Sales Risk

Risk refers to the uncertainty of a return and the possibility of financial loss. Risk can come from finance and operational ventures, and it can be characterized in various ways.

The uncertainty about the pricing and quantity of items available for sale to consumers is referred to as sales risk. This, in most cases, leads to sales failure and substantially impacts reported financial success.

Protecting the company against sales risk may aid in developing resilience, allowing the sales force to counteract the contributing risk factors. 

The sales crew should be taught to identify, monitor, and control sales risk elements appropriately. It is a type of risk that leads to the failure of a transaction.

Salespeople should be well-versed in capturing, monitoring, and controlling sales risk elements. Hubris risk, information risk, strategic risk, ethical risk, and reputation risk are the most common types of sales hazards.

Risk management structures may assist other risk mitigation systems if they are established as a disciplined and continuous process to detect and address issues. 

Planning, organization, cost control, and budgeting are among them. Because the focus is on proactive risk management, the firm is unlikely to face many shocks in this situation.

Types of sales risks

The risks associated with opportunity, account or broad risk that impacts the entire pipeline are broadly classifies into six types. These are

1. Hubris risk 

Overconfidence and arrogance characterize the hubris risk, which leads the person in authority to assume that he or she is doing nothing wrong. 

It might cause the person in charge of sales choices to make unreasonable and short-sighted judgments because they do not consider other people's opinions or the consequences of their actions.

Successful people, such as business leaders, are frequently connected with the risk of hubris. A sales manager may make choices without fully considering the implications of the views of other sales team members.

The lack of thought is due to the sales manager's overconfidence that they are making the right option and that it will have no negative implications. Sales managers should be self-aware and recognize that past successes do not guarantee future success.

2. Information risk

Information risk is linked to the organization's usage, ownership, operation, and adoption of information technology. 

Such hazards can harm the sales process, particularly if information technology is not implemented properly and operations are mismanaged.

Failure of IT systems in technology-dependent firms can result in a security breach, leading to fraud, theft, physical asset loss, and even brand harm. 

Frequent IT system breakdowns or downtimes can have negative repercussions, such as lost sales, reputation harm, customer confidentiality breaches, and diminished customer satisfaction.

Businesses may be subject to penalties and fines when systems fail and result in non-compliance with regulatory standards.

3. Strategic risk

When a company follows an ineffective or incorrect strategy, it exposes itself to strategic risk. 

The risk arises when management makes bad business decisions that do not result in the desired outcome. It can also happen when a corporation devotes insufficient resources to a new product line or fails to adapt to changes in the business environment.

For example, Kodak's management failed to recognize the rapid advancement of technology and to make strategic decisions that would have helped the company withstand the rapid adoption of digital technology.

4. Tactical risk

Tactical risk emerges due to real-time changes in business conditions that cause firms to lose money. 

The phrase "tactical risk" is adopted from the military and relates to combat situations. Tactical risk varies from strategic risk in that a strategy is a long-term plan, but tactical risk arises as events develop in real-time.

Tactical risk refers to the company's existing dangers in the current business environment. For example, if the company's products see a boom in demand, it should be able to increase production quickly to satisfy the demand.

5. Ethical risk

In a revenue-driven firm, the sales force is free to participate in any activity that helps them meet their revenue goals, even if it is immoral. Salespeople may be subjected to inappropriate pressure from management, forcing them to breach corporate standards.

Corporate bribery, fraud, abusive behavior, and lying to stakeholders are the most prevalent ethical hazards. While such practices may assist the company in meeting its sales goals, they may erode shareholder confidence in the leadership team.

Employees should be taught how to avoid becoming unethical. Employees, consumers, and other stakeholders should be able to report unethical activity within the firm via private reporting procedures.

6. Reputation risk

A threat to a firm's profitability owing to a negative public opinion of the company or its products/services is referred to as reputation risk. 

There are two types of reputation risk: direct and indirect. Directly, reputation risk may be produced by the organization's acts, while indirectly, reputation risk can be caused by the conduct of a company employee.

An organization's survival is threatened by reputation risk. If not controlled early enough, it can result in a loss of millions or billions of dollars in sales or market capitalization.

Five ways to reduce risk in your business

Hire the proper people: The adage "hire slowly, dismiss quickly" rings true here. Businesses are frequently pressured to fill positions and seats, but they must recruit the appropriate individuals. 

Create criteria for what the ideal candidate looks like in terms of background and abilities. Avoid speeding the recruiting process by taking things slowly.

Educate the appropriate individuals: Practice makes perfect, but perfect practice is more effective. Are you offering the appropriate training once you've hired the right people? 

Many businesses lack a systematic training program and hand the keys to new employees and expect them to start serving clients immediately. This seldom works and puts your business in danger.

Establish a service culture: Define what this entails for your company. The question in Dr. David Vik's book The Culture Secret is one of my favorites. "When was the last time you were a customer of your company?" 

