As people costs continue to rise, jobs – in which there is no offsetting productivity or value improvement – are replaced by more efficient service options. Old-fashion service is nice, most of just don’t want to pay for it. Live symphony orchestras are, for example, great to listen to, but iPods are winning today.

With good net-profit, per-customer analytics, most distributors are discovering that they have accumulated too many sales reps calling on too many net-profit-losing small accounts. How to serve the small accounts profitably is the tip of an iceberg opportunity.

REP RELATIONSHIP ECONOMICS

The fully-loaded, average cost of an outside sales call for a distributor continues to rise well past $100/call for most distributors. Calculate your average cost per call, then answer these questions:

1. How many calls should a rep make annually on a customer to have a productive relationship?
2. How much margin dollar spend per month and year should a customer have to support the sales service cost and still be net-profitable?
3. How many active accounts currently (and potentially) meet or exceed the minimum margin dollar per year hurdle?
4. How many accounts assigned to reps fall below the hurdle and are likely to remain so?
5. How many outside sales reps do you need to cover all larger, qualifying accounts?
6. Weakest reps typically have the most, losing small accounts and sit on the most upside potential in their few best accounts. What could a best rep with team support do with big sleepers?
7. If you:
   1. Reassigned all of your too-small accounts (from all reps) to a new, service-model division.
   2. Assigned all underperforming biggest accounts to your best reps (more than offsetting the loss of the small accounts).
   3. Transitioned to a net-profit growth incentive system.
   4. And, outplaced your small-account, weak reps….
   5. HOW DO THESE MOVES GENERATE FIVE NEW STREAMS OF PROFIT GROWTH? For the full prescription, read:http://merrifield.com/articles/4_11.asp.

   BEST REPS MUST INCREASE THEIR VALUE WITH SUPPLY-CHAIN BENEFIT SOLUTIONS

   The cost of distributor supplier reps is typically about 5% built into your buying price. Would you prefer 5% lower prices and to pay for the rep on an hourly basis as needed just as you do for professional services? Why should some of your biggest customers feel any different about your reps one day?

   Before this slow-growing, compensation-value mismatch trend creates a problem with a key account, why not embrace the “supply chain solution” trend? Whenever a customer asks us to – “..be a bit more competitive” – counter with a variation of the “Price-shopping Judo” speech:
   “Glad you asked. Why shop just for 1-2% less when we might also be able to co-create much greater, supply-chain-cost dollar savings! IF we can do a quick audit of the buy-sell, inter-business processes that have grown up between us, we’ll find inefficiencies. Neither of us has yet thought of re-tuning and/or re-designing these processes, we may find ways to:

   1. Lower potentially all 11 elements of :”total procurement cost” (TPC)
   2. Improve the uptime economics of those who use, consume or re-sell our products?
   3. Improve the (next-step-in-the-value-chain) customer – satisfaction, retention, penetration and referral – economics.
   4. Lower our “total cost to serve you”. If we can lower our CTS, then we can share those savings with you in the form of a lower price.
   5. Decide to do more total volume together, because the cost of buying elsewhere in the traditional way would be too high.

   Playing a few “good” distributors off one another for immediate, measurable “price savings” while we try to sneak up our margins is a zero-sum, win-lose, activity-cost struggle. We’ve been distracting ourselves from finding and co-creating bigger, win-win, supply chain benefits. When shall we schedule the audit?”

   THE VISION/PLANNING GAP

   How do you get from arms-length, price haggling to delivering and following through on the “Price Judo Speech”?

   1. EDUCATION: Reps will have to get fluent in supply chain concepts:” CTS; TPC; Uptime Economics; Customer Retention”.¹
   2. ACCESS TO VPs OF SUPPLY CHAIN:Managers will have to call on supply-chain counterparts who can:  understand and change buying system economics. Buyers don’t like reducing TPC which is their current job.
   3. SERVICE GUARANTEES: The service team can offer 2 to 5 target accounts per rep unconditionally guaranteed, perfect service and extra-efforts to be more partner-able.
   4. NET-PROFIT AND CTS ANALYTICS AND INCENTIVES: Invent (or more effectively subscribe to) a complete net-profit analytics capability with incentives for net-profit development for customers. Paying on margin dollars misaligns reps with both the company and customers win-win opportunities.
   5. AHA MOMENT: To study this new paradigm start with a demo of Waypoint Analytics’ service and/or attend the “Advanced Profit Management Conference” March 29-30 in AZ. (see below)

   Be the first amongst your competitive peers to embrace sales force changes that meet best-customer’s changing needs and grow your profits five ways! .

   Bruce Merrifield                                                                                   [email protected]