6 Steps Process for Reducing Direct Sales Expense

Business is about making money at the end of the day; this is even more important for small businesses as they strive to stay afloat and make a profit. One of the most practical ways of keeping more money is by cutting down on expenses such as operating expenses, selling expenses, finance expenses, labor expenses etc. It is prudent to know how to effectively manage them. In this piece, essay shall take you through the process of reducing the direct sales expense.

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A direct sales expense is an expense that is directly related to the production and sale of a good or service; these expenses will only be incurred when you sell your product and may include costs of marketing, advertising, promotions and sales representative wages. These expenses can be clearly distinguished such as sales commissions exclusive from wages or salaries, shipping costs, packaging costs, costs of delivery etc. The direct sales expense has also been referred to as the cost of goods sold

Examples of direct sales expense:

Online Direct Sellers

1. Social media and web adverts e.g.:

• Google ad words
• LinkedIn sponsored updates
• Facebook ads
• Twitter ads
• Tumblr ads

2. Costs of outsourcing some sales services
3. Customer Relationship Management (CRM) software
4. Shipping costs
5. Online taxes

General Direct Sellers

1. Sales Commissions
2. Travel and entertainment
3. Warehouse rent
4. Advertising
5. Promotional materials
6. Packaging
7. Freight charges

Tools used in direct sales

Catalogues

• Do not use more pages than necessary for your catalog; any extra page is an additional cost to you. Use the square inch catalog analysis to plan your pages
• Avoid printing too many catalogs especially if your expenses to sales ratio is high
• Trim tour catalog further; reducing the catalog circumference will bring down paper and postage expenses
• Use lighter paper, you will reduce postage costs
• With a lower grade of paper as it is cheaper
• Engage a printer who will leverage postage costs for you. Get a printer who will get you postal discounts for various destinations distributed to.
• Use catalog list exchanges, databases, and rented lists, but only if it works for your business.
• Negotiate lower pricing for rented lists for your catalog circulation. Get further discounts for continual use of a listing and re-use of the same names.
• Re-use photographs for your catalog to avoid costs of taking new photos
• Combine printing runs as it lowers costs as compared to printing one catalog at a time

Employees

• Review non-salary perks and benefits; pay for performance. Benefits that are not based on performance can be very costly as you may be rewarding none or low performance.
• Avoid a high employee turnover rate at all costs; recruitment and training costs are expensive
• Review and eliminate or reduce perks and other non-salary benefits awarded to staff
• Avoid duplication of duties to save on employees engaged; more staff means more payroll taxes
• Offer your staff good and regular training so that your products or services are well and correctly pitched and sold to circumvent any liabilities that arise with misrepresentation
• Switch to a commissions only payment plan for staff
• Try other employee compensation methods to reward performance that is not necessarily monetary and not too costly

Advertising

• Embrace the referral system of getting customer; have your staff bring in referrals and cut on advertising costs
• Use free social media platforms and other free web-based avenues to access more customers and popularize your product
• Co-op with other like businesses for free advertising and get your message out at a low price
• Start a blog to market your business and products
• Community building is an effective way of reducing online advertising costs; join social media platforms to help sell your brand

Also, check: Pay-Per-Click Advertising: What Is It & How Helpful Is It For Your Business

Technology

Sales technology like Customer Relationship Management (CRM) software will help cut your direct selling expenses by helping you reduce staff in the sales department and collect and analyze sales data.

What is Customer Relationship Management (CRM)?

CRM is a system developed for managing the way a business relates to its customers and involves organizing, automating and harmonizing areas of sales, customer service, and marketing and support services. This software comes with many features and tools and should be acquired based on business needs; customize it to suit your business.

Also, Check: Various Benefits of Salesforce Platform

Features of CRM:

1. Relationship management

• Customer learning with response based on a customer’s input
• One to one solutions for customer needs
• Direct online customer communication
• Customer service centers for customer assistance

2. Sales automation

• Implements sales promotion analysis
• Tracks customer account history for repeated and future sales
• Coordinates sales, service centers, marketing and branches

3. Technology

• Follows technological trends and skills to avail up to date customer data
• Uses data warehouse technology to collect sales information, merge the collected data with CRM products and come up with key performance indicators

4. Management of business opportunity

• Will assist business in managing future growth by implementing a forecasting model to integrate sales with projected sales.

