Sales Math for Ag Sales Professional

The 4 Equations every Ag salesperson needs to know

Sales math is a really fun version of mathematics. It’s easy. It’s rough estimating at times and it gives you that big picture view needed to make major business decisions in your selling efforts.

No accounting degree is needed. No debits and offsetting credits to confuse you. Just basic math equations: plus, minus, multiply, divide, and once in a while, a percentage is thrown in there.

The 4 Sales Math Equations:

0 X 100 = 0: In sales, there is a constant tug of war over margin versus sales. If you are in charge of pricing, you may be very proud of big margins. Yet, big margins X zero sales still equals zero. If you are in sales and you are pushing hard to drop prices to sell more units, then the reverse of this equation is also true. Zero margin X 100 units = zero margin. If you want to be trusted with setting margins and growing the business, then you must have the maturity to balance these two. It’s always a balance. Unless you have an absolute lock on the market on a product that is irreplaceable, there is always going to be a challenge to your margins. Big margins draw in competition. Increased competition narrows margins. I have seen too many one-sided arguments by salespeople and managers who argue through this tug-of-war. In the end, the balance between the two is what typically wins out. See equation #3: Everyone needs to make a profit.
Units X Margin = Total Margin. The Total Margin needs to be higher than your cost. When I say your cost, I really mean you! Take your total compensation and multiply by 1.3-1.4 and you have your cost as a salesperson. The extra .3-.4 is what it costs for benefits and expenses like phone, laptop, pickup, travel, training, etc. You really want to think about this equation before your manager does. Think of your cost as the first hurdle that needs to be overcome. If you don’t cover your own costs, then overhead and other variable costs are definitely not being covered by your sales. It’s amazing how many salespeople don’t do this simple equation. I know it’s not always all-inclusive and completely defining of your value. There can be extenuating circumstances. You might be brand new or in a new territory. You might be in sales but also cover marketing or overseeing production/distribution processes. If none of these apply, then this equation is a great starting point in sales math.

Selling Price – Break Even = Profit: Everyone in the supply chain needs to be profitable: In this case, I am referring to the manufacturer, the distributor, the wholesaler, the retailer, and to end users. Whoever is in the supply chain, that equation has to be positive for them to remain in the process. If not, they will eventually leave, go bankrupt, or possibly be merged. In the feed business in the late 90s, the ostrich market was going to make everyone involved a fortune. One small problem: no end user. No one was eating ostrich meat. Consequently, the selling price in that sales equation was zero for the ostrich producer. The only ones making money were those selling to people wanting to make money on ostriches. At an absolute minimum, you need to know your own breakeven. You need to know what it cost per ton, per bag, or per ounce for the products you produce. See equation #1 from above.

Next, you need to know that your customers down through to the end user are making a profit. I understand that you might not have exact numbers for break-evens within your distribution network. However, there are industry references. You can ballpark and see if these make sense to the retailer or end user that you work with. This will give you at least a minimum understanding of how profitable the different supply chain companies are. Again, you can avoid this discussion and leave profitability up to the individual. However, if you are in this for the long haul and basing your decisions on customers and your supply chain, you really want to know this equation.

New customers – lost customers = positive number This equation is like a health checkup. It tells you whether you are growing, flat, or decreasing. As your territory develops and peaks or levels off over time, there will be a point where you have a significant number of customers to keep you busy. It will become more difficult to prospect and add customers than it was in the beginning. The trap that we fall into with this is that prospecting takes time. It’s not something you can cram for. By the time you realize that you have lost seven or eight customers this year, but only replaced two, it can be too late to adjust. Prospecting is a long game and takes daily effort to keep it active. Trying to force it only creates stress and more prospects to fall out of the funnel. That’s why I like to run this calculation about 2-3 times a year. Sooner if there are major customer retention problems.

Sales math is a great way to maintain a big picture view of the health of your territory, your company, and your industry. If you see an issue or a negative trend, then you can dig deeper into the numbers. These four sales math equations will help you make decisions on market segments, product selection, manufacturing, and distribution functions. The best part is that they are fairly simple equations.

Bounce some of these equations off your peers, your manager, or some of those in your supply chain. See how close you can come to their numbers.

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