The company had already had to cut its product range, although it wanted to speed up sales. Our client sold on marketplaces: salespeople set prices, ran ads and took part in promotions. The sales figures looked convincing. But the owner discovered that they were receiving noticeably less than expected for a particular product, and the company kept its more profitable items.
At a meeting with our head of sales and business development director, the question came up: “Why did I get one hundred and fifty or one hundred and thirty for the product instead of two hundred?” Promotion costs and the terms of promotions for each item were not tracked regularly. There is no information on whether profit recovered after the product range was cut.
What strikes me in this story is the sequence of events. First, the team changes the terms on which it sells. Then the owner finds out how much was earned on those terms. Spending decisions were not regularly checked against their financial results. It is too early to demand more effort from the salespeople here: they were already actively selling.
Who has the authority to say: we will sell less of this product
A head of sales must be able to justify cutting back on promotion, even if it makes the turnover report look worse. Otherwise, they are only allowed to move in one direction: pushing sales up. Someone else will find out what happens to the company's earnings.
This is especially clear when the team is assessed only on volume. An employee suggests a promotion, gets orders and completes the task they were given. If the owner is then unhappy with the money, you cannot demand a different result from that person after the event. The financial limit should have been included in the task before the promotion began.
Replacing a bonus based on revenue with one based on profit is not enough either. To calculate such a bonus, you will have to collect details of the very costs that were not visible before. And a new pay formula does not give the head of sales the authority to stop promotion. First, the head of sales needs data and an agreed action to take if the result is poor. Then there is a basis for discussing incentives.
One product and one decision in 15 minutes
The owner only needs to look at the latest initiative to increase promotion of one item. In a quarter of an hour, they need to find out what it was based on and what the team will do if expectations are not met. There is no need to spend those minutes reconciling exported data instead of talking to the employees.
The proposal must contain two amounts for one future period: how much will be left under the current terms and how much under the new ones. Both are calculated in the same way: revenue after discounts and returns, before the marketplace's deductions, minus the cost of the products sold, marketplace costs, promotion costs and other direct costs. Each cost is deducted once. This is the amount left to cover general expenses and taxes; it is not yet the business's net profit.
A line for your figures: the amount left under the new terms minus the amount left under the current terms equals the expected increase. Alongside it, state the amount of additional money needed for stock and how long it will be tied up. The head of sales prepares the calculation; the owner decides whether the increase is acceptable for that investment.
A smaller amount from one unit does not rule out a promotion: a higher volume can increase the total amount left. But the promised volume remains a forecast. Ask the team to show separately what the result would be with the previous sales volume and the new costs. This shows the cost of a mistaken forecast before the company pays for it.
If the proposal cannot be justified in 15 minutes, the discussion already has an outcome: the additional budget must wait for a calculation with a set deadline. The owner does not take the spreadsheets home.
There must be a condition for stopping promotion
The calculation itself soon becomes outdated if the discount, costs or mix of products sold change afterwards. So, when permission to promote an item is given, a review procedure must be agreed as well. Here is a short form for agreeing the details; the head of sales fills it in for a specific product.
| What to agree | What must be recorded |
|---|---|
| Expected earnings | The amount left for the agreed period and a list of the direct costs included |
| Acceptable deviation | The lowest acceptable amount left on the agreed date and the maximum amount of promotion spending |
| When to review | After data for the agreed period arrives; if the terms of the promotion change, before any new spending |
| Action by the head of sales | Which additional promotion they may suspend without further permission |
| Question for the owner | Which change in price, budget or product range requires a separate decision |
| Implementation | Who changes the settings, by when, and where it can be seen that the change has taken effect |
The last row is essential. Writing down a decision to suspend promotion does not yet change spending. The head of sales communicates the decision to the person carrying it out and receives confirmation: the setting has been changed, and new spending has stopped from the specified time. Existing commitments and orders are accounted for separately.
If cost figures arrive late, you cannot wait for the final report without setting limits. Before the launch, agree on how much can be spent and the point after which that amount will not be increased without new data. The right to sell must not mean the right to keep paying for uncertainty indefinitely.
The finance specialist explains the amount. The head of sales changes how work is done
The owner's objection is understandable: why does the head of sales need all this if there is a finance specialist? The finance specialist is responsible for the accuracy of the calculation. The head of sales has a different task: choose an action within the agreed limits and make sure it is carried out. A report will not remove a product from additional promotion on its own. And a head of sales who has not been given the cost figures cannot reconstruct them through management skill alone.
The first step should be to close the gap between these people. The very first time an agreed limit is exceeded, there must be a decision from the head of sales, a record of when it was carried out and a new calculation. These records will show the owner whether the team responds without their reminders. Promises to watch the figures more closely are not enough.
At RENTROP, “turnkey sales management” includes seeing an agreed decision through to completion, even when this means limiting sales of an individual product. AI helps spot deviations in the available data and communications; people are still responsible for choosing an action and checking that it is carried out.
The client's question about two hundred, one hundred and fifty and one hundred and thirty called for an explanation of what had already happened. Promotion needs to be managed earlier, when the head of sales can still say no to the next expense. They should be held accountable for this decision just as they are for meeting the sales plan.