Often we make assumptions about our lives that are so ingrained we never think to challenge them. The goal of the sales function is one of those assumptions.
When asked the goal of sales, we first respond by saying “to sell as much as possible.” However, on closer examination in this article we’ll see that the first response is usually incorrect. The goal in most companies should not be to sell as much as possible, but to sell all of the company’s production capacity. This response may surprise you, so let’s spend a few minutes exploring it.
It’s commonly understood that the goal of the sales function is to sell as much as possible. Salespeople are given a goal for the year and they work hard to meet or exceed that goal. When their sales managers prepare to forecast sales for the next year, they look at each of their sales people and how much they sold last year. Then the sales managers make an assumption about how much more each of their salespeople can sell in the next year. They add up all the individual forecasts and give the total forecast to the sales executive.
The salesperson, the sales manager, and the sales executive all make the same assumption about their goal: they should sell as much as they possibly can.
Is this the right goal?
It can be the right goal if you have a make-to-stock business. In a make-to-stock business, the production function supplies inventory according to a forecast and warehouses the inventory until it is sold. Salespeople are told to sell as much as they can because even when they exceed the forecast, they can use the stock in inventory to complete customer orders. This business model works for products from cars and washing machines to house paint and fertilizer.
However, what if you have a different business model? Many companies today sell products or services that are made-to-order or engineered-to-order.
Make-to-order companies don’t produce the product until they receive an order. Some of these companies adopt a make-to-order business model because they customize each order according to the customer specifications. Other companies adopt this model because they sell a service like consulting or repairs and they have no way to store an inventory of future services.
Companies with an engineer-to-order model go one step further. They actually wait until they have an order before they design the product. These companies include architects, custom software developers, and civil engineering firms.
Make-to-order and engineer-to-order companies will run into trouble if they adopt a selling strategy that encourages salespeople to sell as much as they can. If they sell too little, resources that can never be recovered will be lost. Manufacturing equipment goes unused. Software developers sit on the bench.
If they sell too much, orders are delayed and customers are unhappy.
Now that we know that selling as much as possible is not the goal of the sales function in make-to-order and engineer-to-order companies, then what is the goal?
Justin Roff-Marsh explains that the goal of the sales function at these companies is “to consistently sell all of the organization’s production capacity.”
This goal applies to companies whose capacity consists of a traditional plant and equipment as well as to companies where the capacity consists of teams of knowledge workers.
So now we know. Most companies should not adopt the goal to sell as much as they can. This goal only applies to companies with a make-to-stock business model. Otherwise, the goal of your sales department is to sell all of your production capacity. No more and no less.