Tag Archives: Gross

What Do You Manage as You Adapt to Market Conditions? Four Points

Situation: A company is in the process of adjusting its customer and business focus in response to changing market conditions. Gross margin on projects that have been the company mainstay in the past have fallen significantly. The CEO is evaluating different adjustments to address this. What do you manage as you adapt to market conditions?

Advice from the CEOs:

  • The company’s business model is shifting from a staffing agency to a product development model. This means that the business must be driven by a different set of parameters and metrics:
    • A different time/utilization mix.
    • Different personnel – the company needs managers.
    • Changes to the organizational chart and incentives.
  • How does the company currently charge clients for Project Management?
    • Currently it is time and materials.
    • Consider charging on a percent of project cost basis. For example, 15% of total project cost. The pitch will be that the client will be able to reduce the overall cost of the project – ideally in both dollars and time – and that the company will have increased accountability for delivering these results.
  • How will this impact the company’s cash position? How will the company retain adequate cash flow during the transition?
    • The current cash position is 4 months of projected monthly cash plus receivables.
    • If there is drop to 3 months, flag a yellow caution light.
    • Two months becomes a red light.
    • What is the backstop if the company runs shy – if, for example, some engineers are not very active? In this case, will deferral of unpaid vacation time and other options allow the company to survive without further draining cash? Have a meeting with key managers to evaluate the impact of this option.
  • Consider looking at competitors for possible collaborations. This can be delicate because they may want to steal the company’s personnel and there are other risks, but sometimes promising deals can be arranged.

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How Do You Boost Your Sales and Marketing? Four Points

Situation: A CEO’s company has built an admirable suite of products. The next step in company growth is to create a more structured marketing pipeline. They have experienced salespeople, but these people have come to the end of their rolodexes. A new approach is needed. How do you boost your sales and marketing?

Advice from the CEOs:

  • Create a profile of the ideal customer. This is the customer who can create the greatest leverage using the company’s suite of product. Aim for the top management of this customer.
  • Incentivize the sales reps to target high value accounts. To create targeting incentives, graduate the commission base.
    • Set initial commission based on the size of the customer.
    • Differentiate commission by product – pay the highest commission for highest gross profit products or the company’s highest priority products.
  • Salespeople need to be able to close sales by themselves.
    • Currently, salespeople are acting as lead generators and are counting on the CEO to close the sale.
    • Create a different set of expectations, including thresholds to limit the CEO’s direct involvement in the sales process – for example, limit CEO involvement to accounts with a revenue value over $500K.
    • Train the salespeople to communicate the value proposition for initial conversations as they qualify a new client. Create a set of resources to assist them along the way.
  • Is it a good idea to pay ongoing commissions forever?
    • Another CEO used to do this but has moved to X% for the first period/project and X/2% on follow-on-periods/projects. This keeps them hungry for new customers who will pay the higher commissions.
    • Don’t create a perpetual annuity – the way insurance brokers are paid. Reduce commissions on existing accounts so that they decline over time – keep salespeople focused on bringing in new accounts to maintain their income levels.
    • Decide on an acceptable level of total compensation for salespeople. Plan the commission structure to allow them to reach this level, but they have to keep selling to maintain this level. Keep them hungry.

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