Why Closing More Deals May Sometimes Harm Your Business!
Many organizations train their salespeople to close every deal they can at any cost. Many times, the entrepreneur behind the organization also subscribes to the same mindset. But what if I told you, this mindset is not entirely correct, not every deal deserves to be closed.
There are many organizations closing many of the deals and feel very proud of their conversion ratio. However, there is a catch. In order to close the deals they are making promises they cannot fulfill, leading to huge demands of refunds. This establishes a bad reputation in the market.
Alternatively, they somehow manage to fulfill the promises but the costs required to fulfill them are so much that their margins become non existent or the deal even ultimately become unprofitable.
Alternatively, they are closing by trying to quote the lowest possible price, many times taking on unprofitable deals just to attract the consumer. They believe that by doing so, they are capturing market share. The problem is that by closing multiple unprofitable deals, the loss margin just widens and widens. Now it is just a matter of how long it can survive with these horrible losses.
If enough capital keeps coming in from investors or from a large parent organization or if the company is acquired by a larger company, this may work but in most cases such companies die quickly, because they soon have no money to run operations. For most companies, especially ones not backed by a humongous parent organization, this is an extremely risky strategy.
So, allow me to suggest an alternative. This may not greatly increase your turnover but it will definitely make you much more profitable. Profit is the ultimate judge of the health of the business, not merely turnover.
My suggestion is, instead of closing more deals, focus on closing better deals. What do I mean by that? It is perfectly possible for an organization with a 10 percent conversion rate to be much less profitable than an organization with a 1 percent conversion rate. How so? Maybe the first organization is closing deals at terrible margins or even losses. Maybe it has a lot of dissatisfied customers and has to issue refunds. Maybe it is selling products that are very low priced and the marketing costs to acquire the customers are huge.
On the other hand the organization with a 1 percent conversion rate maybe spending a lot less on marketing but targeting only high end prospects. The deal size they maybe pitching could be much higher and at much higher margins. The conversion ratio maybe much lower but the profit will be huge for every deal they get. They could be focusing a lot on customer happiness and as a consequence would be getting a lot more repeat business. Consequently they are a lot more profitable.
I am not saying this is an approach you can use in all situations and in all industries. A lot of it depends on your personal preferences on what kind of business you want to build and the market you are in. However, I hope I have shattered a strong misconception. It is evident that closing more deals is not always the answer to get more profitability. Sometimes, the answer is closing less, but better deals.
How I Can Help Your Business
I, Anubhav Srivastava am a trainer and consultant who focuses on helping companies achieve transformational results by training/consulting on key areas that impact revenue. Would you like to develop a Dream Team that has top quality Leadership skills, knows how to channel stress positively, is adept at Sales and Negotiation, is extremely productive, constantly innovating in your Industry and is mostly highly motivated?
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The goal of this long term program is to get people out of their comfort zone and bring about permanent change through implementation, repetition and accountability .If interested in implementing this program in your business or professional life, you may reach out to me at +919868889977 or email@example.com
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