Raking Leaves vs. Annual Planning

Getting those pesky leaves before snowfall.

It’s November. The Midwestern Iowa leaves feature Technicolor rainbows of colors; bright red, deep orange, a thousand shades of yellow. A bit of warmth lingers, but Thanksgiving, December, and the Holiday season make this time of year go by quickly. Two painful realities of the season loom in the distance - yard cleanup and annual planning. 

As I jot down these few words, I feel the approaching pain of a future Sunday afternoon manhandling a rake around the property.  Some pay a neighborhood teenager to handle the raking. But it’s hard to find an $8.00 an hour surrogate for End of Year Planning. Planning needn’t be the dreaded task hanging around the corner. Join me as we remove the pain out of the process.

Start early. Many of us don’t dig into the task of Year End Planning until the last minute. A few of us dread the seemingly gigantic nature of the job so much, the procrastination pushes us into next the year. I know people who move paper clip sorting to the front and center in order to excuse themselves from the dreaded details of planning. 





Break planning into smaller bit-sized (and delegable) pieces. Here are a few bite-sized bits of the annual plan:
• Inside Sales/Customer Service
• Marketing/Events
• Non-Selling Expenses
• Demo/Equipment
• Warehouse/Delivery
• Employee Benefits
• Employee Training 

Think, is there a lead person in the Inside Sales Department who might provide you with a rough plan for improving the level of customer service? Could a delivery driver provide feedback on how logistics might be streamlined? Why guess, why assume the burden of everything? Can your marketing person provide insight (cost and projected dates) on desired events? Delegate the gathering of information.
Your accounting department can provide you with a list of expenses for things like rent, utilities, phones, computer lines, taxes and insurances. Push things a step further, ask for best ideas of escalations for the coming year. While nobody has a totally reliable crystal ball, they can give you strong estimates for the future.

Provide your teams with a common format. Have all cost oriented information provided using the same breakdowns as your monthly financials. Use a spreadsheet which can be easily be combined into a final document. 

Evaluate your team – strengths, weaknesses and areas for improvement. Managers and supervisors with direct reports need to take a physical inventory of our most precious commodity – people. The plan should include: evaluations, planned compensation adjustments, training needs and overall skills rating.

Sales Forecasting is the big kahuna of planning. For distributors developing a solid plan for future sales and gross margin is the most critically important step of planning. We recommend using what we call the Who, What, Why approach to forecasting. Here is a short synopsis:
This plan is specific and manageable throughout the year and requires only a minimum of effort to set in place. Here is a simple breakdown:

1. Salespeople are provided with their customer sales for the previous year broken into product categories.

2. Salespeople review each account (who) and estimate future growth or shrinkage (what) by product category. As they review the numbers they answer the question of why this number will grow or shrink – things like one time projects, new products specified, competitive issues and the customer’s own growth are considered.

3. The numbers are tallied by salesperson and combined into

the final plan.

4. Management reviews and compiles the numbers with their salespeople. Many sales guys prescribe to the old tenant of “Sandbagger or Loser” and submit dismally low projections. This must be addressed on an individual basis. The process allows for coaching, mentoring and managing, but that’s another article.

Providing each salesperson with the same formatted spreadsheet and instructions for compiling the date makes the whole procedure easier on management. And, in our experience, a salesperson with the numbers and accounts already laid out can provide pretty good information in just a couple of hours. 

Final words
Would you invest in a business that had no projections, forecast or operating plan for the coming year? Why then do so many distributors simply glance over the whole concept of building an annual plan? 

If you have a planning process, get started early, involve

others and make yours the best ever. 

If you don’t have a process, allow me to recommend a short easy to follow workbook: The Industrial Distributor Annual Planning Workbook. It’s on Amazon here.

We also offer more personalized assistance and one on one training calls.  Email today and let us put together a winning plan for your team!  

