Most companies don’t have processes in place to sell twice what they are selling now, so it is necessary to develop a compelling, un-refusable “Mafia Offer”. A Mafia Offer is an offer so good that your customer can’t refuse it and your competition can’t or won’t offer the same. Developing and implementing a Mafia Offer is not trivial, but having one improves typical closing rates from less than 5% to as much as 80%, so additional sales people aren’t required, but sales funnel management is.
Let’s check the numbers using an example of a company with $5 million in sales, net profit of $250,000, and raw material costs, outside services and sales commission of 30% (what we call Truly Variable Costs in Goldratt’s Theory of Constraints Throughput Accounting). One year after implementing DBR, and developing and implementing a Mafia Offer, the company has twice the capacity to sell, and is selling it at a rate of $8 million per year with no additional fixed costs. The additional raw material, outside services, and sales commissions are $900,000 on the additional $3 million in sales. The difference of $2.1 million drops through to the bottom-line which is now $2,350,000. So, net profit went from 5% to 29%! Incredible! Unbelievable?
What if your results were only half as good? Are you doing anything else with so much potential for sustained increased profit with so little risk?
TOC is a collection of “silver bullets”, and when implemented well in conjunction with Lean and Six Sigma, the result is an ongoing exponential increase in net profit. We believe that it possible for most companies to achieve a Viable Vision. One definition of Viable Vision is to turn your sales level into your net profit level in about four years, and sustain the exponential net profit increases beyond that.
If you haven’t read The Goal, we recommend you read it. If you have read The Goal, we recommend you read it again.
…to be continued.
Here’s to maximizing YOUR profits!
Dr Lisa Lang