When it comes to sales, it’s difficult to sell higher-margin products and easy to sell low margin products. Most of the sales professionals have a tendency to do easy sales. Therefore, they prefer low-priced products, low-margin products, and they want to sell on credit. At the same time, a successful enterprise is the one who is not competing on price but on the value-proposition and high-profitability. ‘Size’ matters only as much. The real decider is the bottom line and profitability.
In its simple definition, the problem is: How to move from low-margin, low price product-mix to high-margin/high-price product sales, so that you get a high contribution per dollar of investment? How to achieve a better bottom-line, by simply selling more products which make more money, while Sales (and even production), wanting to do it the other way round? It’s not an easy problem to solve, and that is an opportunity. If an enterprise is able to get over this challenge, it multiplies its embedded value and its growth trajectory. Here are some solutions to consider:
Strategy #1: Reduce Low-Margin Product Production
The toughest solution first. Sometimes the best way to make a change is to eliminate options. The idea here is that you work backward on your product-mix targets. As an example- Let’s say that:
- Currently, your Sales are 75% Low-Margin, 20% Medium-Margin, and 5% High-Margin products.
- You want to achieve a product-mix of 50% sales on high-margin products, 30% on medium-margin, and 20% on low-margin.
You can work out a plan so that gradually over a period of 12-24 months, your production flow of low-margin products is reduced from 75% to 20%, and high-margin products from 5% to 50%. Unless it is linked to the survival of your business model, it is always better to introduce the change gradually. Finally, salespeople can sell only what is available. If they have to justify their salary and earn their incentives they will be pushed to sell high-margin products to existing customers, or find those who will buy.
Strategy #2: Align Compensation-Models to Higher-Margin Product Mix
Money drives lots of performance and behavior shifts. Here are some changes in the compensation model that you can adopt:
- Instead of pay-outs on the overall performance of Top-line and/or Bottom-line, you can have different incentive structures for low-margin vs. high-margin products.
- The incentive structure is based not only on total profits/sales but %age profitability achieved.
- Over and above the business as usual incentive plans, you can have periodic contests on sales of high-margin products.
Strategy #3: Create Special Sales-Tools for High-Margin Product Sales
Selling High-Margin products requires extra-effort and usually takes longer. To encourage salespeople and to make him successful, you need to create sales enablers. For example:
- Sales Scripts
- Sales Videos- Which can be shown to the customer
- Competition-Comparison Matrix
- Marketing Campaigns to give an initial start
Strategy #4: Channel Partner Compensation-Training aligned to high-margin sales
Just like Sales employee compensation models, you need to devise special incentives & payouts for higher-priced products. Just like Sales Employees, Sales partners also want to go for easy sales, till they have got a special attraction to put extra efforts. This also aligns the comp approach between Sales Employees and Sales Channels.
Apart from that you also need to invest special in training on selling premium products. Typically your partners will have lower quality sales resources compared to your employees. So they will need more extensive sales training support.
Strategy #5: Entire Sales Promotion Focus on Premium Products
Everything and every dollar of your monies which you deploy in sales promotion to be centered on higher-priced products. This includes sales collaterals on point of sales, banners, POS Displays, channel meets, and sales contests.
As all the buzz is centered on high-margin products, consumers, as well as your partners/employees, start forming an image of your company as a premium product company. So low margin products will gradually meet ‘out of mind- out of sight fate’.
Strategy #6: Product Development & Customer Experience Support
Its not only Sales but the entire enterprise has to develop Premium Products DNA. The premium product should mean Premium value, experience, and fulfillment. The product and Marketing team should listen and engage with sales in terms of product design, packing, promotion design, fulfillment & quality assurance, customer engagement, and a whole lot of other factors. More than 50% of the responsibility for high margin sales rests on Products, Marketing, and Production.
For this purpose, an enterprise needs to work deeply on developing a ‘Premium’ Culture and Leadership mind-set. This will bring significant shifts in resourcing, hiring, distribution, and other strategic decisions.
Strategy #7: Hire & Develop people, who have Premium Sales DNA
Trust me- It’s very difficult to make a person who has been selling FIAT all his life, to sell a BMW. Slowly and gradually through better hiring and developing high-potential employees, you need to create ‘Premium-Sales’ DNA in your Sales employees. At the same time, you need to careful that you do not hire salespeople from companies where the brand sells by itself, without much push sales.
This will mean that on the hiring front- your entire process would change from Search, Shortlisting, Interviewing, profiling, and on-boarding.
On the training front- you will need to devise evaluation methods to identify existing employees who can be developed to premium sales and the ones who cannot be. Thereafter you will need to systematically invest fairly significantly in development or/and managed attrition as applicable.
Strategy #8: Fix your Business Model for Premium Sales
It is the most strategic solution, but mentioned in the last, as changing a business model takes time. Shifting to a higher-margin sales model could range from small adjustments to the total change in the model. For example- Selling Premium Products
- Through a different brand vs. the Same Brand with Different Designs
- Through a separate set of Channels or Separate Displays in Same Channels
- Through Different SalesForce vs. Same SalesForce.
- Selling in Same vs. Different Geographies
- Selling through Channels vs. Having own sales team
- Targeting Same Segments with Up-Sell vs. new Customer Segments.
There is never a simple answer to these choices, and more often than not, an enterprise goes through hit-and trial, test launches and others learn & earn methods, till they settle into what works for them.