Low Sales Don’t Always Mean Low Profits

By Chris Guertin, EO Minnisota Member and and president of Sport Resource Group.

In 2008 our company, Sport Resource Group, had our best year ever in terms of sales, but a terrible year (by our standards) for profitability. We had been chasing the popular projects that would earn us plenty of media attention, but were short on margin. Additionally, we had fallen victim to many customers who had promised us large purchases if we could just give them a deal on their first purchase from us. After reviewing our year, we decided to make some drastic changes. Namely, we fired 25 percent of our customer base. That’s right – during one of the worst downturns in history, we made a concerted effort to stop chasing a certain type of client and re-focused our efforts on to smaller, more profitable customers.

In our business (the manufacturing of ice hockey dasherboard systems and accessories) many projects receive a lot of hype and take 2-3 years between initial bids and final construction. When these projects are awarded the results are published usually followed by a lot of chest-beating and prideful press releases, etc. However, one drawback of this process it that the time it takes between receipt of a purchase order and actual construction is usually 12-24 months. A lot of things can change over that length of time; particularly in raw material costs.

In 2008 we received a contract for one of these projects and worked day and night over several months to make that project become reality. This project actually became our company’s identity. We worked so hard on it that we lost sight of the big picture, of prospects and of future sales leads. At the conclusion of the project, we had a very satisfied customer on our hands, but little else. We had not been developing sales leads over this period of time so as we looked to latter 2008 and early 2009, our projections looked very weak. At the end of 2008, we decided to stop pursuing that part of the business – permanent indoor ice arenas. At the time it represented about a quarter of our business, but we knew that if we could concentrate on higher margin business- even if the overall revenue numbers were not the same – we would be better off.

The early weeks and months of 2009 were scary because we knew that low margin business was better than no business at all, but by spring 2009 our efforts had paid off and we were just as busy as Spring 2008 – but with much more profitable products. The 2009 fiscal year wrapped up just as we projected – with a 25 percent drop in sales, but higher profits. I am happy to report that in 2010 we reached our 2008 sales numbers, but only selling the products we had concentrated on in the previous two years. As you can imagine, profits rose once again.

Now our company focuses on niche markets where we have a #1 ranking in market share and we are no longer considered “also-rans” in a crowded, competitive marketplace where low bids win the day. These were difficult decisions that we made several years ago, but if you believe in your staff, believe in your product and know your market, it can turn a hard decision into an easy one.

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