Wednesday, December 16, 2015

The Cost of Generating New Business

It is very, very expensive to generate new business.  Considerable investment in Sales and Marketing is needed to sign new accounts.  Depending on the industry, it may be necessary to spend as much as 10% or more of top line revenues, each year, to develop new business.   And in budgeting for Sales and Marketing, company management must look forward not backward.  In other words, if Sales results in the current year were not as good as desired, that is no reason to cut the Sales and Marketing investment for the next year.  In fact, an argument could be made to increase it.  New business is the life blood of any company, particularly since there is no guarantee today of keeping existing business, even when doing a great job. 

Yes, it is possible to lose a client even if great service has been provided as a result of client management changes, mergers, acquisitions, or just normal procurement regular bidder processes shopping for lower prices.   For that reason, lost clients must be replaced to continue any kind of growth mode.   Sales and Marketing expenses break down into several line items.  The fully loaded cost of Sales and Marketing Staff makes up the biggest expense, which often includes significant travel expenses of a company's road warriors. Beyond that are numerous other discretionary expenses for Conferences, Advertising, Website Development, Social Media, Collateral Materials and many other items that are necessary to both establishing and maintaining brand identity. 

Sales and Marketing is a cost center, not a profit center.   That means that revenue producing subsidiaries of a company must pay for the cost of Sales and Marketing in Good and Bad sales years.  Naturally, if all Sales targets have been achieved everybody is happy to cover the expense.  In bad Sales years, Sales and Marketing is often an orphan and that is when business heads start second guessing the process.  Often, there is finger pointing as to why Sales targets were not achieved. 

Obviously, poor performing Sales people usually get the axe because if they are not closing business, they are of little value to the corporation.  However, Operations must produce quality services, or products that create raving fans as references, which is better than even the best of salesmen to help create new business. 

Sales and Marketing is a never ending process.  Companies that fail to invest in Sales and Marketing usually do not remain in business for long.  In fact, even in bad times, the last things that should be cut are Sales and Marketing.  It does not matter how good a company's story is if Sales and Marketing does not exist to tell it.      


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