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More Sales Aren't Always The Answer
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More Sales Aren't Always The Answer


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A marketing executive bought a load of melons for $1 each. He advertised them for sale at $0.85. When his CFO asked how he planned make a profit, he proudly replied, "Volume!" Too many businesses …

A marketing executive bought a load of melons for $1 each. He advertised them for sale at $0.85. When his CFO asked how he planned make a profit, he proudly replied, "Volume!" Too many businesses think like our melon-selling friend. They assume they can make money on anything, if they can just sell enough. Knowing how to sell something without understanding the economic impact of those sales is a recipe for disaster. The ultimate result companies must focus on is how much cash a promotion puts in the bank.

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  • 1. WHAT A CPA KNOWS ABOUTMARKETING:MORE SALES ARENT ALWAYS THE ANSWERThere is an old joke about a marketing executive who bought a truckload of melonsfrom a farmer for $1 each. He advertised them for sale at $0.85. When his CFO asked he planned make a profit he proudly replied, "Volume!" profit,Does that sound absurd to you? Surely, the story must be a throwback to the daysbefore we had MBAs and complex modeling systems to direct our every move.May I be honest? I have a degree in accounting, and have done graduate work infinance, not marketing. I have never worked in a purely marketing or sales function. Anymarketing professional worth his salt has probably forgotten more on the subject then Iwill ever know. That explains the often-asked question of why a CPA wrote a book calledHighly Visible Marketing, and blogs about marketing related topics.I do not see myself as writing about marketing; at least not as the average personunderstands the word. I write about a business approach that is foreign to manymarketing professionals. It is largely un unheard of among small businesses.I call it marketing accountability accountability.I focus clients on improving cash flow by growing the bottom line, not the top line It is line.that focus that adds value.Too many business people think like our melon selling friend. They assume they can melon-sellingmake money on any product or service, if they can just sell enough.As obvious as it may sound, t , there must be a reasonable and measurable relationshipbetween marketing costs and the expected cash flow and other benefits.Without that mindset, there is no perceived need to compare costs and benefits. Littleor no effort is spent matching expenses and revenues until someone asks why the cash entbalance is circling the drain or vendors start calling asking where their payment is is.Do you think I might be exaggerating the importance of accountability?
  • 2. A 2005 study titled Small Business: Causes of Bankruptcy by Don B. Bradley III and ChrisCowdery of the University of Central Arkansas reported that of businesses in their studythat filed for bankruptcy, 58% admitted to doing "little to no record keeping." I assume abusiness that keeps no records has no ability to compare costs and benefits, let alonemanage them.I encounter this "Ill make up the difference on volume" mentality with alarmingfrequency. One of those encounters was the cathartic event that led me to develop mymarketing accountability approach.I had a growing client who had reached $5 million in sales. Unfortunately, losses weregrowing even faster. They were in desperate straits, virtually out of cash. They thoughtthe answer was to slash expenses and eliminate staff, while continuing to grow sales. Inother words, they followed conventional business thinking.I discovered they were losing money on their largest customer class, where allmarketing efforts were directed. Much to their surprise, I did not suggest eliminating asingle position. On the contrary, I recommended hiring a marketing person for theprofitable customer base. I then directed procedural improvements to make it easier forthose customers to do business with my client. Finally, I suggested an immediatereduction in unprofitable customers.Even more alarming is how often clients I assume are financially astute fall into thesame trap. I worked with a very large company that started a bonus program on theirentire product line. The problem was they lost money on some products, primarilybecause they were underpriced. The bonus structure did not differentiate betweenproducts. When sales of already unprofitable products increased, the added cost ofbonuses produced a "double whammy" on the bottom line.An appropriate tactic would have been to reward the sales force for increasing totalsales, while also decreasing sales of unprofitable products.As both examples illustrate, growing sales and increasing profits are not alwayssynonymous. Admittedly, decreasing sales to improve cash flow and profits soundscounter-intuitive to someone lacking a firm grasp of their cost structure.That is no excuse.Knowing how to sell something without understanding the economic impact of thosesales is a recipe for disaster. Those responsible for a promotion should also be heldaccountable for its results, good or bad. The ultimate result companies must focus on ishow much cash a promotion puts in the bank. It really is that simple! 2
  • 3. Does my marketing accountability approach work?Here is what the client in the first example said, "While many companies are looking tocut back on employees as their first resort to handle cash shortages, CFO America wasquick to point out that the right mix of customers was the crucial area of concern. Theyalso were quite helpful in directing us in some marketing improvements that we couldmake. We are now in the process of implementing changes that are destined toenhance our financial picture."I leave you with that quote. © 2012 by Dale R. SchmeltzleAbout the author: Dale R. Schmeltzle, CPA is a founding partner of CFO America, professional advisorsdedicated to helping business owners identify and solve cash flow issues before they become a crisis.CFO America provides part-time executive management who help you define, implement and monitorthe strategic and tactical elements necessary to achieve long-term success.Dale has been a frequent author and speaker for numerous professional, civic and non-profit groups. Hewrote Highly Visible Marketing, 115 Low-cost Ways to avoid Market Obscurity. He has also taughtcollege level accounting and financial courses to non-business audiences. For more information, pleasevisit or follow us on Facebook at Consulting CFOs & Executive Managers 3