sales Performance Associates 2009 www.SalesPerformanceAssociates.com 214-641-9336 800-873-SELL However, when I saw how much Increasing Price impacted profits, quite frankly I was blown away. I had no idea that a 10% increase in price going from a million to a million 1 hundred thousand increased profits by over 250%As you can see the other factors arent even close to Increasing Price. So did you select the correct factor? and if you did were you surprised at the impact Increasing Price had on profits?Im somewhat curious - since it had such a dramatic impact I wanted to see what affect paying a larger commission had on profits12
Increasing Sales Price by 10%
Base Scenario
Net Profit$ 60,000 Sales$1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit$ 420,000 Overhead 360,000 IncreaseVolume
1,100,000
360,000
102,000 462,000IncreasePrice
1,100,000
360,000
130,000490,000* Increase Commissions to 10% 385,000 165,000 88,000 350,000 150,000 110,000* DecreaseCost
DecreaseOverhead
1,000,000
324,000
96,000 350,000 150,000 80,000 420,0001,000,000 315,000 150,000 80,000
455,000360,000
95,000
Copyright Sales Performance Associates 2009 www.SalesPerformanceAssociates.com 214-641-9336 800-873-SELL So I ran the numbers with 10% versus 8% commission.And as you can see even with a larger commission profits still more than doubled.Next I wanted to see what a 5% increase in price had on profits.13
Increasing Sales Price by 5%
Base Scenario
Net Profit$ 60,000 Sales$1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit$ 420,000 Overhead 360,000 IncreaseVolume
IncreasePrice
1,050,000
360,000
106,000 350,000 150,000 84,000 466,0001,100,000
360,000
102,000 385,000 462,000 165,000 88,000DecreaseCost
DecreaseOverhead
1,000,000
324,000
96,000 350,000 150,000 80,000 420,0001,000,000 315,000 150,000 80,000
455,000360,000
95,000
Copyright Sales Performance Associates 2009 www.SalesPerformanceAssociates.com 214-641-9336 800-873-SELL Even a 5% increase in price was greater than increasing or decreasing the other factors by 10% 14
All I need to get this deal is a 5% discount!How can I raise my prices when . . .
Whats the Real Impact of a 5% Discount
Copyright Sales Performance Associates 2009 www.SalesPerformanceAssociates.com 214-641-9336 800-873-SELL I think it was the second time I gave this presentation in the Q & A session, someone stood up and said . . . I wanted to see what the real impact of discounting. I chose 5% - that doesnt seem like a lot.15
The Real Impact of Discounting
Base Scenario
Net Profit$ 60,000 Sales$1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit$ 420,000 Overhead 360,000 Decrease Price 5%
350,000 150,000 76,000
360,000
$ 14,000 950,000
5% discount equals a 76.7% reduction in Net Profits374,000
Copyright Sales Performance Associates 2009 www.SalesPerformanceAssociates.com 214-641-9336 800-873-SELL However in running the figures with this scenario a 5% discount actually equaled almost a 77% reduction in Net Profits16
The Real Impact of Discounting
Base Scenario
Net Profit$ 60,000 Sales$1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit$ 420,000 Overhead 360,000 Decrease Price 5%
360,000
$ 14,000 950,000
5% discount equals a 76.7% reduction in Net Profits374,000Even selling at the base price you make $46,000 more than you would by discounting 5% 350,000 150,000 76,000
Copyright Sales Performance Associates 2009 www.SalesPerformanceAssociates.com 214-641-9336 800-873-SELL
17
Comparison: Discounting vs. Increasing Price
Base Scenario
Net Profit$ 60,000 Sales$1,000,000 Product Costs 350,000 Labor Costs 150,000 Commissions 80,000 Gross Profit$ 420,000 Overhead 360,000 Increase Price 10%*
1,100,000
490,000 360,000
130,000350,000110,000* IncreasePrice 5%
1,050,000 466,000 360,000
106,000350,000 150,000* 10% Price Increase with 10% Commission84,000 Discount Price 5%
350,000 150,000 76,000 360,000
14,000 950,000
374,000150,000
Copyright Sales Performance Associates 2009 www.SalesPerformanceAssociates.com 214-641-9336 800-873-SELL Here the comparison between selling at your base price, discounting 5% and increasing your price 10% and 5%
By the way if you plug your own numbers into here, I pretty well guarantee you youll see similar results
Whats this all mean18
SPA
SPAContact us todayLets work together to increase your profit margins and stop discountingSales Performance AssociatesDallas: Scott Espy [email protected]; 214-641-9336Denver: Bill VanSickle [email protected]; 800-873-SELL www.SalesPerformanceAssociates.com
Performance the Key to Success
SPA
19I want to thank you for taking the time to view this presentation. Im BVS with Sales Performance Associates and I hope to hear from you real soon.