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Enterprise software distribution: Making more money

How do we increase our income?

There’s several ways:

  1. Cut expenses
  2. Decrease rate of attrition
  3. Charge more
  4. Sell more

Cutting expenses

Cutting expenses is not really a solution. If you can cut expenses, you should do so in any case, but it shouldn’t really make more than a 20 – 30% difference. On our example, that means 2-3 licenses a month more, which translates into an increase of 16-28% per month without a fixed term, and 24-33% increase with fixed contracts.

But you can only really do this once, and then you have it done. It might slip and you can cut costs by 5-10% at a later stage, but nothing significant.

Decreasing your rate of attrition.

This is hugely important for longer term growth, and is especially important if you don’t have fixed term contracts. If you can decrease your attrition rate from 15% to 10%, after 18 months, you are earning 42% more, but the point of equilibrium is at 90 contracts after 27 months (58% more)

For fixed term contracts, if you can decrease attrition to 80%, you are only doing 5% better after 18 months, but you are growing your business twice as fast at that point.

Charging more for each license

This is very simple to understand, If you charge 10% more, your net income goes up by 10%. The main problem you face is that at some stage, if you charge more, you sell less. The challenge is finding the point where the combination of increased income but decreased sales are most profitable.

If you are selling 20% fewer contracts when you charge 30% more, you are still making more money than you would have, but if you increase your price by 40% and sell 50% less, you’re in trouble.

A good way to find out what you should be charging is to test. Line up 150 leads, and go see them. Try to sell to 50 at your normal price, 50 at 25% less and 50 at 25% more. Now you can get a good idea of what kind of closing ratios you have at each price point and which price would be most profitable for you.

Selling more

There are two ways to sell more. You either have to see more prospects, or you have to increase your closing ratio.

The first way to sell more is to improve closing ratios

If you normally sell to 3 out of every 10 people, you can sell to more people if you can find a way to sell to 5 out of every 10 people you see. This is a rather simple concept, but is not usually easy to accomplish. The main reason is the fact that the sales people are too close to it, and just can’t necessarily see a better way.

There would be a lot of ways you can improve your closing ratios:

1. Highlight the benefits better. Benefits, not features. We can send a reminder to everybody that owes you money is a feature. We can improve your debt collection by up to 63% is a benefit.

2. Make it risk free. 60 day money back guarantee. No payment until successfully implemented, etc.

3. Make it relevant to the prospect.  If you show a client a 3 hour demo and two hours of it is on how to improve their debt collection when they don’t sell on credit, you’ve lost them.

4. Keep it to the point. Don’t show them every single feature in a 3 hour demo when you can sell them on your software by showing them 1 key feature that is relevant to them.

5. Create urgency. “We’re running a 20% off promotion, but only for the next week. ”

The second way to sell more, is to just see more prospects.

The easiest way is to find another sales person that can sell your software with the same kind of closing ratios as your existing sales force. Another way would be to get your existing sales people to see more people. To do this, they will have to spend less time selling to leads than they do so that they can fit another 1 or 2 leads into their day.

This actually highlights a completely different problem. Where do you find leads? If you can’t find leads, your closing ratios doesn’t matter, your price doesn’t matter, your rate of attrition doesn’t matter and your costs doesn’t matter. You’ll be bankrupt before any of these things can become a problem.