13 times You Should Never Discount

A quick review of the Profit Reports generated by several knowledge-based distributor associations reveals a few undeniable facts:
• Distributors sell thousands of SKUs
• Distributors sell to thousands of customers
• This equates to millions of customer/product combinations

Another point dwells just below the surface. While it is harder to spot without lining up the reports over long period of time, our research indicates the typical distributor discounts more when times are good than when they are bad.

You would think that margins would go down in tough times and up in good times, but the preliminary results indicate just the opposite. Perhaps times of economic growth cause us to loosen up our grip on pricing mechanisms. Maybe we get just a little sloppy. Or, perhaps our customers rev-up their negotiating strategies. Still, we find ourselves discounting.

As we say here in Iowa, "let’s put some lipstick on this pig."  Our customers don’t think poorly of us because we discount. They have even put a kinder name on the beast – they call it “leveraging the relationship," “customer concessions” or “rollbacks."  You can thank Wal-Mart for that last one.

They reason - their size, industry sector, quantity of purchases, advanced ordering techniques, or plushness of their office carpet somehow justify a price slightly lower than

your norm. In extreme cases, we have discovered situations where customers insisted on discounts because of clerical error. Really, the inside sales person made an error in a one-time quote and the customer insisted on the price for the next 12 months. My guess is, if times were tough, the distributor sales manager would have fought and argued to get the money back, but what the hay-- times are good.

Other times, we discount without the customer’s assistance. In these cases, our purchasing department makes a special buy. Instead of putting the extra margin in our pocket, we get discount drunk – dishing out special deals to everyone who crosses our path. Don’t believe me? Next time copper takes a jump, watch electrical sales guys fight to sell their customers copper wire at last week’s older and lower copper price. That’s a form of wacky discounting that seems to only happen in distributor-land.

I realize these discounting practices have been going on for a very long time. Further, old habits are hard to kick. But join me for just two minutes while we talk about the 13 situations where you should never discount.

1) Never discount to make your quota or goal.
There are salespeople who really do try to end their years with a bang by offering some amazing discounts. This strategy seems to be part of the American lexicon. Just listening to radio or TV for a couple of hours you will most likely hear ads touting end of the year (month or week) discounts from car dealers, appliance stores and carpeting outlets. Remember, these people sell on price. When knowledge-based distributors get sucked into this mentality – they lose. Don’t be tempted to offer up an end of the year deal… ever.

2) Never discount on emergency stock.
Good wholesalers hold onto certain items “just in case." Here’s a quick example. A number of companies in your area use gigantic fuses to protect their plant’s electrical system from catastrophic failure. This almost never happens but you decided to keep a couple of these fuses around as a customer service. It’s emergency stock. When the emergency rolls around, price should not be an object of discussion.

3) Never discount on your exclusive products. 
There are products where you are the exclusive supplier. If you happen to be the only source for the product, why would you offer a discount? It doesn’t make sense.

4) Never discount spare parts.
Really, you already sold the solution. It has provided the customer with years of solid operation and finally something must be repaired. Why would you discount these parts? Providing a special price here really won’t guarantee you future business. It will guarantee you less margin.

5) Never discount a modification to an existing product.
An existing product needs to be modified to work with new equipment. Adding the modification extends the life and the serviceability of the product, discounting is not needed.

6) Never discount weekend or after-hours deliveries.
It’s totally amazing that distributors will go to the trouble of opening their doors for after-hours pickups or weekend deliveries then succumb to a request for a cheaper price. Say no to discount requests here. If the customer really wants a lower price, ask them to wait until Monday. If they won’t wait; you shouldn’t cut your price.

7) Never discount on parts required after troubleshooting.
If you or your distributor specialist help the customer figure out what is wrong with their existing product and helped establish the solution, say no to requests for a discount.

8) Never discount after the fact.
One negotiation ploy purchasing types have learned is the request for a lower price after the product is installed. They will ask nicely and you should respond nicely as well. Sorry, but we cannot do anything about the price now.