5. Developing customer relationships and maintaining them
6. Tracks and measures marketing drives over multiple platforms; analyzing customer click and sales activity online
7. CRM is improving from core features of sales and marketing to support and finance areas

General guidelines on implementing CRM in your business

• Identify the areas you want the CRM system to assist you on. What changes or improvement are you seeking?
• Get somebody with customer service or sales and marketing experience to spearhead implementation
• Ensure everyone is on board and empower staff with required authority to work within the system
• Define key performance indicators to enable you to measure success
• Implement in phases

 

The process of reducing direct sales expense:

Step 1: Records & expenses analysis

Keep Records and Review Sales Expenses;

Have well-kept records of your sales to enable you to track and analyze your expenses. Records will assist you in the cost reduction process. Regularly review your expenses and identify those that should be excluded; get rid of unnecessary liabilities.

Analyze the cost of your Direct Sales Department to effectively reduce costs;

Sales staff expenses are one of the costly areas; review the relevance of each employee; having a leaner staff with clear duties is more efficient and cost effective. Employ less and promote internally more. Look at timings and reduce or re-schedule break times to save time and get in more work time.

Step 2: Categorize direct sales expenses reduction areas

Categorize the direct selling expenses for direct, focused and targeted action; identify the areas you want to act on. They may be as follows:

• Staff related
• Advertising and marketing related
• Packaging and Shipping
• Travel and entertainment

Step 3: Staff training and education

Have well-trained staff;

Train your staff to understand and embrace the direct sales expenses reduction process that you are initiating and implementing. Make them understand that it is a step in the direction of making the business healthy enough to support all involved for the long haul, especially on matters affecting or reducing their sales income

Step 4: Implement cost cutting measures

Reduce Advertising and Marketing Expenses by embracing emerging trends;

Use controlled advertising and marketing strategies that are focused; this saves money and attracts higher customer responsiveness. Use emerging marketing technologies like social media and the internet.

Customize your sales resources and strategy for direct expense reduction;

For customized or targeted selling; keep customer records and analyzing this information. You will be able to rank each client’s profitability customize your sales accordingly. High volumes purchase is not necessarily profitable; analyze the size, costs of servicing each sale and the real benefits of each. Do not be misled by gross results of sales. Use sales strategies that will actively reduce costs of sales.

Allow Direct Sales Agents to concentrate on selling and employ support staff for related duties;

Many organizations will want to have their sales agent’s multi-tasking on duties that are unrelated to their core engagement which is selling. The agents will therefore not have enough time to sell as cumulatively, time on other areas takes away a lot of hours from selling. Use a sales support team to ease the sales team from the burden of multi-tasking.

Pay commissions promptly after the sale is finalized;

Ensure prompt commission payment after a customer pays for the service or product sold to them. Pay commission based on the gross received or paid as it is more profitable for you than basing commissions on total sales made before products are paid for.

Step 5: Integrate technology

Have an efficient sales support team backed up with CRM technology;

The sales support team’s main duty will be to come up with the strategy on product or service bidding and pricing to assist the sales team. This team should handle customer bids and track the sales team’s performance to improve efficiency and reduce costs

Implement CRM technology to assist the sales support team do their work efficiently especially for online retailing; projections and quick analysis of data will just be a click of a button away.

CRM will collect for you all the data to enable you to understand how the process of direct sales cost reductions working for your business.

Step 6: Measure, analyze and improve

 Have an efficient, easy to use system for tracking and analyzing your performance

Thanks to CRM software, the process of measuring your direct costs reduction success shall have been made very easy. The technology will give you all the data and even analysis to gauge your performance. However, do not be worried if you do not yet have CRM or cannot afford it; from the categorization system discussed earlier, you will be able to analyze your direct sales expense reduction process very easily.

There is the 6 step process that will help you manage and reduce the sales expense, improve your business efficiency and earn you more.