The term analytics has been thrown around an awful lot lately. Give a consultant two minutes and I can pretty much guarantee, you’ll hear the word used—maybe multiple times. While I am guilty of sometimes throwing the word around, I have rarely seen the term properly defined. So, here it goes…
Using Dictionary.com, we get a definition that looks like this: “Analytics—the science of logical analysis.” Somehow, this doesn’t quite fit the bill. Instead, I have a simpler definition, a distributor-friendly definition: “Analytics—using data to better understand the current situation.”
Simply stated, we are going to begin pulling real-life data and using it to better understand our current situation and to measure the impact of simple changes in our business. In a world where many folks still base decisions on gut feelings and previous experience, we need ways to test our theories against the real world and make changes to improve our business.
The following are points I believe every distributor should add to their toolbox. In many instances, the data is already available. In a few instances, the data must be systematically gathered by new tools. Most of these require technology, the cost of which is dropping daily.
Inventory-related:
1. Inventory items that have not sold in the past 180/365 days. Why is this important? Supply-partners ask you to stock things and they don’t sell. Customers ask your sales people to put something into stock as a service item, but their needs change. Inventory that hasn’t sold for 180 days might be returned. Why not convert it into sellable inventory? Anything that goes more than 365 days without a sale was a mistake compounded by other mistakes. Why not create a plan for trimming this from the books? Next step: Do you have a process for special support stock? Why not begin keeping a record of the customers who asked for the inventory commitment?
2. Inventory for seasonal products. Why is this important? A few of our products are seasonal in nature. Profits are maximized if summer stuff doesn’t languish in stock throughout the fall, winter and spring seasons. Most folks don’t track this inventory as “seasonal.” A few justify the inventory by believing off-season sales will keep the product moving.
3. Calculator for value of dating for special purchases. Why is this important? Supply partners often offer special terms on seasonal products and special promotions. Furthermore, they sometimes heavily discount products in order to move stock out into the field. The question becomes, how do you decide if the “deal” is right for your company? I recommend developing a calculator to determine if, for instance, a 10 percent discount justifies bringing in four months’ worth of product.
4. Sales lost due to not having inventory. Why is this important? Anecdotal stories of losing business because the “other guy has it in stock and we don’t” run throughout our industry. Ironically, very few companies actually track the lost sales associated with these incidents. Why not create a report that provides precisely what parts were missing? The data could be reviewed a few times per year and measures taken to improve inventory levels or determine the real reason for the lost order.
Sales-Related:
5. Customers without sales for 30 days. Why is this important? Spotting customer issues before they become permanent helps retain existing business and increase sales. It is very embarrassing and hard to explain your company’s exceptional care for customers when an organization stops buying and you don’t notice for six months. Why not create a report for customers with significant drops in business at the end of each month?
6. GAP analysis. Why is this important? Distributors handle a dozen or more key supply partners, another dozen customer-specified suppliers and, in the case of most electrical distributors, a hundred or more ancillary vendors. There are more products available than even a gifted seller can remember. Progressive distributors have learned to use computing power to search for missed add-on sales. Here’s my favorite example: Every 24-volt device in a plant automation system requires a power supply, yet many salespeople don’t necessarily worry about or attack the power supply business. Successful distributor selling is a game of incremental lines on the invoice. Analytics can focus your sellers’ attention on picking up additional business from existing customers.
7. Customers with down sales by product group. Why is this important? Following customer trends in product and technology groups is part of the distributor’s research and development effort. Furthermore, it allows a company to identify competitive attacks or worse, identifies sales team neglect.
8. Salespeople with down sales by product group. Why is this important? Some salespeople just don’t connect with a product or technology. Sometimes, it’s because they don’t understand the technology, other times it’s a personality conflict with the local rep tied to the technology. On occasion, sellers back away from entire product lines because they question the quality of the products. This is not always obvious without some analysis, but understanding the situation is critical for long-term success.
9. Sales results of newly-launched products sorted by product, customer. Why is this important? Launching products is important. Understanding early successes allows the distributor sales team to better understand customer needs. Furthermore, tying early success to activities (sales calls, demos, customer lunch and learns) allows the distributor to perfect product launch skills and understand which salespeople are actively pushing the new product to customers.
Sales Process-Related:
10. Opportunity tracking and forecasting. Why is this important? First, because it allows you to track all uncovered business (including business likely to fall to the competition) and sales teams to track opportunities to better understand the market. Additionally, longer-term tracking allows individual salespeople to position themselves for future business. When done right, opportunity tracking leads to forecasting. Forecasting sales into the future allows distributor leadership to make better business decisions.
11. Targeted products by salesperson. Why is this important? Research indicates companies using a well-defined targeted selling approach are more than 40 percent more effective than their counterparts. Tracking a seller’s efforts related to targeted products by account provides many coaching opportunities. For example, what criteria did they use to determine the account would be a good fit for the customer? What is their six-month close rate for each of the targeted accounts? Putting measures and metrics on individual performance helps sales managers to better understand their team’s individual strengths and weaknesses.
12. What percentage of business uses non-system pricing by both the salesperson and inside salesperson? Why is this important? Research conducted by David Bauders and his strategic pricing associates team indicates salespeople often needlessly sacrifice gross margin and profitability without thinking of the consequences. At the same time, sellers sticking to system price tend to lead in gross margin percentages. If you have any kind of pricing process (I recommend you do), track this number for better management.
