Version française/French version: LINK
This article highlights the challenges faced by SMEs due to their limited commercial resources. It is based on the example of an entrepreneur in IT services whose sales process is hindered by obstacles, resulting in insufficient sales to achieve profitability. Several avenues for optimizing commercial potential are suggested, such as adjusting prices, reducing variable costs, improving prospect conversion rates, and internal restructuring. The analysis of the sales cycle is recommended to enhance both commercial and financial performance, especially in cases where the sales cycle is lengthy.
E. Krieger
The commercial resources of an SME are inherently limited, and an analysis of the sales cycle reveals numerous bottlenecks that cap the company’s sales, sometimes falling below its breakeven point (*).
The example below illustrates the dilemma a business leader might face. It’s extracted from an activity report sent to shareholders by a young entrepreneur in the IT services field: « The commercial costs are substantial: my technical partner and I spend an average of 2 days per prospect (4 meetings), and additionally, we need to create a prototype (2 more days). The conversion rate is 25%, meaning one successful sale for every 4 quotes provided. With 40% of our time spent on sales and pre-sales, roughly 8 days per month, we secure a client every two months. The average contract value is around €30,000, with a 50% margin on direct external costs and limited recurrence. Our cash flow is consistently tight. »
By modeling this situation on our preferred spreadsheet, we’ve concluded that this company cannot be profitable considering its gross margin, employee costs, other fixed expenses, and the length of its sales cycle. In fact, this company cannot generate a sufficient number of orders to reach its breakeven point, even if these orders can be fully billed within the current fiscal year. The only way to regain profitability and a more comfortable cash flow level is to modify one or several parameters related to the overall organization of the company, and even the offering itself.
Depending on the activity’s characteristics, the key questions to optimize your company’s commercial potential are primarily as follows:
- To what extent can we increase prices without significantly reducing sales volumes?
- Is it possible to decrease variable costs by internalizing or, conversely, outsourcing certain costs?
- Can we improve our conversion rate, for example, by better qualifying prospects, enhancing our offering, or conducting promotional actions?
- Is it possible to reduce the fixed portion of our salary costs, perhaps by introducing a variable component or reducing wage charges through incentives like R&D tax credits or the Young Innovative Company status?
- Can we increase the annual working hours of the founding partners or, occasionally, other team members?
- Can we optimize the prospect processing time to reduce sales and pre-sales delays and industrialize our sales process?
- Can we improve internal organization by having technical and administrative teams take on certain commercial tasks?
- Should we hire commercial and technical-commercial profiles to eliminate or shift certain bottlenecks?
- Can we engage with commercial partners and/or business contributors to generate more highly qualified prospects?
- Is it possible and opportune to reduce fixed costs other than wage costs?
If you’re questioning your company’s commercial potential and aiming to identify potential bottlenecks and optimize your sales cycle, most of these points of consideration will likely apply to varying degrees. This is particularly true if your sales cycle is lengthy.
Analyzing the sales cycle is a vital exercise that lends credibility to your commercial and financial projections. When undertaken collaboratively with your teams, such work can quickly yield optimization strategies for your sales.
(*) The breakeven point is the minimum revenue level at which a company becomes profitable
