Sales Risk

What Is Sales Risk?

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

Uncertainty regarding product pricing and availability for consumers is called Sales Risk. This uncertainty often results in sales failures and significantly affects reported financial performance.

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

The sales team should be taught to appropriately identify, monitor, and control sales risk elements.

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

Effective risk management structures can assist other risk mitigation systems when established as disciplined and continuous processes for detecting and addressing issues.

Risk management strategies include planning, organization, cost control, and budgeting. Because the focus is on proactive risk management, the firm is unlikely to face many shocks in this situation.

Types Of Sales Risks

Let us take a look at some of the types of sales risk. Some of these are as follows:

1. Hubris risk 

Overconfidence and arrogance characterize hubris risk, leading individuals in authority to assume they are precise and faultless.

It might cause the person in charge of sales 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 risks 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 penalized and fined when systems fail, resulting 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, Nokia's failure to adopt smartphones with touchscreens and the new app systems while also not being able to adapt with the changing consumer preferences led to a significant decline in its overall market share and business performance.

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 because 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, a retail company decides to have an aggressive short-term discounting strategy that can increase its sales but if it is not managed effectively, it can have a risk of eroding profit margins that cam pose as a financial challenge to the company.

5. Ethical risk

In a revenue-driven firm, the sales team is free to participate in any activity that helps them meet their revenue goals, even if it is unethical. 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 risks. 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

Reputation risk is a threat to a firm's profitability due to a negative public opinion of the company or its products/services. 

There are two types of reputation risk: direct and indirect. Directly, reputation risk may be caused 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 lead to substantial financial losses, potentially reaching millions or even billions of dollars in terms of sales or market capitalization.

How To Manage Sales Risk?

Let us take a look at different ways to reduce the Sales Risk in a business:

1. Hire the proper people

The adage "hire slowly, dismiss quickly" rings true here. Businesses are frequently pressured to fill positions and seats but 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.

2. Training for Success

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, hand the keys to new employees, and expect them to start serving clients immediately. This seldom works and puts your business in danger.

3. Customer's Viewpoint

Define what this entails for your company. The question in Dr. David Vik's book The Culture Secret is one of our 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?

4. Continuous Business 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!

5. Strengthen Client Bonds

With whom do you have a relationship with your best customer? Is it your company or your greatest salesperson or relationship manager? In many circumstances, however, relationship managers or sales representatives 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. Making an effort to eliminate risk in your organization, particularly regarding sales and service, will keep you ahead of the game.

Sales Risk Assessments

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. 

On the other hand, risk assessments 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.

No matter how solid, every sales opportunity comes with its own set of risks, and most deals contain far more than is commonly acknowledged. Salespeople are more likely to listen to positive news and avoid searching out negative news because they fear what they can 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.

Sales Risk Vs. Operating Risk

Operational risk is critical in reducing or minimizing the potential adverse effects on a company's sales and overall financial performance.

Let us understand the difference between the two risk types in the table below:

CEO's Guide To 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 and finance are linked

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. Elevate sales risk in leadership

Sales risk management, not just in sales, belongs in the executive suite. Risks associated with sales are risks associated with the entire company. Because sales risks are cumulative, individual salespeople face significant risks in every meeting, conversation, contact, and day.

3. Assess risks with staff expectations

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. Complex sales risks

The risks 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 risks and complexity.

5. Govern lead qualification for risk

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 salespeople assume too much or too little risk.

6. Common Dangers Can't Prevent Surprises

Avoiding common dangers will not protect you against blindside tackles. Everyone knows of economic and competitive pressures, but at least a dozen sales opportunities have been lost due to unanticipated events. 

7. Transferred Risks Persist

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. Ethics and Social Media's Impact

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 Unlock New Opportunities

Risks provide doors to new possibilities. Not all dangers must be avoided. Thanks to more precise and timely information, your organization could embrace a given sort of risk because of a unique capacity or advantage you've acquired to handle it.

10. Adapt, Innovate, Minimize Strategies

As with any risk, your strategy alternatives 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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