I always think that, in theory, business is fairly simple, find a product that people want and sell it to them for more than it costs you to make. We all know that this is not so simple in practise.

The profitability of a company is a very simple equation:

Revenue – cost = profit

If we want to increase profits, we need to increase our revenues, decrease our costs or increase revenues faster than increasing costs. Let us consider each of these.

Decrease costs without impacting revenues

This is typically the least appealing way of increasing profits as it usually involves reducing the number of people employed. The results are often a demotivated workforce, adjusting to new ways of working and probably being very inefficient for a while. Further, the reduced workforce could result in lower revenues from less sales or poorer customer service which would negate the effects of the lower costs.

Of course, there are elements of a business that can be reduced without cutting the workforce but they will frequently have an impact on staff morale and lead to lower productivity. Having said all that, it is often necessary to cut costs and then manage the impact of this.

At times, it may be possible to cut costs through improving productivity or using technology to speed up processes. The implementation of a new technology has a cost associated with it. The savings from this will be recognised over time. This requires a certain leap of faith for management as savings from new technology are not always guaranteed and are not always the only variables.

Increase revenues faster than increasing costs

Investing in new technologies requires an additional cost which results in a lower overall cost in the future. A similar idea is to invest in more sales activity in the belief that more sales will result. This is a reasonable assumption as long as there are sufficient potential customers for your product who are not being serviced by the current sales force. If your current sales force is managing to service all of the available opportunities, expanding the sales team will not necessarily result in more sales.

When most companies look to grow, they tend to use this method. Again, it requires upfront investment before the revenues start to increase but it can deliver significant increases in profits. However, it does assume that the sales force is effective at what they are doing.

Increase revenues without increasing costs

In essence, this requires the sales team to close more deals or bigger deals without spending any more money. Imagine that you currently win 50% of all forecast opportunities. Now, imagine that you win 60% of these opportunities with the same team. That is a 10% increase in revenue with no additional cost and much more profit.

To achieve this, the sales team require more skills and more refined skills. Research shows that sales people who have quality, regular training deliver on expectations more than those that do not. They also have fewer opportunities that end with no decision. Finally, they close opportunities, either won or lost, quicker than teams that have had less sales training.

Sales training improves the effectiveness and efficiency of the sales team in a number of ways:

They know which companies to focus on. Not every company is a possible customer today. The best sales people focus only on those that are most likely to buy.
They build rapport quickly with the right people within those companies. People buy from people and the sooner you can establish a relationship, the sooner you can understand their needs and the sooner you can be closing deals.
They understand their products in great detail. This enables them to translate the features of their product into benefits for their customer based on their customer’s needs.
They can guide their customers though the buying process. They know the typical objections and can eliminate them early in the process so that the customer focusses on the value to be achieved.

Finally, a well trained sales team is motivated and willing to go the extra mile to achieve their objectives. They are more likely to stay, reducing the cost of recruitment and the loss of productivity associated with a high staff turnover.

In conclusion, increased profits are usually the objective for every company. There are a number of ways that this can be achieved but the most simple and effective way is to close more deals using your existing sales team. However, they need to improve their efficiency and so require regular training in order to achieve this.