What Now? New Approaches to Profit in Business28 Apr, 2016 By: Tom Callinan, Strategy Development
Over the last few years, many dealers have been doing quite well, growing revenue and profits despite an industry that is shrinking. So how do successful dealers do it? They have a well-developed business plan, a solid team in place, and they execute well. There are also some tailwinds helping out the industry, and the dealer community specifically.
There has been a significant migration to color over the last decade, providing the benefit of both a higher price for equipment as well as higher per page revenue. The price difference between color and black devices has shrunk to nothing and the migration to color prints has about hit saturation, meaning there isn’t much left in the shift from black to color moving forward. At the same time, many of the direct sales operations performed sub-par, and dealers were able to switch their customers. Now we are left with pure shrinkage. Black and color images are coming down in price—meaning lower revenue per page for the dealer—and there are fewer units being sold each year, at a lower price per unit.
I see a lot of attempts for change. Dealers have tried their hand at MPS, and now MNS. They have expanded into production print and are looking at the most recent trend, 3D printing. They’ve entered the telephony space, FM and toner sales. But if we’re honest, many if not most of those entries into new business or product extensions have failed. Why is that?
Let’s put aside the lack of real planning and focus on what I view as the primary area dealers’ are going to struggle with: The Sales Model is broken.
Most dealers are still utilizing a sales model that was never optimized to begin with. They focus on the absolute wrong metrics; they don’t utilize their sales management team correctly, and they send the wrong message to their sales team.
The best thing that ever happened to the copier business is The Lease. Whoever came up with the idea of leasing copiers should be viewed as a genius. If not for the lease, many people would be buying copiers over the Internet today as prices are certainly Internet friendly. But those customers don’t know how to unhook themselves from the lease, so the outside sales professional is still the best method to sell copiers.
As an aside, one new approach I see many dealers taking today is the “re-fi.” They are “releasing” the equipment and extending the lease out, leaving the equipment in place. That is a disaster! Over the last two years, color devices have extended their life in field from 32 months to 42 months, now equal to black devices. The reason is that the color image price has dropped so much that the “upgrade” isn’t financially feasible at the shorter period any longer. So every dealer realizes lower revenue simply due to the fact that they are refreshing their base less frequently. With the re-fi you do recognize revenue, albeit lower then selling a new device (I do realize at a higher margin) but you are also lowering the payment—setting a new, and lower benchmark for the upgrade in the future, and you are educating the consumer that copiers can now legitimately stay in place for seven or eight years.
Logically, I believe that when it comes time to refresh these refinanced deals, the customer will be asking for a cash price. Think about it, if you were paying $150 on a lease—and as a business that isn’t a lot of money to you—wouldn’t you ask the question “what does it cost to buy”? And since they have a $1 out lease now, they don’t need any leasing knowledge to arrive at that question. Best case, they lease the new device but aren’t going back to $250/month, and will expect the new device to be around their current payment of $150/month. That light at the end of the refinance tunnel is definitely a train.
The Sales Model
Now back to the sales model. I see intelligent entrepreneurs not thinking about their given approach. Why send a sales person out cold calling, knocking randomly on doors? It isn’t to determine who buys the copier because you know who buys it, right? Give me a company size and tell me the industry and I’ll tell you with 85% accuracy the title you should be talking to, and in minutes I’ll give you their name and email address. And if you want to know how much that company values technology, look at their vertical market, size, and website. When using data, we know the “average” rep in our industry sells 36 devices a year. How many companies do you need to call on to sell 36 devices? How about 72 devices? They aren’t calling on the 2,000 businesses in their “territory,” and frankly, you don’t want them doing that anyway.
Now let’s look at metrics. Most dealers I speak to want to track phone calls. I’d argue that phone calls were never a good metric and that they matter even less today since email is the most assured approach to get somebody’s attention. Do you answer your phone when the caller ID suggests it’s likely a salesperson? Do you listen to your voice mails from sales people? If you did listen to that voice mail would you take your time to call them back?
Clearly profit and revenue matter the most. Revenue=prospects*close ratio* average transaction size. You can increase your average transaction size if you were successful with MNS, MPS, document management, and production devices. But to achieve that success you need to be successful in your core market of copiers, and you need a new sales model to achieve that success. Given the aforementioned algorithm, prospects are the most important metric after profit and revenue. Grow your prospects by 50% over the next year and you’ll do 50% more business without changing either of the other two variables.
I realize that your measurement of calls is your proxy for prospects but there is very little correlation. Moreover, since you want more prospects, why not make that your primary metric? It was mine when I led sales organizations. What can come before prospects? The discovery meeting. Since we know you need to do some type of discovery to grow your prospects, why not make the discovery meeting a primary metric? it would be my third most important metric after revenue and prospects. Meetings do have broad definition, so specify a true discovery meeting(s) with the correct level person at the prospective company, etc. If you meet with the correct level and do a good discovery, you’ll increase your prospect base. It’s that simple.
So why can’t most copier dealerships make the transition to correct territory design (a subject I’ve written extensively about) and the correct metrics? One reason is that they put too much emphasis on short-term results. They are more tactical then strategic. A second reason is that they are rationalizing their past success; success that occurred in a completely different industry environment. They point to their highly successful team members and say, “That’s how they did it.” Thus my first thought would be, “is that true or did those successful reps simply benefit from longevity and an environment of high turnover where accounts were reassigned to them because it was time for an upgrade?” Even if those successful sales professionals did open all of the accounts themselves, my next question to the owner is, “so what proportion of all of the reps you’ve hired do they represent?” I’d guess less than 5%, maybe far less. Is that an acceptable success to failure ratio for you? Not for me.
Next comes the correct management approach to your sales process. If a manager is focused on “closing the month,” do they do themselves a disservice? I believe “Yes.” It’s critical to bring in every sale for every month but managers should be focused on building pipeline and building the skill set of each team member in this critical skill process. They need to spend time on correct business development, not calls. Can their team members get a real business discussion with an Owner, CFO, Director of IT, or are they simply asking when a lease is up? Can they conduct a real discovery meeting that results in a study because they were able to quantify and solve a business issue or are they trying to “save money” on a $250 per month payment when the company is spending $1,000,000 a month in payroll? Managers need to know when to change focus.
Finally, are the business owner and senior management giving the correct direction? Are they focused on the metrics that grow the business or are they actually the main cause of the short-term focus that permeates their sales force? Think about these thought-provoking concepts, which I hope will help you propel your business to achieve more success.
Tom Callinan is Principal of Strategy Development, Inc., where he has been consulting on sales strategy and management while training sales forces in large and mid-market companies. Tom graduated with high honors from The University of Pennsylvania, Wharton School of Business. Visit www.strategydevelopment.com .