There is an old adage, "You have to spend money to make money." Never will truer words be spoken than over the next several years.
Virtually every industry and every operation has been cut to facilitate shareholder value, operating capital conservation or owner return. So where is the revenue coming from?
Your sales channels and your sales teams. The people who have built the loyalty to your product, your company and the keepers of your promises to those customers.
These same teams have seen their leadership eliminated, their numbers reduced, their territories enlarged, their travel curtailed and customer-centric funding cut. They have gone untrained over the last several years and have struggled to become proactive after operating in the up markets of 2002 through 2008.
Those cuts, while necessary, will inhibit every industry from taking advantage of up cycles in their respective specialties unless they are reinvesting in not only the proper production efficiencies but the sales organization as well.
Let's use the hotel industry as an example.
With demand showing signs of life, and occupancy still the driving factor in revenue-per-available-room growth, you are having to fill more rooms at nominal rate growth, relative to demand, with a smaller staff who is more than likely underfunded, undertrained and probably not as efficient or productive. Your ability to optimize revenues and profits are directly related to your ability to influence the mix of revenues moving toward higher-rated sources of business.
Your ability to move that mix is not price (margin-eroding) driven. It is sales driven: Who is talking to those customers?
In general terms, sales staffing has been cut 25% with sales expense curbed at 40%. Administrative positions have been eliminated with sales managers handling their paper flow while expected to improve revenue output. Doing more with less has reached its saturation point.
Let's do some simple math. The cost, conservatively, of an open sales position is nearly $2,300 a day or $1,300 in profit (See Table 1). Annually, that could represent $850,000 in top-line revenue and almost $500,000 in profit. Who can afford that?
Table 1
Sales Manager annual goal of 5,000 roomnights
Catering contribution per roomnight of $38
Ancillary revenue per roomnight of $22
ADR per roomnight of $110
Total contribution per roomnight = $170 x 5,000 roomnights = $850,000 in revenue x 58% House margin = $493,000
Conversely, should you opt to keep that position open for an entire year (See Table 2) your savings will equal a mere $81,400 providing you with a net profit impact of -$411,600.
Table 2
Sales salary of $55,000 per annum
Benefits calculated at 38% = $20,900
Norm bonus budgeted 10% = $5,500
Total dollars saved by maintaining an open sales position annually = $81,400
We have utilized conservative industry norms, however, even if we are off by 50% anywhere in our calculations your net loss is still $165,000.
For every month you leave that position open you are losing $34,000 in profit.
Regardless of industry, the math is the same. Naturally there is a point of diminishing returns in sales staffing, but as you reenergize your capital spending you should also be reevaluating your sales productivity and return versus loss.
With new supply filling the pipeline, a shrinking labor pool as our population ages, more specialization within our industry, a sales environment where many people came of age in an "order-taking" economy (and who stumbled in proactive selling environment), the questions are:
- Who will lead?
- Who can sell?
- How good are they?
- Do I have enough of them?
We have all seen the impact of discounting as our sole means of demand/revenue generation. Now with demand growing, how will you shift your mix to become more profitable by bringing back the higher-paying customers?
Correct sales staffing and deployment are the keys.
So as you look to improve your future revenue performance, assess the following:
- Your selection processes. Do they ensure the best candidates for the job?
- Your training. Does it provide for constant improvement and productivity?
- Your compensation and retention. How do they measure against your competitors? Against top sales organizations?
- Your staffing levels and deployment. Are you "fishing where the fish are" and are "your aces in their places"?
- Your own paradigms and biases. Are you excluding potential talent and or alternative solutions?
Remember: "You have to spend money to make money.”
Bill Scanlon founded Strategic Solution Partners in 2007. Throughout his 25 year career as a Sales & Marketing executive with global hospitality companies and as an independent consultant, Bill has earned the reputation as a results oriented leader. He has significant experience in leading organizational transformation to improve top line revenues along with bottom line results. Bill has driven these strategic changes for publicly held and private organizations in both domestic and global settings.
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