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The Trick to Keeping Profits Flowing

America’s corporations are having the best earnings season in 13 years, at least according to Bloomberg News. Now the question is, how can they do better? And what difference can business leaders make to the results? 

As usual with Wall Street, little if any credit gets doled out for past achievements. And the results posted by companies these recent few weeks now count as the past. Just in case you missed it, nearly four out of five of companies in the S&P 500 have reported better earnings than investors had expected. And the strength is broad-based, with all sectors seeing at least half the firms meet or beat the expectations of Wall Street. Part of the robustness is due to improvement in the global economy and the weakness of the greenback.

So what about next quarter? “Without a rise in earnings, […]  stock prices may find it difficult to move any higher,” writes Jeff Kleintop, chief global investment strategist at Charles Schwab & Co. in a recent report. 

Others agree. “In recent years, companies have done a pretty good job of passing minimal sales growth through to the bottom line,” says Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management in Milwaukee. “But I’m not sure how much more cost-cutting can be done.”

But experts say there is something that can be done that would align the stars in favor of corporations. These days, t doesn't come from tech or marketing, but from an often ignored, less flashy group. “Sales have to play a bigger part in the future,” says Schutte. “That ensures that companies can grow the bottom line organically.”

Confidence is increasing among consumers who are now more free in their spending and more secure in their jobs, explains Schutte. That means the American consumer of yore may return, which should give companies the power to raise prices on their products instead of discounting, and so increase profit margins. 

The tric now, experts say, is to get the sales force going again with an aggressive incentive plan that rewards improved sales at the same or increased margins. Or put another way, don’t reward sales that come at the expense of squeezed margins.

All sales plans require individual crafting for each company because each firm's situation is different. The specific products aren't the same, the goals aren't the same, and the employees aren't the same.

But experts say a sales-incentive plan can be developed when business leaders are specific in what goals matter to them now and what they want to pay employees to achieve those goals. That's the key—being specific about what you want.

 

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