The Sales Force is usually tasked with growing revenues. But a good Sales Force can drive margins as well. We analyzed the correlation between the percentage of Cost of Sales (COS) and Gross Margin (GM) for 112 companies across eight major industry groups and found a positive correlation in six of the eight groups. This means that as cost of sales increases, the company’s GM% is also higher. Sales people can influence price, even though in most cases their direct sales compensation is not tied to it. Does this mean that a greater investment in sales can drive a company’s GM% higher? Or, are companies with higher GM% simply able to afford a higher cost of sales?
Cisco Systems provides a glimpse in to at least one company where the sales organization has helped maintain a high margin business. Cisco earns 72% gross margins in their commercial business compared to an average of just 56% GM for other companies that offer similar products. You have to wonder — are Cisco’s products THAT much better? Perhaps their size offers some advantage? Size and market presence does matter. But in Cisco’s case, a big contributing factor is also the Sales Force.
Last week, Bill LePage, Cisco’s senior vice president of Global Sales Operations, spoke at the Alexander Group’s Chief Sales Executive Forum. LePage shared that Cisco is a “Sales Eats First” company with many years of investment in their market — dominating direct and channel Sales Force. I guess a well-fed Sales Force creates a formidable market presence that can drive not just revenues, but profitable revenues.
Learn more at Alexander Group’s website.
Original author: Paul Vinogradov