9) Never discount on a first time sale.
If your price level is right (and it should be,) this is wrong. We have heard of companies offering a “welcome to our business” discount. Here they unilaterally provide a discount to customers who have placed their first order. In our opinion this sends a message – everything we sell is priced high, so always ask us for a better price.

10) Never discount to someone who is slow pay.
Unfortunately some of our customers are slow to pay. This fact alone most likely justifies a higher price. I ask sales managers repeatedly, why discount?

11) Never discount a safety related product.
We’re not talking about the consumables sold by Safety Distributors here. Instead, think of products which impact workplace safety. Things like machine guarding, particulate monitors and other products. Safety shouldn’t be purchased on price. You shouldn’t sell it on price.

12) Never discount to convince a customer to return,
This one may sound strange, but when you offer discounts to convince an ex-customer to return to the fold, you are in essence sending the message that you are willing to match any price on the planet. It’s a reverse auction on steroids.

13) Never discount without getting something else in return.
When you come to think of it, this really isn’t discounting – it’s called negotiating. When you are absolutely forced to make some type of price concession, get something of equal value in return. Freight, long term commitment, other products which are not discounted or payment terms all can offset a lower price. As you do this, remember whatever you’re given in return must have a value.

We don’t want to discount our time together…
Many people inadvertently discount because they are unsure of where the pricing should be. In the world of wholesale distribution, this puts pricing responsibility on the shoulders of someone who should be concerned about helping the customer create real value.

Salespeople, customer service reps, counter sales folks respond to customer need when pricing levels are systemized and maintained properly. Pricing expert David Bauders of Strategic Pricing Associates recommends that his clients to establish a management-level Pricing Czar. This person bears the responsibility of establishing company price.



We recommend three actions to virtually every client we work with:

1) Build a process around sales activities.
There is no such thing as an informal process. If you lack metrics, coaching points and the ability to train on your process, you need to reevaluate your process.

2) Pricing responsibility belongs in the hands of somebody besides the line sales team.
I am not saying you don’t need the sales team’s input. I also believe in aligning gross margin with sales compensation. But unless there are some rules and some separation, your sales team will give away margin. It’s too prevalent to argue away.

3) Unless you understand the value you provide to customers, you will have a tough time with the first two – Measuring and understanding the value you provide makes you price proof.

Call on us if you want to argue these points. We would love to be proven wrong.

If you are a distributor specialist involved in the pricing process – we would like to interview you for some research we are conducting.

Why Do Salespeople Need an Annual Plan?

I’m a Salesperson, for crying out loud, why do I need an Annual Plan?

Some will do just about anything before planning.
It takes more than just adding it to the top of your "do do" list.

Let me talk directly to my friends who fill the critically important role of Distributor Sales.

First, I consider myself to be a member of your brotherhood.  I know it’s a tough job.  Day after day, you load in to your vehicle, had out to face down angry customers, smart-alecky purchasing guys, and unsavory reps from vendors.  You trudge through rain, sleep, snow and traffic that would wilt the heartiest of letter carriers.  If no one has said it recently, thanks for what you do. 

Salespeople are the backbone of the Distribution Industry.  Now don’t you feel better?  But here comes the part where I explain precisely why you’ve got to make time for something many find distasteful.  Bear with me… I promise it will only take a moment.

Regardless of what you think, Annual Planning isn’t just for the guys up in corner offices.  Management needs to plan for financial ups and downs.  They need to worry about managing cash flow, maintaining the right inventory, measuring staff needs and budgeting for the coming year.  And, no doubt you will be asked to share in the fun.  Most of you will be asked to assist with sales projects.  Some of you will be assigned to being part of annual physical inventories.  A few might even be handed a paint brush as part of an end of effort to spruce up the office.  But there’s more for a salesperson to think about. 

Customers aren’t forever

Reviewing many distributors in a whole lot of industries, we’ve learned customers aren’t forever.  Typically, you can count on losing 10% of your “base” business every year to things like plant closings, mergers and acquisition activity, economic shifts and changing needs.  Simply stated, in order to stay even, you have to grow business by 10 percent.

