Sales is what every business depends on. Without sales, no one in the company has any work or gets paid. The company folds.
With the right amount of sales, the company flourishes. Production feels successful, working for good clients and realistic complete packages. Profits exceed expectations. Client reviews are positive.
With the understanding that owner compensation and net profit dollars are the main benchmark of success for a company, what amount of sales would likely provide a minimum of $500,000 in salary and $500,000 in net profit? Assuming the two together are 20% of the gross sales, that would be $5 million a year.
Is it possible for one salesperson, who is also the owner, to sell this much and make that much potential income? Yes. Here are some things that make it possible.
Get Better at Sales
Most business owners who sell have no sales training. They are often victims of their own head trash. “I can’t sell at that gross profit margin!” they say to themselves. They make poor choices when deciding who to work with and who to ask to go away.
With a clearer idea of how to sell, the owner is able to use their time more intelligently. Ask lots of questions instead of telling the potential client a lot about their company. Focus on understanding the motivation(s) of the potential client. Read books on sales and/or get sales training. After every sales interaction, figure out what went right so you can do more of it and what went wrong so you can stop doing it.
Have a System
To sell effectively, the owner must work with his team to develop a process flow, a system, stretching from the very first call by a potential client to the job completion review. Every step in that process should be written down, with clear expectations of what good actions and results look like, plus which position is responsible for doing it.
Why does this have to be so clear? Because that is what is being sold. The right client likes things to go predictably well. Such folks know that for that to happen, they need a remodeling company that knows how to create a positive experience which produces good results.
Don’t have such a clear idea of your process? Spend an hour or two with your team writing each step of the process on sticky notes. Then organize the sticky notes in the proper order.
Decide which position in the company is responsible for each step. Figure out the metric(s) for success for each step, where possible. Write all that up, and there is your system.
Only Sell and Be the Owner
The owner must, like every other person in a position in the company, ONLY do what will get done if he does it. With sales being his responsibility, the owner must not get distracted by other necessary activities of the company.
Having an estimator who does the scope writing and the estimating is essential. An in-house designer can help with inevitable need to get selections and decisions nailed down, whether the company is design/build or works with architects. This person can also help price many of the fittings and finishes.
The owner/salesperson will need to review the scope and estimate as they get prepared and when they are complete. Why? Because the client is buying from the salesperson, so the salesperson is responsible for the accuracy of the information, even if he did not prepare it.
A good production manager is equally important. That position will free up the owner from getting distracted by the crisis of the day. The right person in that position will also take on much of the responsibility for preparing, pricing and selling change orders.
Focus on a Project Type
A successful sales-focused company typically avoids trying to be all things to all potential clients. Narrowing down the type of project allows the company to get very good at all the work involved in doing those projects well.
Keeping in mind that the annual sales goal is $5 million, here are a couple of different ways to generate that much in sales in one year:
- 50 projects at $100,000 each
- 33 projects at $150,000 each
- 25 projects at $200,000 each
- 20 projects at $250,000 each
- 10 projects at $500,000 each
- 5 projects at $1 million each
Is there a “right one” to choose? No.
Some things to keep in mind are:
- The more projects at a lower average job size the company does, the more work by the sales department is required and the larger the production staff must be. At the same time, the company’s success is less dependent on any given sale being closed, as the job size is low.
- The fewer projects at a higher average job size that the company does, the less work by the sales department is needed and the smaller the production staff can be, as much of the work will likely be subcontracted. The downside is that with fewer sales opportunities being pursued, any one of them not closing will have a big impact on the company’s annual revenue.
A common model is to have a more or less consistent average job size with one or two “whales” (much larger projects) every year.
You get to make the choice.
Have a Plan for Profit
Given that a company must make money to be successful let’s look at the options a company has for generating gross profit dollars. Let’s assume that the company’s gross profit (overhead, owner’s salary, and net profit) is $1.5 million ($500,000 for each of those categories).
Here are some models for generating $1.5 million in gross profit:
- 20% Gross Profit Margin = $7.5 million in Revenue
- 25% Gross Profit Margin = $6 million in Revenue
- 33% Gross Profit Margin = $5 million in Revenue
- 40% Gross Profit Margin = $3.75 million in Revenue
Which model involves the least work and risk? It’s 40% GPM, as that means the company is doing the least actual production work, with the Cost of Goods Sold being $3.75 million minus $1.5 million to equal $2.25 million.
Which model involves the most work and risk? 20% GPM, as that means the company is doing a lot more production work, with the Cost of Goods Sold being $7.5 million minus $1.5 million to equal $6 million.
Again, you get to make the choice.
So, Now What?
It is possible for an owner to sell $5 million and the company to produce that volume.
As you can see, there are many different choices to make. Keep in mind that the only model that matters is the one that will work for you. With the help of your team, cover all the points that have been addressed and come up with a plan. Try it for six months. Keep doing what is working well and stop or change what is not.
Remember, it is all just business. What your business looks like depends on what you want. Make a choice.