It often happens that, Although it has a good sales volume, the results reflected at the end of the month are not satisfactory. Possible reasons that can generate or contribute to this situation.
Many times, Although it has a good sales volume, the reflected results are not satisfactory. It is important to stop and analyze some possible reasons that may generate or, at least, contribute to this situation.
For a start, keep in mind that, although it may be generating a high level of sales, Both high direct costs and overhead expenses directly affect the profitability of the business.. It is important to differentiate these two expenses, since the way to counter them is different. If it is a structure that has high fixed expenses but a high direct margin on the products or services offered, an increase in sales volume will surely translate into better results. Conversely, if out-of-pocket costs are high, the strategy must contemplate another type of approach that allows improving its gross performance (direct). Something common is to see that the owners of firms seek to increase the volume of sales of goods that do not generate interesting margins.
aligned with it, many times there is a range of items that are handled by various product lines or business units, that they own, at the same time, different scales of profitability. It is extremely important to understand the product mix and consider this point when designing a business strategy.. Goals should be set in relation to the different performance gradations possible, taking into account what leverages the business and what does not, and what generates better results, having as a premise that "selling more is not always selling better". Many firms promote some good or service without first evaluating this aspect, increasing the sales volume of less profitable products and obtaining a lower than desired profitability, making the company less effective.
On the other side, keep in mind that promotions also imply an increase in billing at the expense of performance. They can be useful to drive the business and increase the net result, but it punishes the percentage profitability.
As for some of the financial difficulties that occur, it is necessary to analyze that many times good sales are generated with good results, but with poor cash flows. This can happen, for example, due to very long terms in collections and too short in payments, which translates into little cash at the end of the month. The periods with the highest billing imply, at the same time, higher variable costs, generating positive results from the commercial, but with possible negative cash results.
Finally, It is also convenient to consider the factor of the generation of high inventories. There must be a "logical" relationship between the immobilized stock and its turnover, to avoid unnecessary losses. For example, despite a good sale, if the accumulated stock is high, the asset is not liquid and consequently the results are not appreciated.
It is vital to consider these points when designing a commercial strategy that is as suitable as possible, setting goals based on the most profitable products. Once these are established, it is important to apply good commercial control boards (TACOs), and use all the tools that allow deviations to be detected and act quickly. Then, and based on a good analysis of the information available, Commercial actions can be implemented that allow the business to be further leveraged.
