Why the ever increasing sales targets are wrong
Sales budget and targets
The sales budget is based upon the achievements of the current year and the expectations of next year taking into account all possible parameters and influencing facts. Still every year the sales budget gets increased. As a result salesmen will start to hide purchase orders once they have reached their budget as else they will have an unachievable target for next year.
Ever increasing sales goal
The reason the VP Sales or Sales Manager imposes an ever higher target is because the CEO is under pressure to grow the company. Both pressure from the investors, pressure from the media and pressure from his social environment as the expectation is that companies need to grow in order:
- To obtain more market share
- To increase production capacities for lowering cost per unit
- To increase purchase quantities giving lower purchase prices
- To stay ahead of competitors
The real goal is profitability
However the main goal of a entrepreneur or an investor is not more sales but more revenue on his investments. The bottom line is important.
Thus instead of the chase forever growth the goal should be to increase the bottom line. In many cases this doesn’t require more sales but more efficient production, better management, optimizing production capacities.
The real goal is profitability and all other goals are subject to this.
Most mid-sized companies already operate in a niche market which is likely not to grow significantly. Instead of going into fierce competition with all competitors in this niche market, it could be better to optimize the product offering or even carve out an even more specific part of the current niche market in order to increase profitability by having a more specific offering leading to better targeted marketing and less wasted time of salesmen.
Optimization of bottom line
If a company wants to achieve growth by more sales then it will need to spend more on marketing and sales efforts, each of the increase in spending includes an additional risk.
Thus instead of the ever increasing sales budgets it might be opportune to aim for a more profitable bottom line. Instead of putting all efforts in all kinds of marketing campaigns and chasing every probable customer, the goal would be:
- To spend wisely on effective marketing campaigns and events
- To increase the qualifications for lead qualification
- To chase only the most profitable customers or projects
In order to optimize the bottom line.
Would you dare to propose this when your next sales target is being proposed to you ?
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