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.

Knowledge-based Distributors Save Santa

As we start our tale, we find ourselves in the 130 year old cottage which serves as the office of River Heights Consulting.  Frank Hurtte, the organization’s founder, seems totally absorbed in his work.  Glancing around the office, we see several mementos of Hurtte’s long association with Kris Kringle and the Santa Organization.  There’s a picture of Kringle carrying his legendary bag.  The likeness of Kris keeling in front of an ancient manger is prominently displayed near a time worn photo of a much younger Frank seated on Kris’ lap. 

The phone rings; the answer is a seasonal combination of Christmas Cheer and morning routine.  But in a flash, we see Hurtte spew some of his coffee and snap to attention.  The conversation goes like this:

FH:  River Heights Consulting, Frank Hurtte speaking.

Elf:  Frank, this is Elf Alabaster Snowball.  You don’t know me, but I know all about you, including that pouting incident back in 1962.  Kris Kringle and Santa have brought you lots of goodies over the years, like that Red Rider BB Gun way back when you were only 10.  And now we need your help.

FH:  Me?  I’m just a distributor guy.  How can I possibly help Santa and all my friends at the North Pole?

Elf:  It’s a long story, but Santa Enterprises needs some of that special Knowledge-based Distributor magic you are so fond of sharing with others.  Do you think distributors can help save Christmas?

For the next few moments, Elf Alabaster outlined the issues faced with parts shortages, machine down situations and the problems Santa’s kitchen faced with their spinach flavored sugar plums.  As a note taker, Frank listened, occasionally nodded in agreement and took copious notes.  Finally, Elf Alabaster Snowball asked, “Well, with all these issues, do you think distributors can save Christmas?”

Ever the consultant, Hurtte asked a few more poignant questions.  Logistics, delivery times and calculations rolled off his tongue like “On Comet, On Cupid, On Blitzen” out of Kris Kringle while driving the sleigh.  Working through a few issues on getting the right guys to Santa’s North Pole Headquarters and a couple thoughts on working special arrangements on territorial allowances, a plan was set.

River Heights Consulting and Santa Enterprises handpicked the top knowledge-based distributors in all the land.  Selecting on a basis of product knowledge, technical support, maintaining the right inventory, dedication to customer service and status on the naughty or nice list, an even dozen folks were plucked from a wide arrangement variety of wholesale lines of trade.  There were Salespeople, a couple of Product Specialists, a Customer Service Representative and Kris Kringle’s old pal Jimmy from the warehouse.

Because the North Pole is hard to get to by car, Santa Enterprises dispatched a team of reindeer to quickly shuttle each of these folks to the North Pole.  Time was of the essence.  The pressure was high, but this group has handled many a customer emergency.  Downtime, troubleshooting, part shortages, factory “work-arounds” and “making things happen” are part of the distributor skillset.  And while each member of this group could list hundreds of instances where they “saved the day.” none had ever saved such an important day.

Once at the North Pole, they met briefly with Kris and his team.  Everyone provided helpful information to describe their Elfian Department’s issues.  Well, almost everyone.  Elf Pricedrop was conspicuously absent from the meeting.  None of the other Elves said anything, instead they quickly shuttled the distributor team to the problem spots.

Quick as a wink, the group was making phone calls,

adjusting dials and pulling up drawings for alternative products on their iPads.  The hustle and bustle created by the distributor folks made the tap, tap, tap of elfin hammers in the toy shop seem like silence.  Suggestions were made, improvements set and emergency shipments lined up back in distributor warehouses around the country. 

To speed up the process, Santa put their fabled magic delivery team to work; this time bringing parts and pieces from distributors to the North Pole.  And, things started to happen.  Quickly.

With less than a day to go before Christmas, it was looking like Santa Enterprise’s reputation would be saved.  Christmas would go on.  Kris Kringle was once again jolly and joking. 

Because time was so short, Kris Kringle decided to write a very short letter to all the good folks in Distributor Land. 

“Santa can’t say or do enough to express the feeling of gratitude we have for the nice folks at the distributors who helped us save Christmas.  None of you want recognition.  All asked that their names not be shared when I appear on TV.  I and the whole Santa Organization will honor your request.  However, I want you to tell your children and grandchildren that Kris Kringle owes you a debt of gratitude.  And, if they don’t believe the story, just ask them to watch what happens next year when you bring them to see me in the big parade or at the mall.  If they watch closely, they will see me give you a knowing wink and hear me say, Ho, Ho, Ho.” 

Signed Kris Kringle – CEO Santa Enterprises North Pole

Oh because a few of you will ask, here’s the back side on Elf Pricedrop. 

Kris Kringle had one of his “special talks” with Pricedrop.  We think the formerly well-dressed Elf from procurement is starting to learn his lesson about price versus value.  No one is sure if he has changed but everyone likes seeing him work the shovel down at the reindeer barn.

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!

The New Salesman: Thinking Like Your Customer

Trade publications aren't just for decorating the lobby!

Trade Publications


One thing that differentiates great salespeople from the new guys and the “also-rans” is their ability to think like a customer.  I am told that the only real way to gain this type of insight comes via years of customer experience.  I’m not buying it.  We can accelerate the process.  After years of direct customer visits, I cannot think of a single lobby that didn’t have at least one (often a pile) magazine catering to the customer’s industry. 

These trade publications are a wealth of information surrounding the customer’s day to day problems.  Editorial pieces often prominently make the case for solutions to common critical issues - literally begging to be solved.  Other times, published studies point out detailed economic justifications for our products.  Our table is set; the sale is half made.

I recently came across an article so valuable to the economic sale; I forwarded a copy to many of my clients (it’s linked below).   If you happen to be a Sales Manager responsible for new guys selling pumps, drives, or other process related equipment, I recommend you devote time to ensuring your staff can talk intelligently about all of the points mentioned.
This wasn’t intended to be a sales brochure, but I believe it could be one of the most powerful tools in a new salesperson’s arsenal.  The short piece outlines the current state of many plants, the economic value of fixing the problem and everything the new guy needs to jump start the selling process. 

To get you started, here’s how I would approach my customer:

“Mr. Customer, I ran across this article in Plant Engineering.  I know you have many pumps in your plant and wanted to get your feedback on the points they made.  Do you think the numbers they present for cost of ownership are correct?  I know you have a plan and priorities for attacking the economics of your plant.  Can you share a bit about your plan of attack?”

 

Then I would pull out my notebook, shut up and take notes.  No product pitches, no fancy selling techniques – just listen.  Why?  Because only through a solid understanding and the ability to talk about these problems can a distributor salesperson become the provider of key business decisions.

 

Now a question for the new guys:  Was this difficult?  And for the new guy’s manager:  How many of your sales people use trade publications to further their cause?  If not, we need to talk.

 

Here’s the promised link…

Distributor Planning Made Easy.  Check out our Distributors Annual Planning Workbook:
http://tinyurl.com/DistributorAnnualPlanning