Growing Market Share & PROFITS11 Feb, 2009 By: Tom Callinan imageSource
Growing Market Share & PROFITS
times our consulting firm (Strategy Development) will get a call from a dealer
principal asking for help in adding more sales people. After some
discussion on historical revenue growth, annual equipment revenue, quantity of
sales reps, tenure of the sales team, we find and diagnose (typically) 5
1. Low sales rep productivity (revenue per sales person).
2. High sales rep turnover.
3. The same (choose a number) sales reps producing 70% of the business
today that produced 70% of the business five years ago.
4. Sales management turnover.
5. Low to no equip. revenue growth.
What this dealer principal is really saying is “help me grow my business.”
With the above issues, most of the time adding sales people is the worst
approach to take to accomplish that goal. Here are some areas where you first
want to focus:
1. Get your sales rep turnover down to under 40% and eventually to under
2. Get your sales rep productivity over $500,000.
3. Get more reps productive!
4. Train your sales manager on how to develop his employees.
To accomplish any of these goals you first need to measure them and look at
historical trends to understand the starting point.
say at the beginning of the year you have two groups of reps. Group A is
comprised of four reps with eight or more years of tenure. Group B is comprised
of four reps with less than six months of tenure. Over the year you hire eight
new reps. At year end Group A has the same four reps, now with nine or more
years of tenure. Group B is still comprised of four reps with less than six
months of tenure. Is your turnover 50% or 100%?
The most common answer to this question is 50% with the logic that you still
have the four reps in Group A and only turned over the four reps in Group B.
But you actually turned group B twice. You cannot grow revenue in the copier
business with 100% turnover—those days are gone. So reducing the turnover has
to be your primary goal. What drives turnover? The top four reasons, in no
particular order, are:
• Direct manager
• Challenging job
Income usually falls somewhere between fourth or fifth on the list.
Nevertheless, if income is outside of an acceptable range it can quickly move up
the scale. Many of you were probably business majors and took statistics. Do
you remember adverse selection? If you do not have a compensation program that
is competitive with the marketplace, all you will attract are those individuals
that cannot get a job at a company that does pay market rate. The market is not
the other copier companies in town. The market is anybody hiring sales
professionals. Make certain your compensation plan is market competitive in all
areas: Base salary, commissions and bonuses. You also need to pay reasonable
reimbursement for expenses.
For those of you that think you cannot pay competitive compensation programs,
just go back and calculate out how much gross profit those short term reps
brought in and what you paid them over that period. You’ll quickly determine
that you can afford above market compensation if you have a greater probability
of success with your reps. Read on and we will help you achieve that success.
Cold calling to net new customers 100% of the time violates the
challenging job requirement. It’s brutally challenging in one aspect, but so
is being a roofer. That sales rep you hired didn’t go to college to be a roofer,
and he didn’t go to college to be a full-time prospector, especially in a
mature business with substantial switching costs. (Actually, I started my first
company in 1987 & spent weekends swinging a hammer as a carpenter and roofer to
pay the bills at home while leaving the cash in the business to fund growth, so
I know firsthand how tough it can be!). So, territory design is critical and
the territory needs to have a measurable base of current customers.
I am not suggesting that any sales person should be able to achieve their
quota solely out of your customer base—that is illogical. Nevertheless, I can
almost guarantee that you have sales people that are producing 100% of their
quota simply by upgrading your base of accounts. If you don’t have a sound
approach to tie your quota to the customers you entrust to a sales rep you are
hurting your company.
No sales rep should have a quota of less than $420,000 per year. There are
many reasons for this, including the profitability of your company; we only need
to cover one in this short article. A mid-market rep should earn between 12-14%
of their revenue. This assumes you’re within the “Strategy Development
Financial Model” and realizing 36% equipment gross margin. At $420K in revenue
that range would produce income of $50,400 to $58,600. If a sales rep isn’t
earning above $50,000 annually, I believe they are at high risk; there are too
many other options for them to earn more.
After you have compensation, territory, and quota set you need to have a
quality sales manager that is trained in developing their employees. Here is a
really simple litmus test to determine how your manager is performing: How many
sales employees have they successfully added to your organization over their
tenure as a manager? If they have been a sales manager for three years and
their team sounds like Groups A & B previously mentioned, they are not doing
their job. It may not be their fault as they may have the motivation and desire
but not the training. What I can tell you is, Strategy opens a BTA Sales
Management Workshop with an exercise that has the sales manager completing a
calendar that details out their monthly planned events. We have had over 100
managers through this program in the last year and in almost 100% of the time
their calendar has 2-3 entries: A sales meeting; short 1-on-1 forecast meetings,
and the rest is open for “field time.” They don’t have many planned events yet
it isn’t their fault as often the dealer directs them to “close business,” and
the “sales management training” has actually been sales rep training. Rather
than acting like a coach they are waiting for somebody to hand them the ball.
For greater insight, attend our ITEX class on Growing Market Share & Profits:
The Framework to Increase Sales, held in Las Vegas.