Do Sales Equal Profit—Or Is There More to It?

Sales equals Profit

If you’re familiar with the Fix This Next concept by Mike Michalowicz, you understand that the foundation of every business is Sales. After all, you must have sales to generate cash. However, if your business is struggling, as strange as it may sound, sales and cash are not always the solution to your problems.

Sales Must Support Profit

More sales is not always the solution for a stronger company because sales must support profit. Profit is what builds true stability and order in your business, so it’s important to ensure your level of sales is building a strong foundation to support profit. Let’s explore…

From the consumer perspective, a sale is simply hitting the purchase button on whatever ecommerce platform they’re on, and voila! They receive your product and live happily ever after. But from your perspective as the business owner, a sale is much more than that.

Five Core Steps in The Sales Process

  1. Create a connection with your buyer. This might be your keywords or photos in your listing, or ads that you run.
  2. Have an agreement in place where the buyer provides their payment information and you promise to deliver your product.
  3. Deliver your product to the buyer.
  4. Collect payment from Amazon or your merchant processer, which may take a couple of weeks.
  5. Conclude the transaction. This happens when all agreed-upon terms are delivered and both parties confirm the parameters of the agreement are complete.

The core needs in your sales level relate to the sales process described above. Think first about your lifestyle. What sales level is needed to support yourself and your family? What do you need to take home? This is not the DREAM goal; but what makes you comfortable? If you haven’t determined this level, take a few minutes to understand what you need to support your personal/family budget? Once you know that number, you can use our Owner Calculator to determine what your sales level needs to be to reach this desired level. Basically, you will reverse engineer your sales based on what you need to support your lifestyle.

Understanding Awareness and Conversions

In ecommerce businesses, a direct relationship with clients can be challenging. Developing awareness and conversions are data science fields all their own. Below is a summary of the behavioral aspects of these and understanding them will help you to diagnose the vital need in your business.

Prospect Attraction

Do you attract enough quality prospects to support the sales needed? Most business owners go through three levels of awareness when finding customers. The first stage is the “anybody” stage where anyone is a potential client. Then you identify a market to sell to based on what other businesses are doing. Finally, you determine “your” market. Your market will be determined by what your company can do, what your company wants, and what your company needs. Develop a consistent presence in a community of ideal prospects, and with an excellent reputation you will generate awareness so those clients will seek you out when they are ready to buy.

Client Conversion

Are you converting enough prospects into clients to support your needed sales? The consistency and quality of your leads will determine the conversions you make. First you want to ensure you are attracting the right prospects. Once you are, then your goal is to get those prospects to convert. If you spend too much time on prospects that never buy, then you are attracting low quality prospects. Conversion is looking at both sides, what do they want and what do you want. You are looking for alignment.

Delivering On Commitments

Are you fully delivering on commitments to your clients? Much of this is not in the direct control of ecommerce owners when sales platforms and fulfillment centers such as Amazon shift priorities as we recently saw with the COVID 19 pandemic. Consider how you source your product and how you fulfill it. What options do you have for both sides of this equation? If your traditional supply of product is interrupted, do you have a backup source? If your traditional sales/delivery platform is interrupted, do you have a plan b? Many of our clients have faced these issues and I am blown away by the entrepreneurial spirit. You need to be sure this core need is addressed. Consider it carefully in your evaluation.

Collecting on Commitments

This core need takes on a unique perspective as it is oftentimes managed by ecommerce sales platforms. While you may not have a direct collection from your clients, you need to be mindful of policies that your sales platform and your bank have in order to ensure you collect the sales dollars. For new and rapidly growing Amazon businesses, we see Amazon hold back balances. I’ve actually seen a bank hold back funds that they deemed a large “suspicious” deposit from a traditional merchant processor. How your sales platform handles refunds can also impact your collections, and their easy return policies have to be factored into your sales and margin calculations.

As you can see above, all five core steps in the sales process rely on collecting and analyzing data. If you are managing sales by relying on your instinct, you need to do more research. Find others on your team who can help in the areas that are not your strong points. Sales is the foundation of your business. Be sure it’s a strong one!

Interested in Profit First?

profit first book If your ecommerce business isn’t where you’d like it to be in terms of profitability, check out my book, Profit First for Ecommerce Sellers. It answers important questions about how to implement Profit First in an ecommerce business. Take control of your money and your business, and put Profit First to work for you!

You can also sign up for the Profit First for Ecommerce Sellers Online Course. As a Mastery Level, Certified Profit First Professional, I will teach you why Profit First works so well for ecommerce businesses and the particular challenges for businesses that have physical products requiring inventory management. You will learn how your behavior drives your money management habits for your business and how you can set up your business bank accounts to work with your habits.

Check out all our ecommerce accounting and profit advising services here!

Want to get FREE Ebook? Download now!
Post Author Cyndi Thomason

Cyndi Thomason

Cyndi Thomason is founder and president of bookskeep, a U.S.-based accounting, bookkeeping, and advisory firm for ecommerce sellers worldwide. She has a passion for data analysis and process development. She uses that passion to educate her clients and help them structure their businesses to maximize profits.

Leave a Comment

Your email address will not be published.

<!-- -->