Why Selling More Can Hurt Your Company, and How to Sell Well

Almost every owner I sit down with wants the same thing: more sales. I never argue with the instinct. A company that stops selling stops breathing. What I argue with is the scoreboard. When revenue is the only number that earns applause, a company can grow three years in a row and walk into the bank weaker than when it started.

In the reel I listed how this happens, and each item deserves a slower look. You can raise sales and lower your margin. You can win more customers and end up with less cash. You can grow fast while the cost of acquiring each customer climbs and you end up financing your buyers' purchases. And you can bill millions while the business can barely breathe. The sales report shows none of this. The bank account shows all of it, a few months late.

Four ways a bigger top line makes a company weaker

Start with the arithmetic most sales teams never do. Take a product that sells for 100 with a gross margin of 30. Offer a 10 percent discount to close the deal and the gross profit on that unit falls from 30 to 20. To earn the same gross profit as before, you now need to sell 50 percent more units. The discount took a minute to approve. The extra volume will take a year to find, if it exists at all.

Then comes cash. Every sale on credit is a small loan to your customer, and growth multiplies those loans. The Federal Reserve's latest survey of small U.S. employer firms makes the point quietly. In the 12 months before the survey, more firms struggled to pay operating expenses, or dealt with uneven cash flow (which includes collecting receivables), than complained of weak sales.¹

Acquisition cost is the third trap. Harvard Business Review summarized the research plainly: acquiring a new customer costs anywhere from five to 25 times more than keeping an existing one, and Bain's Frederick Reichheld found that raising retention by 5 percent lifts profits by 25 to 95 percent.² A company that chases volume often pays that entry price again and again, for customers who leave the moment a competitor offers a better deal.

When growth is bought below cost

The extreme case is a company that sells for less than it costs and calls it growth. MoviePass charged moviegoers a fixed subscription fee for access to films in theaters. In the six months to June 2018, its parent company reported revenue of $123.6 million, against $2.5 million a year earlier. Its operating loss over the same six months was $234.4 million, and its own filing warned of substantial doubt about its ability to continue as a going concern.³ Revenue grew almost fiftyfold while the company moved closer to the edge.

Most mid-market companies never do anything that dramatic. They do it in small doses: the special price for a distributor who promises volume, the free installation that quietly becomes standard, the long payment terms granted to a big retailer because it is a strategic account. Each concession is reasonable on its own. Together they produce what I call selling badly: a company that works harder every year for the same profit.

The buyer who decides your future

The fourth trap is the most comfortable one. A large customer arrives, volume jumps, the factory runs full and everyone relaxes. Then the customer starts setting the price, the terms and the calendar, because both sides know you can't afford to lose them.

In October 2013, GT Advanced Technologies agreed to supply sapphire material exclusively to Apple for consumer electronics, backed by a prepayment of about $578 million. The agreement set GTAT's minimum and maximum supply commitments, yet the company disclosed that there were no minimum purchase requirements.⁴ On October 6, 2014, less than a year later, GTAT filed for Chapter 11.⁵ Many things went wrong inside that operation, and I won't pretend to judge them from a filing. The structure alone teaches the lesson: the obligations sat on one side and the options on the other.

Regulators understand the risk. U.S. securities rules ask smaller public companies to describe any dependence on one or a few major customers.⁶ A private company owes that disclosure to nobody, which is exactly why owners forget to ask themselves the question. An investor will ask it in due diligence, and a lender will price it.

Find the customers that are only filler

In the reel I said some customers are just filler: they bring anxiety and extra work and little else. You can't see them in a sales ranking, because a sales ranking measures size. You see them when you rank customers by what they leave you after the cost of serving them: discounts, freight, returns, custom work, the hours your best people spend on their calls, and the cost of financing their payment terms.

Do this once and the list will probably not look like your sales report. Mid-sized accounts may turn out to carry the company. Large ones may barely break even. A few may lose money every month, which everyone suspected and nobody had measured.

Growth that makes you stronger

Selling well doesn't mean selling less. It means knowing which sales add value, margin and financial capacity, and putting your energy there. Price is usually the fastest lever, which is why I like to start with a Pricing Power Audit™. A company that can't hold its price tries to make up the difference in volume, and volume is the most expensive way to make money.

It also changes what your company is worth. Investors look past the top line to the quality of revenue: recurring or one-off, concentrated or spread out, collected or stuck in receivables. That is what a RISE™ Business Model Score puts on the table, and it is the first thing we work on in capital and investor readiness.

Focus has a price, and the price is saying no. I wrote about that choice in Why 10x Is Easier Than 2x, and about companies that keep defending yesterday's volume in Why Profitable Companies Die. The rule I gave in the reel is the one I'd leave you with: don't chase just any sale. Go after, with focus and drive, the sales that make you stronger. If revenue is rising and margin, cash and control are not, the market isn't rewarding your growth. It is charging you for it.