Three Part Series: Three-Part Series: Building an Effective Sales O Organization for the Recovery i ti f th R Summer 2010 Mike Marks, Mike Emerson, and Steve Deist Discussion Leaders Indian River Consulting Group Indian River Consulting Group www.ircg.com Tom Gale, President and Publisher Moderator Moderator Modern Distribution Management www.mdm.com
F Founded in 1967 d d i 1967 Specialized business resources for wholesale distribution executives and manufacturers that sell distribution executives and manufacturers that sell through independent distribution channels In addition to Webcasts, MDM offers a subscription newsletter, news, blogs, data and more at l tt bl d t d t www.mdm.com 1
Agenda Agenda Part I: Understanding Territory Coverage Part I: Understanding Territory Coverage Economics July 29 th at 1 p m EDT July 29 at 1 p.m. EDT Part II: Designing Incentives for Recovery Aug 5 th at 1 p m EDT Aug. 5 th at 1 p.m. EDT Part III: Tools of Effective Sales Management Aug 12 th at 1 p m EDT Aug. 12 th at 1 p.m. EDT 2
This Is The Upside The old model probably broke in the nineties but the bubbles hid it until now You will be moving forward now instead of using hope as a strategy Incremental fixes simply absorb your energy without creating meaningful, lasting change As you eliminate wasted activities like drive-by sales As you eliminate wasted activities, like drive by sales calls, you can make the same net profit on lower gross margins You can gain more of the right customers and they will be more satisfied 3
This Is The Downside You break what is currently working and don’t know it until it is too late A sales force mutiny means that only the worst stay You go down the customer profitability death spiral You fail to invest in the skills and capabilities necessary for market strategy; e.g. there are no product markets and SIC codes are mostly useless as a segmentation and SIC codes are mostly useless as a segmentation tool “There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.” a new order of things. Niccolo Machiavelli 4
Step One: What Is The Role of Field Sales & How Does It Evolve? Sales & How Does It Evolve? Field sales behavior is actually customer interruption behavior, getting the customer to choose the sales rep’s company as their chosen s pplier of choice their chosen supplier of choice The primary mission for the distributor sales rep is: – To gain the maximum share of spend available from the major users of product in the assigned geography, becoming the first call and the product in the assigned geography, becoming the first call and the recipient of the last look In the early days, before the model broke, the sales rep: – Chose who to call on and who to ignore – Was a generalist who took care of pre sales customer support, transaction support, and post sales service requirements, all paperwork, order entry, even ordering from a supplier, physical delivery, returns processing, and collections – In small distributors (< $5 million in sales) field sales expense was often I ll di t ib t (< $5 illi i l ) fi ld l ft over 40% of generated gross margin As margin pressures increased, along with firm size, the roles began shifting from generalists to specialists roles began shifting from generalists to specialists – The key question is, “Were these incremental costs simply added on or were they a reallocation of total selling costs?” 5
Step Two: Decide Who Is Responsible for Revenue Growth? Responsible for Revenue Growth? Johnny Unitas Lost Super Bowl III Before the model broke this was clearly the sovereign ground of the Before the model broke this was clearly the sovereign ground of the field sales rep and poor performance by an individual resulted in replacement – They sold the services of an undifferentiated business where they made the only significant difference to the customer Today it is about breaking the cycle of self-directed sales reps who kill whatever they can find and then you have to service it at whatever cost is required t i i d It is now about the company taking responsibility for business development and using the sales force as an offensive weapon to gain share i h – Companies need a clear sweet spot value proposition – Tools are provided to the sales force – The sales force is aligned to specific missions The sales force is aligned to specific missions 6
The Beginning Of The Profession S Source: Birth of a Salesman, Bi th f S l Harvard University Press, 2004, Walter Friedman Ford Motor Company Sales Training on “Model T Training on Model T Specialist,” 1925 The key takeaway is: y y “What is your process and how do you model it? 7
Danger: This is an economic and market analysis process that requires discipline and discontinuous adoption IRCG Best Practices Model 50.0% % 40.0% 40.0% This data is from a group of 30.0% Growth h distributors in distributors in 2008 right before 20.0% 20.0% the financial 10.0% crisis. The idea evenue is to examine the 0.0% -0.5% -10.0% -5.0% 0.0% 5.0% 10.0% firms in the top -10.0% right and see if -20 0% 20.0% they are just they are just Re -20.0% 20 0% lucky or if they -30.0% are doing things differently than -40.0% -40.0% the others -50.0% -12.0% ROS 2.4% ROS 12.0% 8
Territory Design Economics 2006 US electrical distributor sample p Source: NAED Par Reports & IRCG data This is how you find the money for specialists 50.0% 50.0% 45.0% 40.0% GP$) 35.0% 35.0% Burden (W2/G Median: 30.0% Optimum: 15.6%, $3M 8.5%%, $8M 25.0% 20.0% Cost B 15.0% 10.0% 5.0% 0.0% $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 Territory Size Basic Idea: Taking low-value activities away from sales reps lets them cover a larger set of customers so perhaps you need fewer reps 9
Step Three: Determine What Your Customers Really Want Customers Really Want Segment #1 g You spend p more money where it really Critical Critical matters and matters and $$ Needs fund it by $$$$ Critical spending $$ Needs less where it doesn’t matter S Segment #2 t #2 If we don’t understand our segments we spend lots of money but still miss the mark Understanding segments allows us to tailor our investment (think field sales time) for maximum effect 10
Team Selling Example In the electronic components distribution industry sales/sales rep went from $1.2M/yr to $4.8M/yr between 1982 and 1992 as they adopted this specialist model (Source: NEDA Par Reports) Assigned FSR FSR Demand creation ($70K/yr) Acct ISR Demand fulfillment ($45K/yr) House Pod CSR Transaction support ($30K/yr) Acct ISR Demand fulfillment ($45K/yr) Assigned Assigned FSR FSR Demand creation ($70K/yr) Acct Specialization increases productivity (e.g. ROI from training, recruiting, automation) 11
Generalists To Specialists Why doesn’t your Doctor do the Medicare forms? Easy to manage R Reps own all ll relationship equity Inefficient and Inefficient and expensive Reps must be jack of all jack-of-all- trades Hard to 4 X $130K = $520K 1 X $100K segment 1 X $130K 1 X $130K customers = $330K 1 X $60K Can’t Pulling this off means 1 X $40K implement a re-designing strategy t t everyone’s roles 12
Another Example Of A Segmented Sales Structure Sales Structure Central Call Customer Customer House House C Center t Service Reps Accounts (unassigned) Inside “Prime” Tech Sales Reps Spec Accounts (assigned) Routine orders and info requests Support Outside O t id “Partner” “P ” Sales Reps Accounts (assigned) Floating or Branch Floating or Branch Do the analysis of what the customers want and are willing to pay for, then design the structure so the service outputs that you supply equal the service outputs that they demand 13
Action Plan 1. Start gathering customer information to segment by what they need and are willing to pay for separating demand creation (your investment) from demand fulfillment (what they pay for) 2. Categorize the services that customers want and group them by their economic benefit so you can develop the organization 3. Design a model that uses specialization to improve services provided to targeted customers and lower the recurring costs of selling overall 4. Design appropriate incentive structures so the sales team gets paid to do what you want them to do Session Two 1. Design a sales management process that is aligned with your g g p g y strategy Session Three 2. Develop scorecards to track performance and include some warning indicators to catch any design mistakes early g y g y 14
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