GROWTH
Making it Up In Volume
“We lose money on every deal, but we plan to make it up in volume.”
There once was a team full of cheer,
Who sold at a loss, far and near.
"We’ll make it in bulk!"
They declared with a sulk,
But profits, it seemed, disappeared!
"Making it Up In Volume" captures a classic and absurd misunderstanding of business fundamentals. It highlights the flawed thinking where companies believe they can scale their way out of unprofitable deals, hoping volume will somehow save the day.
Symptoms
Constant pressure to close more deals. Sales teams are pushed to close as many deals as possible, with little regard for deal quality, profitability, or customer fit. The focus is purely on volume.
Unsustainable pricing models. The company consistently pitches its products or services below cost, believing they can compensate through increased sales volume. Discounts and aggressive promotions are rampant.
Focus on top-line growth over profitability. Leadership is obsessed with metrics such as unit sales and revenue growth while ignoring overall profitability.
High customer acquisition costs. The company overspends on customer acquisition to drive volume, often at a cost that outweighs the customer's lifetime value.
Consequences
Mounting financial losses. If each deal loses money, scaling those losses means the company is digging itself into a deeper financial hole. High sales volumes only accelerate the rate of loss, leading to cash flow issues.
Burnout and turnover in sales. Sales teams face enormous pressure to close deals, often with little regard for quality or long-term customer relationships. The constant churn and misaligned incentives lead to frustration and turnover.
Compromised product or service quality. As margins get squeezed, the company may resort to cutting corners in production or service delivery, leading to lower-quality products, dissatisfied customers, and a damaged reputation.
Inability to scale. Eventually, the business reaches a tipping point where it cannot scale further without dramatically increasing prices (risking customer loss) or reducing costs significantly. Often, by the time this is realized, it’s too late to course-correct without drastic measures, such as layoffs or restructuring.
Recommendations
Reassess pricing strategy. Conduct a deep pricing analysis to ensure that each product or service sold generates a positive contribution margin. This means covering direct costs (materials, labor, etc.) and contributing to overheads. Implement value-based pricing rather than cost-based pricing. Focus on what customers are willing to pay based on their perceived value rather than pricing just to move volume or match competitors.
Focus on customer lifetime value (CLV). Shift from focusing on individual sales transactions to maximizing customer lifetime value. This involves not only acquisition but also retention and upselling. Segment customers based on profitability and focus acquisition efforts on the most profitable segments. Use predictive models to identify high-value customers and tailor offerings their offerings and pricing plans.
Improve operational efficiency. Audit your operational processes to find areas where costs can be reduced without sacrificing quality. This might mean improving supply chain management, cutting unnecessary overhead, or automating manual tasks.
Shift focus to profitability metrics. Change internal KPIs and incentives to emphasize profitability over growth. Instead of solely tracking revenue or market share, prioritize metrics like gross margin, operating margin, and customer profitability. Tie sales commissions and bonuses to profitability, not just deal volume. If their compensation depends on it, sales teams will think twice about closing deals that don’t contribute to the bottom line.
The “make it up in volume” mentality might sound like ambition, but it’s really a recipe for disaster, as it ignores the fundamental need for profit at the unit level. Scale only works when you're already making money on each sale!