What did you think of what you saw? What can you do to make it better, more memorable, or exceptional?

Continuous and unending improvement: What do you excel at? Is it possible for you to improve it? What aspects of your sales and service could be more effective? Do you have a strategy in place to fine-tune, test, and track your progress? 

Don't get comfortable just because business is excellent or even spectacular. Things may shift in an instant. Perhaps a new rival joins your market, or the economy tightens, causing your clients to want more than they did previously. 

Don't assume they'll continue to do business with you just because they've done business with you. Always try to develop and be a better version of yourself!

Always have backup support for client relationships: With whom do you have a relationship with your best customer? Is it your company or your greatest salesperson or relationship manager? 

Relationship managers or sales representatives, in many circumstances, however, are considered the connection within the organization.

To decrease sales and service risk in your organization, having a backup contact who can create rapport and relationships with your key clients is vital.

Taking the effort to eliminate risk in your organization, particularly regarding sales and service, will keep you ahead of the game.

Why every sales opportunity needs a regular risk assessment?

If you worked in health or social services or the nuclear, aerospace, oil, rail, or military industries, you were well aware of the necessity to conduct risk assessments frequently whenever a dangerous condition was present.

If you worked in those circumstances as a manager or executive, you could have a legal obligation to guarantee that the requisite risk assessments were completed to the proper professional quality.

Some people may find these risk evaluations difficult, while others want a simpler, less bureaucratic environment. 

Risk assessments, on the other hand, have undoubtedly saved many lives and will continue to do so in the future. This may prompt us to wonder if risk assessments may also rescue sales deals. 

You can see how some of the more conventional salespeople would react: doing a risk assessment would be another overly bureaucratic, cumbersome process, yet another management-driven "hoop to jump through." They would, however, be incorrect.

Most salespeople have had the experience of a deal that was "in the bag" but then fell through. 

You might undoubtedly recall dealings that went silent and being informed that there was nothing to be concerned about. Nonetheless, there was.

Every sales opportunity, no matter how solid, comes with its own set of hazards, and most deals contain far more than are commonly acknowledged. 

Salespeople are more likely to listen to positive news and avoid searching out negative news because they are afraid of what they could find.

This is why well-crafted checklists have become such an important part of the contemporary sales process: they compel salespeople to consider aspects that have been shown to influence their chances of closing deals. 

They make it more difficult to overlook the apparent. They serve to systematically reduce errors of ignorance and incompetence, as Atul Gawande points out in The Checklist Manifesto.

What every CEO must know about sales risks

Although not every CEO has the opportunity to learn every aspect, here are ten things every CEO should know about sales risk:

1. Sales risk management and financial performance are inextricably linked.

Higher sales productivity, shorter sales cycles, more accurate predictions, and cheaper inventory costs are all benefits of reducing sales risks.

2. Sales risk management, not just in sales, belongs in the executive suite.

Hazards associated with sales are risks associated with the entire company. Because sales risks are cumulative, individual salespeople face risks in every meeting, conversation, contact, and day are significant.

3. You can't assess your risks until you know what your sales staff is expected to provide to your organization and consumers.

Check with your coworkers and sales team to check whether the responses are consistent. 

Salespeople are frequently expected to produce profitability, customer pleasure, market information, and long-term client connections. Therefore most sales teams must give more than just income.

4. The hazards associated with sales are growing more complex.

Technological advancements, social media advances, globalization, international events, and the rapid pace of business and communication all contribute to a growth in the number of hazards and their complexity.

5. Lead qualification rules and processes must be governed for effective organizational risk management.

Your financial plan is jeopardized if lead qualifying methods are uneven or if salespeople assume too much or too little risk.

6. Avoiding common dangers will not protect you against blind-side tackles.

Everyone knows of economic and competitive pressures, but at least a dozen sales opportunities have been lost due to unanticipated events. 

7.Transferring risks does not make them go away.

Hedging your chances with a channel sales program or hiring full-commission salespeople reduces risk, but only temporarily. You won't be able to meet your income goals if your sales partners can't.

8. Ethical and social media concerns are inextricably linked - and far more serious than you would imagine.

Companies that leave their employees unsupervised on social media sites like Facebook, Twitter, and blogs will face at least one boardroom debate this year, which won't be pleasant.

Furthermore, unless you plan ahead of time, the impact of unfavorable social media opinions on your company and brand might be disastrous.

9. Risks provide doors to new possibilities.

Not all dangers must be avoided. Your organization could embrace a given sort of risk because of a unique capacity or advantage you've acquired to handle it, thanks to more precise and timely information.

10. Your strategy alternatives, as with any risk, are to adapt, innovate, or minimize.

Accept what you must, namely the possibility that potential clients may not purchase. Create novel techniques to obtain a competitive edge. Reduce the risks that are most likely to occur and have the greatest impact.

Researched and authored by Fatemah Kamali | LinkedIn

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