13. Percentage of business going through special pricing agreements by salesperson/product line. Why is this important? Our industry is experiencing explosive growth in special pricing agreements (SPAs). Many of these require lower margin levels, but offer the distributor protection from cross channel competition. Based on research conducted by River Heights Consulting, many manufacturers measure their distributors’ aggressiveness in the market based on the number of SPAs requested. At the same time, my firm has discovered some pretty good sellers who view the practice as below them; they take pride in their technical prowess and solution-creating approach. However, these are part of the modern landscape and must be monitored.
14. Timeliness of updating special price agreements with customers. Why is this important? There are hundreds of special pricing agreements that have run past their agreed upon timeframe without customer interaction or necessary updates. In more than 70 percent of the situations, the manufacturer passed along a price increase but the distributor did not bother to pass the price increase along to the customer. Lost margin opportunities run rampant, yet sellers seem to just “kick the can down the road” with regard to informing customers and perhaps negotiating a new price. These must be measured throughout the organization and tracked by the salesperson. The sum of money being lost is too big to ignore.
15. Cost of services provided by activity. Why is this important? Distributors have added a cornucopia of value-added services. These services cost money, yet very few distributors have taken the time to analyze their costs. For example, what does it cost your organization to do crib management, job trailers, technical support, troubleshooting or any of the dozens of other services provided? You need to understand these costs and insure that they are applied wisely.
16. Services provided compared to gross margin. Why is this important? Do you have customers with little or no potential use for expensive services your company provides? Does anyone track the cost of the service against the gross margin generated? Here’s a story: I once had a salesperson ask one of our technical resources to spend several days helping a customer. When we explored the situation in detail, we learned the customer only generated $1,000 in gross margin per year. It was definitely a bad deal for our organization, but the salesperson felt it was part of our “service guarantee” that should be extended to everyone. Sounds nice, but it is definitely bad business.
General Business and Management:
17. Comparison of your business against industry Profit Analysis Reports. Why is this important? Association Profit Reports are among the most powerful benchmarking tools available. The raw numbers provided, showing your company against “typical” and “high-performing” distributors, allow you to measure portions of your business against others. Unfortunately, many people fail to do much more than review their report and then go about their business. I believe ongoing measures of your actual numbers throughout the year drive better performance. Progressive chief financial officers have learned to break each month into a measure against peer performance. Strangely, things tend to improve when measured and watched.
18. Number of lines entered by inside salespeople. Why is this important? Are your inside salespeople/customer service reps equally skilled? Do they work at the same level? Many measure their productivity based on dollars generated. However, the real test is the number of lines they enter on a weekly, monthly and annual basis. One of our clients had an inside salesperson who continually griped about being overly busy. We discovered he was entering a whopping 32 lines per week while the person sitting next to him averaged more than 100. Further investigation led us to finding out about his addiction to streaming videos that he surreptitiously viewed on his phone.
19. Daily order flow by lines entered and gross margin. Why is this important? Understanding order flow allows for better coverage on the phones. As we schedule training, vacations and holiday coverage, understanding the historical flow of business can make us more efficient.
20. Segmentation of suppliers. Why is this important? Most folks segment their customers. I believe segmenting and measuring your suppliers makes good sense. We have a supplier evaluation form that allows clients to objectively rank vendors by ease of doing business, programs, freight policies and a dozen other points. Why not invest your time with the best suppliers instead of leaving it to chance?
21. Freight costs by manufacturer. Why is this important? It can be more expensive to have relationships with certain suppliers. Freight is a big part of the equation. We discovered one supply partner who did not provide freight plans when incoming freight added 9 percent to the cost. Obviously, a situation like this impacts gross margin calculations in commissions and other programs. Research led us to a similar supplier with lenient freight allowances but slightly lower gross margin. The decision to switch was a no brainer.
Logistics:
22. Freight recouped on outgoing orders. Why is this important? Why do you give away outgoing freight? Many distributors only provide free freight to their largest and most strategic customers. Others tie freight to order size to get more customer “wallet-share.” This is an opportunity to drive dollars straight to the bottom line.
23. The true cost of your own truck. Why is this important? Do you operate a delivery truck? My guess is about half of your sales team doesn’t understand the cost of running the truck. We see big-box trucks running around the countryside dropping off one-pound packages. Is UPS or your truck cheaper to use to deliver that package? If you really believe your driver can drop a small package off at some industrial facility for under three bucks, I recommend doing another calculation. Customer Relationships and Hiring New Employees:
24. Segmentation of customers. Why is this important? Understanding as much about your customers as possible makes good sense in marketing campaigns. It’s an intrinsic part of building a pricing process. Also, segmentation allows the distributor to understand their strengths in the marketplace. We recommend segmenting by customer type, size and industry served. Since sellers have a tendency to classify everyone as a large, high-potential customer, the segmentation must be periodically updated.
25. Customer satisfaction measured against past performance. Why is this important? We need to know why our customers buy, how they see us in the marketplace and where improvements might be needed. Customer surveys used to be prohibitively expensive, but new technology has driven the cost down. In addition, our customers are used to participating in surveys (think Amazon, travel sites and other personal experiences). Gathering data over several years and comparing it can steer decisions and focus management on new opportunities. Blatant plug: River Heights Consulting has overseen and conducted a number of surveys. The results provided some great insight.
26. Time to ramp up new employees. Why is this important? New research indicates it costs a distributor about $150,000 to get a new salesperson trained, onboarded and contributing to the bottom line. While the study did not cover other functions in our industry, one can only imagine that other positions are pretty pricey as well. Demographic shifts indicate “lifer employees” are becoming a thing of the past. The distributor who builds an onboarding process enjoys a competitive advantage.