I’m one of those distributor leaders who loves an ‘outlaw’ sales team. They wheel and deal, get on their horses with their six guns and ride off to get that big order for you. They ride back into town with the order, and you head to the saloon to celebrate.
The unfortunate outcome, however, is the orders they bring back are often at margins that make it unprofitable business.
Even so, these rainmaker sales teams remind you of those lovable Western movies like “Butch Cassidy and the Sundance Kid.” You enjoy watching the show, so you just let it go. You get excited about the size of the order, and you hope the next time they will get a little more margin.
But you can do more than hope. With better analytics, your outlaws can keep the positive take-orders behavior while allowing you make some profit. Here are three ways to make it happen:
1. Analyze the sales team’s pricing behavior and compare it to your total business. When I say, “the sales team,” I mean analyze your inside and outside sales teams together. Inside and outside sales teams usually start behaving in pricing unison, and often treat all their customers equally. As a distribution pricing leader, I’ve seen countless sales teams price their biggest accounts at the same margin levels as their smaller accounts. They use the same ‘peanut butter’ pricing approach and give low margins for all accounts, regardless of volume or potential. They often price categories at levels they think are fair, such as all fittings at 25%, wire can’t be more than 10%, and on and on.
These “my customers are my friends” sales teams often feel it’s their duty to give unbelievable hands-on service for the lowest possible prices. It’s also not a coincidence that they often attract customers who feel that you need to be low on every order. It’s tough to maintain a profitable business if you have too many of these sales teams.
2. Build pricing guardrails using analytics. There are pluses and minuses to building pricing floors and strict pricing profiles. In my experience, it’s often not a universal yes-or-no answer, and it varies by the type of pricing you base your business on — cost up or discount down. You may not need hard pricing floors to be successful, but having some pricing guardrails is critical to helping you manage the business. The one gap I see distributors miss consistently is building price profiles and strategy in a vacuum only using their own analytics.
Often the key missing analytical ingredient is a customer’s potential. For example, if you have a customer with whom you have a 15% share, you may need to adjust to a more aggressive price profile. Conversely, if you have a small customer with whom you have a 75% share, you may be in position to get paid more for the great services you deliver. To get by customer share and potential, you often need to get help from outside services.
3. Share your tracking, analytics and pricing strategy with the business. In my last role as a pricing leader, we built our strategy using advanced analytics where we looked at customer level pricing, team level pricing, and brought in outside analytics help to understand a customer’s potential. Then we crafted a strategic plan, met with sales leadership, and set up a complete rollout schedule. It was complicated and intense work. If you want to learn more, check out our MDM Analytics Summit that will give you some step-by-step approaches to help you build a pricing strategy that works for your business.
After setting the rollout plan, we went directly to each sales team and shared the complete details, desired margin levels, guardrails and the entire plan. We then rolled the training out and monitored it every day.
It was no surprise that the “my customers are my best friends” sales teams were not happy, and it got interesting. There was a sales team that I will call “Derek and Linda” who were very unhappy with the approach. They told us it was unfair for their customers, they would lose orders, and that the pricing team consisted of a bunch of idiots who they were immediately taking off their Christmas card lists.
Nonetheless, our leadership team chose to institute some hard pricing floors with the program and set the lowest In Stock floor at 10.0 GM%. If you wrote an order below that level, your manager had to override the system. It wasn’t a shock that on the first day the new floors went into effect all of Derek and Linda’s orders were at exactly 10.1%.
We stuck to our plan, and had daily follow-up calls with this team. Over time, we helped them solve issues on first cost and competitiveness. The entire time we kept raising the floors and expectations. At the end of six months, we were able to raise their margins up 5% and sales kept growing. The team was paid a flat percentage of Gross Margin dollars and got some great bonus checks.
It never was easy, and this is the part of the story where you might think that I’ll write that we all hugged, sung songs at the campfire and became best friends.
That didn’t happen. The “Derek and Linda” team continued to say it was unfair for their customers. They didn’t appreciate the experience at all. I doubt I will ever get back on the Christmas card list.
The outcome, however, was worth it. In the end we all won. Our B2B business got paid more for the services we offered, and we made the business more profitable. We were able to invest those additional profits back into the business, reward our associates and grow.
We all need our outlaw sales teams to bring in business. You can help them to be more successful by building a robust analytical strategy that incorporates a customer’s potential spend. This will help you build a profitability strategy that brings back more orders at better profit levels.
Then you can really enjoy heading off to the saloon to celebrate.
As always, we value your feedback. Feel free to comment below or contact me at [email protected]