First, here are six important thoughts to consider while you wrap your mind around the topic at hand.
Thought One: Over the years, distributors have done a poor job of selecting their customers. In many instances, the customer selects a distributor for reasons mostly unknown to the distributor.
Thought Two: The cost of bringing on a new customer, whether good or bad, is high. Doing business with the wrong customer can subtract from rather than add to the bottom line of a distributor organization.
Thought Three: Experts tell us half of the customers we serve provide negative profit contribution. Our research points to the same thing.
Thought Four: Current sales teams either lack the skills or abilities to properly prospect for new customers.
Thought Five: Research indicates our customers are online and 89% of B2B customers use the internet to find products early in their buying decision.
Thought Six: Industry pontiffs have said for years that it is five times easier to sell more to an existing customer than to identify and develop a new customer. The internet may change this, but research is lacking.
Now let’s invest seven minutes into thinking about the whole concept of finding and nurturing new customers.
Focus on retaining the best customers
Like filling a bucket with a hole in the bottom, efforts expended to find, convert and nurture new customers are a waste if significant existing customers are lost in the process. This harkens back to the “half of our customers are a profit drain” statement. Sadly, many distributors have no data-driven idea as to which customers fall into this category.
Gross margin and business volume appear to be the only factors considered. However, these metrics do not weigh order size, delivery cost, number of returns, credit risk or the involvement of sales and support resources like specialists and/or applications engineers.
Back in the 1990s, the industry was abuzz with talk of activity-based costing (ABC). ABC concepts involve tying costs to serve customers and determining the profitability of each account. When my company went through the exercise in the mid-90s, we faced surprises. Loyal customers who provided us with awesome volume, because of their actions and difficulty to serve, returned little or no profit. A few minor customers were major profit contributors. We were surprised, made changes, had frank conversations with a select group of customers and then moved ahead with a new outlook. We also decided to run ABC calculations every couple of years to continue to monitor the changes. Now more than ever, this data is important to understanding where to focus attention.
High-profit generators need to receive extra attention. This would include customer focus groups, management-to-management meetings and voice-of-customer surveys. The message is simple: Keep the good ones who are already buying from you and understand how the unprofitable ones might be converted from having a negative impact to having a positive impact.
Sell more to existing customers
A clarification of terms may be in order. When it comes to distributors, we conduct nearly all of our business with organizations. We call them customers. Within each customer account, there is a set of individuals—customer contacts. To achieve maximum sales, sellers must penetrate every buying influence (contact) within the account. While the concept sounds easy, experience dictates this is rarely the case.
A large end user may have dozens of potential buying influences/contacts—the same applies to contractors and many other customer types. Salespeople focus on the major buying influences but often fall short of touching the occasional buyer or “the guy who likes someone else.”
Stop business from leaking out of your bucket
To understand which customers are profitable, use analytics. Reports from across the country indicate companies like Allied Electronics are currently enjoying record business levels driven by two pandemic-related behaviors. First, customers are “ditching/pitching” their catalog collection and purchasing products online. Second, traditional distributors are having difficulty adding long-tail products to their online offerings.
When customers search their preferred distributor’s webstore for a product and cannot find what they need, Allied or others who specialize in offering a broader array of products enter the equation. That’s the bad news. The good news is that customers continue to prefer the service and support of their local distributor. Regularly run a product gap analysis to avoid losing easy business. Identify the purchase deficiency and act at the sales level.
Make sure customers can find you
Early on we said customers select a distributor instead of the reverse. If you do not have a webstore, here are three things to contemplate:
- 89% of B2B buyers start their purchasing process online. If you’re not online, you will miss new sales and the acquisition of new customers.
- 50% of buyers today are millennials. By 2025, the percentage will grow to 75%. Millennials are “digital natives” in that they feel more comfortable shopping on the internet than they do making purchases through traditional methods.
- Reports from our supply partners indicate a growing interest in non-traditional channels to market. Furthermore, many manufacturers report greater sales growth via internet-based channels than through brick-and-mortar distribution. We must position ourselves as a credible threat in the webspace as well as the hands-down winner on the local service piece.
Optimize your website
Your webstore should be viewed as both a sales outlet and a source for leads. We will explore this duality of purpose later. Let’s explore how the webstore should operate first.
Your webstore is akin to a branch, and someone must be in charge. This person should manage correspondence with new and existing customers as well as any issues that may arise. This person should have a sales background. Here is a short list of responsibilities for the webstore manager to consider:
- A welcome message should be generated for every new account created whether an order is placed or not. This message should go out within a single working day as time is important.
- Each new account should be evaluated for size and potential business. If a customer fits important criterium like industry type, operation size and location, an exploratory call should be made.
- If, after the call, there is reason to believe the customer could become a strategic account, someone from your organization should further explore the customer’s needs with a personal visit.
- All activities from existing accounts should be passed along to the salesperson assigned to those accounts. This gives customers a chance to meet another person from your organization and more access to your world-famous personal support.
Some accounts are self-serve accounts
Differentiate between customers with a high potential for profitability under the existing sales model and those who will never make a serious contribution unless they function as self-serve customers. Customers in the self-serve account category do not qualify for extra services like expedited delivery, specialist visits or support staff visits without a fee attached. Keep the service costs low for these accounts so they do not drain profit. Since most sellers believe there is no such thing as a poor customer or a bad sale, this can be quite challenging for most sales professionals—including your sales managers—to wrap their heads around.
Target new customers/customer contacts
Distributors historically received their leads via supply partners. Distributors now have to learn how to generate their own leads. One emerging method for doing this is LinkedIn Target Advertising. Distributors can target contacts (i.e., safety managers, project managers, engineering leaders) within their territory with ads offering a reward (i.e., free product, white paper, free training) for providing contact information. Then the distributor should go through a process like the one outlined for leads generated via a website—contact by phone, pre-qualify, visit in-person, gather information and finally nurture the plan.
Create customer intimacy to drive retention
It is not enough to just find customers. Distributors must find ways to keep customers including going to great lengths to keep profitable customers. Here are three points associated with retaining customers:
- Voice-of-the-customer surveys provide great insight. Remember, not all customers generate profit. Survey your top customers regularly and forget the rest. It does not make sense to survey customers with negative contributions.
- Conduct annual management-to-management updates. The top brass of your best accounts can tell you what is happening in their organization today and their organization’s direction for the future. Use these meetings for research and development and to best prepare for your customer’s future.
- Host a customer advisory council. If you have ever served on a distributor advisory council, you probably recognize how the work brought you closer to your supplier. The same works with customer advisory groups. Choose wisely and you will get customer insights worth their weight in copper or gold—depending on the way the market swings.
A parting thought
Having lots of loyal customers is a good thing. Having loyal customers who help you generate a healthy bottom line is a great thing. Possessing the skills to find the right new customers equates to profitable growth. Profit is not a four-letter word.