A good annual plan would include evaluating customers on your list who may be on the decline.  Understanding where this loss will come from will direct your thoughts on call frequency and use of your time.

At the same time, determine which accounts are poised for growth.  Sometimes this has nothing to do with you.  If your customer has an expansion pending, your numbers may improve even without your special efforts.  But, working to increase your presence at a growing account pays larger dividends to your sales number.

Special pricing and supply contracts

Special pricing agreements have grown in importance in distribution.  In some lines of trade (like the Electrical and Automation business) they have literally exploded in use.  We tend to create them and forget them.  An annual plan would include reviewing the agreements for inconsistencies. 

Here’s how it works, a customer indicates they are going to buy hundreds widgets for their new project.  You provide them with a pricing agreement but sales of their new machine never took off.  But, when they buy a single part, they get the special price.  This fact cuts into your commission check and sets the wrong kind of expectation for the future.

A good plan includes candid conversations about raising the price to a more acceptable level.  While this may not be comfortable, we have discovered distributors who present massive price increases (6+ percent) often irritate the customer.  You can always lower the price later if and when their quantities grow. 

Pushing the envelope further, do you have any accounts where a special price agreement might give what one client calls “the new exclusive”?  Formulating special pricing agreements, locks out competitive distributors who handle the same product lines.
Click here for a brief tutorial on special pricing agreements

Personal Positioning with Supply Partners

We all have them; friends and allies who sometimes can make our job a bit easier.  They tip you off to opportunities.  They give you insider information.  They allow you to make more money for yourself and for your company.  And, sometimes they are easy to overlook.

Now is the time to plan a meeting with each of these people to talk about their goals and plans for the next year.  Chances are any manufacturer’s salespeople need extra details to feed back to their headquarters group.  Investing in a planning meeting will strengthen your relationship and create future opportunities.

Planning for information storage and retrieval

A lot has happened in the world of distributor data.  CRM systems spring up everywhere.  New ERP operating systems are being sold daily.  New phone apps, smart phones, tablets and internet availability nearly everywhere make it hard to keep up with things. 

In some instances we sales types have been left with more options, but never a clear cut path to bringing all the data together in the way we can use it.

I recommend spending some time thinking about what customer information you need on a daily basis.   We could do it just about any time, but end of year is a great time to plan and begin your implementation.  What information?  How will you add to it?  Where will you keep it?  What’s important for you versus requested/required by management?

Calculate the Gross Margin potential per call

Plan by understanding the gross margin potential required attain your 2014 goals.  Selling is an emotional endeavor.  We all have our favorite customers.  They appreciate the work we do, they greet us warmly and make the people side of the job pleasant.  But, are they big enough or likely enough to warrant our time? 

I have a spreadsheet used to calculate the gross margin potential for sales calls.  Shoot me an email; I will share it with you.

There’s more but….Lot’s more…

This message might run for another couple thousand words, but nobody would read it.

Let me sign off with a list of topics you need to think about:

·       Sales Skills – What are you doing differently today than five years ago?

·       Product Training – What are your strengths and weaknesses?

·       Specialists – Are you getting the full bang for the buck from the ones you work with?

And my favorite

Vacation, relaxation and play – Work hard, play hard.  Have you pondered loading the gang into the old family trickster and hitting the road for Iowa?  If your kids haven’t seen the sun shining over 13.7 Million acres of corn, they may be missing out.

Don't forget about our planning special running through the end of December.  It's a great time to help yourself and the nerds on your team.
Yeah, you read that right!  

Get Excited, it's Time For...Annual Distributor Planning!

Annual Planning for Distributors

It’s November. The Midwestern Iowa leaves feature Technicolor rainbows of colors; bright red, deep orange, a thousand shades of yellow. A bit of warmth lingers, but Thanksgiving, December, and the Holiday season rapidly approach. Two painful realities of the season loom in the distance - yard cleanup and annual planning.

