Leak 1: Potential Sales

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By PATH by Simplex Support Team

updated 7 months ago

Create Data Mash Calculation with this Formula:

(TOTAL ASSETS * Target Asset Turnover) - Total Income

Definition:

Sales leakage is the corrosion of revenue and profit and it has many tentacles that reach out across the business. To address sales leakage requires careful analysis and understanding of not only sales principles, but also business process and sales operations.

For many people, sales leakage is immediately hinged to the loss of potential sales for whatever reason. Most companies only look at the obvious sales leakage as the loss of not winning a tender or bid, a proposal not being successful or a deal not coming through. Those points can have a devastating effect on top-line revenue if not properly dealt with and sales management expend time and energy in attempting to minimize that loss ratio.

But for a company sales leakage goes far deeper than those obvious points.

The area that companies don’t place enough emphasis on is their own internal sales leakage which is costing them top-line revenue and points of profit every week or even every day. The best way to describe sales leakage is to look at the experience of a company I recently reviewed and this will give you an insight into what sales leakage actually is.

Some leakage is easily found; some take time to seek out with careful analysis. Every percentage point that can be added back to the EBITDA is worth the energy of a review.

Most searches find both small and big issues, some people know about, but don’t have the authority to fix, others hidden behind long-standing practices in the company. The leakage can range from sales productivity losses, unaligned business processes, job role creepage, over staffing hidden behind layers of incorrectly understood capacity, marketing spending without an expected ROI, sales leads that go unanswered, poor sales territory alignment and poor sales documentation that did not support the sales process being managed to a conclusion. In isolation, none of these points were deemed as a problem. The list can be exhaustive and when you start to put these all together you can be losing top-line revenue PLUS corroding the bottom-line.

TIP: What does negative numbers mean?

Negative numbers in this calculation mean that you can expect to generate more sales with your current level of assets. This is good news in a way, since you don't need to make additional investment in equipment to grow.

You are ahead of the curve when it comes to generating sales with your current level of assets. It should be your goal to generate as many sales as you can with the smallest level of investment in equipment. When this number is positive, you might take a look at your current capacity to determine if you might be getting close maxing it out.

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