It's important to consistently generate new business, but doing so isn't always self-explanatory. The quality of your product or service might be sufficient to keep current customers happy, but you might run into trouble with getting those customers on board in the first place. How can you attract interested prospects? What can you do to give your business a chance to prove itself to a new customer base? Well, one way to do so is known as sales maximization — the process of undermining profit to generate as much revenue as possible.
Here, we'll see what sales maximization is and what it looks like in both theory and practice. Sales maximization is a company's attempt to generate sales revenue to the highest degree possible. The process is not the same as profit maximization — the sum of the strategies a business employs to drive as much profit as it can.
Sales maximization is inherently unsustainable. It's impossible to consistently generate maximum revenue without sacrificing profits and ultimately kneecapping your company's growth. It's a short-term solution — only taking place in small sporadic windows. It's always carried out with intention and generally executed with specific strategies.
Sales maximization is something of a jumping-off point and a bit of a gamble. It's a process meant to spur customer interest and set sales in motion, but there's no guarantee that will be the case. The endgame of sales maximization is the same as virtually any other business strategy: profit.
Sales maximization is an investment. It's carried out in the hopes that the customers it attracts will be willing to stay on board once the maximation period is over and prices increase again. If you implement a sales maximization strategy that doesn't pan out, then you'll have lost valuable time and capital that could have been better allocated elsewhere.
Theoretically, sales maximization is achieved when a business sells as much of a product or service as possible without making a loss, meaning the average revenue of a product or service is the same as its average cost to produce it.
This is often achieved by strategically lowering prices. Read more on sales maximisation. Stagflation is a combination of high inflation, high unemployment, and stagnant economic growth. Because inflation isn't supposed to occur in a weak economy, stagflation is an unnatural situation.
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In fact, many firms will sell a product at or below cost to establish a new customer base. There is no guarantee those customers will remain at a higher price level. Groupon is an example of a company that is maximizing sales at the cost of profit. Their advertising cost to obtain new members is higher than the sales generated by those members.
Their logic is that the once a critical mass of members has been reached, sales will increase to the point the company makes a profit. In the meantime, they're spending advertising dollars at an accelerating rate. If a company is selling a product in a relatively stable market with controllable costs, an increase in sales will generally result in an increase in profits.
In an effort to increase profit, companies decrease expenses, cut back on promotional efforts and stretch staffing levels. While this works in the short term, it can backfire in the long run.
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