As I jot down these few words, I feel the approaching pain of a future Sunday afternoon manhandling a rake around the property. Some pay a neighborhood teenager to handle the raking. But it’s hard to find an $8.00 an hour surrogate for End of Year Planning. Planning needn’t be the dreaded task hanging around the corner. Join me as we remove the pain out of the process.

Start early. Many of us don’t dig into the task until the last minute. A few of us dread the seemingly gigantic nature of the job so much, we procrastinate into next the year. I know people who move paper clip sorting to the front and center in order to excuse themselves from the dreaded details of planning.




Break planning into smaller bit-sized (and delegable) pieces. Here are a few bite-sized bits of the annual plan:
• Inside Sales/Customer Service
• Marketing/Events
• Non-Selling Expenses
• Demo/Equipment
• Warehouse/Delivery
• Employee Benefits
• Employee Training

Think, is there a lead person in the Inside Sales Department who might provide you with a rough plan for improving the level of customer service? Could a delivery driver provide feedback on how logistics might be streamlined? Why guess, why assume the burden of everything? Can your marketing person provide insight (cost and projected dates) on desired events? Delegate the gathering of information.
Your accounting department can provide you with a list of expenses for things like rent, utilities, phones, computer lines, taxes and insurances. Push things a step further, ask for best ideas of escalations for the coming year. While nobody has a totally reliable crystal ball, they can give you strong estimates for the future.

Provide your teams with a common format. Have all cost oriented information provided using the same breakdowns as your monthly financials. Use a spreadsheet which can be easily be combined into a final document.

Photo courtesy of
www.keepcalm-o-matic.co.uk

Evaluate your team – strengths, weaknesses and areas for improvement. Managers and supervisors with direct reports need to take a physical inventory of our most precious commodity – people. The plan should include: evaluations, planned compensation adjustments, training needs and overall skills rating.

Sales Forecasting is the big kahuna of planning. For distributors developing a solid plan for future sales and gross margin is the most critically important step of planning. We recommend using what we call the Who, What, Why approach to forecasting. Here is a short synopsis:
This plan is specific and manageable throughout the year and requires only a minimum of effort to set in place. Here is a simple breakdown:

1. Salespeople are provided with their customer sales for the previous year broken into product categories.

2. Salespeople review each account (who) and estimate future growth or shrinkage (what) by product category. As they review the numbers they answer the question of why this number will grow or shrink – things like one time projects, new products specified, competitive issues and the customer’s own growth are considered.

3. The numbers are tallied by salesperson and combined into the final plan.

4. Management reviews and compiles the numbers with their salespeople. Many sales guys prescribe to the old tenant of “Sandbagger or Loser” and submit dismally low projections. This must be addressed on an individual basis. The process allows for coaching, mentoring and managing, but that’s another article.

Providing each salesperson with the same formatted spreadsheet and instructions for compiling the date makes the whole procedure easier on management. And, in our experience, a salesperson with the numbers and accounts already laid out can provide pretty good information in just a couple of hours.

Final words
Would you invest in a business that had no projections, forecast or operating plan for the coming year? Why then do so many distributors simply glance over the whole concept of building an annual plan?

If you have a planning process, get started early, involve others and make yours the best ever.

If you don’t have a process, allow me to recommend a short easy to follow workbook: The Industrial Distributor Annual Planning Workbook. It’s on Amazon here. 

And if you would like to really jump start your planning process, River Heights is offering special phone-based consulting during the month of November and December for only $300. It’s a one hour question and answer period with our “Fearless Leader” and Master Planner, Frank Hurtte. Here’s what you get:
• A copy of Frank’s workbook in printed format
• The workbook delivered in Word format (so you can share with everyone in your team.)
• A collection of distributor friendly planning forms and other documents developed by River Heights Consulting (why reinvent the wheel.)
• An hour long one-on-one coaching session with Frank Hurtte.

Drop us a line if you want more information: info@riverheightsconsulting.com
After all, annual planning is NOT just for Dinosaurs!