By Bill Wade, Wade & Partners
“It’s nice to have the ideas, and it’s great to hear about all the good things happening at other companies… But if you don’t take those ideas and try to lay them over your company to see how they may make a difference, then it’s just thoughts going nowhere.” ~ Don Polletta, CEO of leading industrial distributor Torrco.
Are your 2018 Sales-Growth Plans guided by some of these unspoken, dated assumptions?
- All expenses are fixed (for the time being).
- Incremental, new sales and Gross Margin Dollars flow through to profits and earn more rebates at year end. Carpe economies of scale!
- To get more sales, get more reps to make more calls on more accounts with selling scripts for products from “key suppliers.”
Why Are Macro and Micro Numbers Flashing Red?
In the big picture, 90 percent of all distributors that have been participating in association financial performance surveys for 15+ years have averaged weak returns. Buy low sell high, sell more, and pay “fair wages” to work hard and lean stopped working long ago.
At the micro analysis level, the average new client of a distributor analytics service Waypoint “Line-Item Profit Analytics” discovers that:
- 80 percent of costs are variable (not fixed);
- 70 percent of all line item events are profit losers;
- 65 percent of all orders are profit losers;
- 80 percent of all customers are either break even or losers;
- 50 to 80 percent of all sales territories are profit losers;
- Old/new, small customers consume more, incremental service-activity-cost dollars than their GM$s for losses.
The ‘good’ news is that 20 percent of customers produce 150 percent of profits to pay for all losing activity. Less than 5 percent of accounts are big, profitable, innovatively-growing and looking for supply-chain solution partners.
Tips for updating selling assumptions when thinking about your 2018 plan?
- Sort accounts into three, service-cost-model divisions: Enterprise/Team; Standard/Rep-Covered; and Small-Account. Innovation metric: 100 percent customers profitable
- Use customer, Cost-To-Serve (CTS) buying statistics to cure previously-hidden, high activity costs for low dollar picks and orders. Turn lose-lose, buying activity-habits into win-win ones. Retain and earn more share of the most profitable customers.
- Freeze Full Time Equivalent Employees (FTEEs). Redeploy fulfillment slack from order consolidations into processing big-account sales wins.
- Measure both 12-month-trailing, GM$s/FTEE and Profits/FTEE. The first will grow, the second soar.
Common Distributor Responses I Can Imagine:
“Some of these customer-first ideas won’t be liked by my reps/employees/suppliers/family shareholders.” Then, you aren’t customer centric!
“We don’t innovate. Pioneers get arrows in their backs. We like to think we are “fast followers”.
“We have “good” service” (which is not focused on or defined by any specific customer niche).
“We strive to sneak up margins while offering the same service.”
“Our sales force is aging. Our entire channel is suffering from too few young people.”
Key Planning Concept: Only Do What Only You Can Do!
When you pursue the same opportunities as every other distributor, you’re commoditizing your solution offering. Many distributors fail to grasp the competitive nature of these opportunities. A half-dozen other companies are bidding on the same order, the same way. It turns into a bidding war that nobody wins, normally settled by price.
Think of these high-volume, low-margin opportunities as commodity opportunities, for the competition! Organizations exhaust their resources pursuing opportunities they never should have pursued. What if you focused selling and marketing resources on finding and solving problems versus pursuing commodity opportunities?
Salespeople unintentionally commoditize their solution by only selling products with well-established demand. They focus on selling products for which there is a generic need. Products with well-established demand tend to be commodity products, for example: fasteners, seals and bearings, belts and hose, cleaning chemicals and other MRO items. There is established demand for these products. Wasting time on selling these pre-sold, demand products positions you as a commodity supplier.
If you’re just selling products, you open the door to too much competition. Our research on top-achieving salespeople shows that the salesperson is a unique dimension of the solution. Customers of top-achieving distributors believe the salesperson represents 25 percent of the total value of a solution.
Key Strategic Issue: Are you bringing that much value to your customers? Are you presenting your personal value as part of the total solution?