Selling too much could be the end of your company.
Pretty provocative words, but it’s an idea that has sunk companies in and outside of agriculture.
A good example is the farmer that says, “If the bin’s full after harvest, it was a good year.” Maybe, but only if the grain put into the bin generated a profit.
Seed companies that focus on sales growth over profit growth fall into the same trap. Selling more seed might create more profit, as many overhead costs can be reduced on a per unit basis. The problem comes in when the new sales come from hiring expensive salespeople, creating a need for more warehouse space or expanding into territories the company can’t properly support. It’s also common to think that more volume leads to more discounts and increased buying power with suppliers. This can be true, but any new discounts earned or volume bonuses collected should not be counted when a company calculates the profit generation capability of new sales. Why? The reason is that those benefits may not be stable over time and are at the whim of a supplier.
Every Bag Sold Needs to be Profitable on Its Own
This seems like a simple concept. Only sell what you make money on. But the never-ending quest for growth can get a company sideways quickly. A common strategy can be to offer discounts to get on the farm. The problems start when a company can’t convert those discounted sales into profitable sales. It is now stuck selling seed below breakeven without a way to convert the bargain-shopping customers into premium-priced customers. The best discipline is to not make any unprofitable sales. This will certainly reduce a company’s sales volume, but greatly increase profit over time.
Don’t Expand Your Territory or Lineup Without a Proper Strategy
A farm show attendee stops by your booth. He talks to the sales manager and says he’s looking for 400 units of seed for next year. It’s a big sale! But, he’s based 200 miles outside of your sales footprint and needs maturities your company doesn’t carry. The company purchases new hybrids specifically for this customer and makes the sale. Now, to figure out the shipping of a partial truck that far, pick up the returns and build a crop plan for this customer. How about a test plot in the new area to show his neighbors and create a bigger supply to support this new area?
If the company truly has a strategy to expand into this area, then it’s a great opportunity. If not, then it’s better to say no or charge a very high price to cover the extra expenses and then to not count on the sale in the future. The problem comes from chasing this new sale and expecting additional sales in the new area to support an ad hoc expansion. Never expand your sales territory without a strategy to do so and properly support it.
A Company Never Goes Broke Making a Profit
Growth and volume are often considered signs of success. They are measuring sticks that have been used for generations to see who’s winning the horse race of market share. The key, though, is that sustained growth can only be possible if sales are profitable. A company can survive with a small portion of its sales being unprofitable but won’t make it if the unprofitable growth overwhelms the business trying to support the extra volume.
A retired seedsman told me once, “Make sure you run your business and that your business doesn’t run you.” You can control your business, and destiny, by ensuring that profit dictates what you sell, where you sell and how you sell.
