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The wrong time to Increase Sales

Whenever you read an article about business growth, it almost always comes down to a push to increase sales, but there are times when this may have totally the opposite effect that was intended.

The big mistake businesses make is using Sales as a proxy for growth. When economists speak about growth, they look at profit, which is not the same Sales. In certain circumstances, increases in Sales can reduce profitability, but people continue to use Sales as an indicator of growth because it’s easy to measure.

So when does using Sales as a proxy for growth break down? Firstly, it needs to be recognised that all sales are not equal. Some will be more profitable than others. More resources are used in making some sales, and in service delivery than others. This requires deeper analysis than most business owners typically undertake.

If businesses don’t fully allocate their cost of sales and cost of services, it’s likely that there is a cross subsidy between their products and services with the less profitable ones being subsidised by the more profitable ones and increased sales of the former actually decreasing the profitability of the business.

It’s likely that such businesses are under pricing some of their products and services, and are not as competitive as they could be in others. Pricing is an essential part of a business’ marketing strategy and poor pricing can damage a business’ chances of success.

Without proper analysis of pricing, the impact on the bottom line is hidden and the reason for lack of profit is a mystery to the owners of the business. Of course Pricing Strategy is just one element of a business’ marketing strategy, but like any chain, one weak link weakens the whole chain.

Once you have set your pricing strategy, the rest of your marketing is responsible for supporting your prices, and every increase in Sales will result in growth.

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Dr Greg Chapman – The Profit Whisperer

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