Your Sales Team is Killing Your Profit Margin. Now What?


Insights for ProfessionalsThe latest thought leadership for Management pros

Thursday, April 30, 2020

Is your sales team undermining your pricing strategy by offering large discounts? Here's how to tackle this issue.

Article 3 Minutes
Your Sales Team is Killing Your Profit Margin. Now What?

You want your sales team to be effective. But sometimes, this department might actually be doing the business more harm than good in their pursuit of success.

This may especially be the case if these individuals feel under pressure to sell at all costs, and have the freedom to do whatever it takes to make a sale. The result of this can be unnecessary discounts and offers that are wiping out your carefully-planned profit margins.

Often, this isn't down to any malice on the part of your employees, but rather it reflects a culture based on volume and profit above all else. If your team is motivated and compensated based on the number of sales they make, it's natural for them to prioritize their own numbers, even if this comes at the cost of the firm's overall profit margin.

So what can you do to fix this and ensure these team members are working well for the business as a whole? Here are some key steps to make your sales team the winners of your pricing strategy.

1. Rethink your performance targets

Setting performance goals that require employees to hit a target number of sales is likely to harm your profit margin, especially if a deadline is coming up and individuals are still short. This can lead to steep discounts being offered that undermine your pricing strategy in order to meet goals.

It's important to note this doesn't only apply to associates on the shop floor or in the call center. Senior executives can often be among the worst for encouraging this behavior, especially if they're under pressure to meet targets in time for quarterly financial reports - which is something savvy customers will be keen to take advantage of. Indeed, it's estimated these sales pushes can cost businesses as much as $98 million per year in lost revenue.

Therefore, consider other ways of measuring performance within your sales team. If you offer associates the chance to earn money through commission, for example, this incentivizes them not to offer large discounts.

2. Breaking the negotiating habit

A more drastic step may be to remove employees' discretion to offer discounts. This can be a hard habit to break, especially in businesses that have long regarded negotiation as a key part of the art of selling.

Ensuring this is successful requires time and effort. If you initiate policies whereby only a manager can authorize a discount, what's likely to happen is managers simply get inundated with requests. Only a hard line is likely to be effective - not only by learning to say no to customers who seek better deals, but also cracking down on sales employees who continue to ignore any directives.

In the long run, this can prove beneficial, however, as it not only maintains your profit margins, but as sales teams become more accustomed to selling on value rather than price, their raw sales figures should also increase.

3. Building sales teams' confidence

Requiring employees to focus on value rather than price may be a major shift for some employees, but with the right support, you can turn this into a positive for both your workforce and your bottom line.

If your sales team has a thorough understanding of the value of the products or services they’re trying to sell, rather than simply focusing on the numbers, they'll be better placed to provide a great experience and drive through a sale.

There are many reasons customers choose to do business with a firm, and price is only one factor. Conduct a study of your customers to find out what matters to them and pass this information on to your sales team. If they know why customers buy from them, they'll be in a better position to succeed without resorting to tactics that harm your profit margin.

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