Any business with ambition aims to generate a percentage of its total revenue by selling to its customers. In practice, this percentage is defined as the net sales conversion rate. To increase one’s net sales conversion rate may take different forms, but one of the most prominent practices involves sales maximization.
It’s commonly known that companies can’t hope to maximize their overall profit in every possibility, though. The concept of maximizing profit is based on the idea that businesses should make a profit on every possible occasion.
In other words, to achieve the maximum amount of profit that a company can achieve is impossible — not even feasible. However, businesses can make money on every single occasion by maximizing the net sales conversion rate.
In this article, we’ll be looking at sales maximization, its mechanisms, and the way it can be implemented to increase your likelihood of success in a business.
What is Sales Maximization Theory?
Sales maximization is a company’s aim to increase its net sales conversion rate. It’s a relatively simple concept, but it can be extremely effective and efficient in a company’s growth, especially in cases where companies rely on net sales as their main income source.
It can also be used in other situations, where sales are almost not the main source of income for a business. In this case, companies can implement this method to maximize profits. The theory is not quite a scientific solution but an approximation of calculating how many clients one business can sell to, given its available resources and clients’ preferences.
In business administration, maximizing sales conversion rate is a good practice to adopt. A higher net sales conversion rate means that you’re making more profit from each sale. There is no specific formula that can be used to calculate how many sales a business can make. It consists of the observation and analysis of external and internal factors and the analysis of other businesses in one’s industry, including competitors’ net revenues by area.
The main concept behind this theory of maximizing sales involves calculating a company’s potential for sales — or what net revenues it can potentially generate through its available resources. The difference between the actual and potential profit is the margin of acceptance — commonly shortened to MA.
Do you want to leverage the sales maximization theory and grow your business?
Why is Sales Maximization Important for Businesses?
Following are some of the advantages that businesses can get from effectively implementing a sales maximization strategy.
1. Helps in profit maximization
One of the main benefits of sales maximization is increased profit margins. It is important to note that the profit margins are the difference between a company’s margin of acceptance and its actual sales. If a company accepts a lower margin of sales, then it means that the business can increase its profit by increasing the number of potential sales.
In other words, maximizing profits can be achieved by increasing net revenues, which leads us to introduce an understanding of how companies earn their profits — net revenues.
2. Decreasing business’ cost of goods (COGS)
COGS is short for “costs of goods sold,” which are basic costs incurred in a product’s lifecycle and distribution stages. COGS usually comprises labor wages, raw materials, packaging costs, marketing, and overhead expenses. For example, COGS can include the expenses of a company’s inventory plus that of its insurance, rent, and taxes.
When a company does not generate enough sales to make up for these expenses, it usually incurs extra expenses such as hiring employees to work extra hours to manufacture more stock or spending more money on transportation.
3. Increasing market share
The third advantage of sales maximization is increasing market share. Market share is the amount of a company’s total sales representing its current market competitive position. For example, if a company sells 50% of the total products sold in a certain industry, it can be considered as having a 50% market share. Companies that have high market shares usually enjoy a competitive advantage in the market. Therefore, they can charge lower prices because they are not required to consider their competitors’ prices.
4. Increasing customer loyalty
The fourth advantage of sales maximization is increasing customer loyalty, which is an indirect method to increase market share. Customers loyal to a particular company are less likely to switch or switch exclusively to competitors. In return, these customers will choose the same product or services in the future because they know that it is of high quality and a good value for their money. And new customer base acquisition, a company needs to increase customer loyalty first.
5. Increasing brand image
The fifth advantage of sales maximization is increasing brand image. As previously stated, customers loyal to a company generally do not shift their loyalty from the company to a competitor’s product or service, which makes it easier for companies like McDonald’s and Coca-Cola to maintain their brand image despite changes in market shares over time.
6. Decreasing the costs of going-bad sales
The sixth advantage of sales maximization is decreasing the cost of going bad sales. The less a company has to spend to rectify a problem with its product or service, the less it will have to spend to increase market share and brand image.
7. Increasing efficiency
Companies that conduct sales maximization are usually more efficient in production and sales because of the way it divides the company’s resources. For example, suppose a company hires more employees to make more products for sale. In that case, it is not only spending money on labor costs but also producing high-quality products or services that reduce competition.
8. Improving employee engagement
Companies that sell to maximize sales are normally better at keeping employees engaged than those that sell to an insufficient market share. Companies whose employees are usually incapable of making a living will probably find that their attempts to increase market share might increase employee turnover, which would be costly when the company loses customers. As a result, it is in a company’s best interest to sell to maximize sales, even if the company has to lower its profit margin. Because of this, salespeople who sell products or services whose market share is not high have higher chances of being fired without compensation.
Now is the time to implement the sales maximization theory and increase your sales.
How to Implement the Sales Maximization Theory to Grow Your Business
Now let us see how the theory can be applied to your business.
1. Determine your competition
To determine the sales maximization theory, you should analyze the competitors in your market. The best way to start is by answering the following questions:
– What products are they selling?
– How are they selling?
– What kind of competition does their product have?
Most companies are already competing with other companies in their respective industry, so the first step is to figure out your competition in your market. You can do this by researching your industry’s websites, newspapers, or magazines.
2. Identify your most profitable customers
Most companies will not sell to marginal customers. When a company starts selling to marginal customers, it is normally at the cost of losing its most profitable customers. Companies will not want to risk their most profitable clients leaving them and going to the competitor that offered them a better deal. The sales maximization theory can explain this scenario because by selling to the people who were already their customers, they can keep their more valuable clients.
3. Identify your best performing salesperson
Most companies have employees whose job is to sell products or services in different company departments. The key in this step is choosing the best-performing employee from each department who are willing and capable of selling products or services in higher quantities than other employees do for lower prices or for free with discounts and other incentives that would convince potential buyers to purchase products or services at a discounted rate. For sales maximization to occur, all employees in the company need to increase the sales of their products or services.
4. Analyze your marketing mix
After you have identified your best-performing and most profitable customers, you can take the next step and analyze the marketing mix that they are using to sell those products or services. A company’s marketing mix can include different methods of advertising, sales force, and product development. Using this information, you will then understand what techniques and tools work for your competition and for yourself to create a new effective marketing mix that will be able to maximize your sales.
5. Develop a strategy for selling
After you have analyzed the marketing mix, develop an effective sales strategy. Identified groups of employees who will be able to sell your products or services at a higher volume than other employees do for lower prices or for free with discounts and other incentives that would convince potential buyers to purchase products or services at a discounted rate. You can go on to the next step of determining what product or service should be offered.
This process is repeated in order to get as much revenue as possible.
Final Words on How to Implement the Sales Maximization Theory to Grow Your Business
At last, as you can see, the Sales Maximization Theory is one of the many marketing theories used in every company across the world for increasing their sales revenue. Even if your company does not sell products or services, it is still a good idea to learn about this theory and how it can be implemented into your business in certain ways to increase optimal sales. If you have any questions or would like to know more about this topic, please feel free to contact us.
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