Evaluate sales decisions based on real contribution from the product, opportunity, and customer, rather than revenue alone.
High sales value doesn't always mean profitable sales. Discounts, product costs, freight, installation, financing, commissions, and special services can all reduce the actual contribution.
Margin and profitability management shows the expected result during the bidding and ordering phase, and the actual result after completion.
Components of profitability
Net sales
Standard or actual product cost
Discounts and promotions
Freight and delivery
Installation and service
Sales commission
Financing and term costs
Return and warranty risk
Control levels
Offer line
Total of offers and orders
Opportunity
Customer
Product and category
Sales representative and region
Contract
Margin approval
Offers or orders below the minimum margin should be sent for authorized approval; reasons such as strategic customers, reference projects, or inventory clearance should be recorded.
Planned and realized
The margin calculated in the offer should be compared with actual costs, shipping, exchange rate differences, returns, and service expenses. Systematic variations should be used to improve pricing and cost models.
Don't limit sales success to turnover; manage the actual contribution remaining after deducting the cost of all the terms and conditions given to the customer.