Understanding territory coverage economics is one of the critical steps to transition to a leaner, more responsive and efficient sales model.
Mike Marks of Indian River Consulting Group recently made the point that field sales expense, especially for smaller distributors, often exceeds 40 percent of generated gross margin. In that model, the field sales rep is not only selling and managing the relationship, but also handling transactions, expediting, and essentially handling every interaction, no matter how administrative.
The inefficiency in this traditional shotgun approach isn’t sustainable today, Marks argues. In fact, he feels this old model broke in the 1990s, but was supported by the different bubbles over the past decade. That certainly bears out the differentiators we have seen in recent years by high-performance distributors who have offloaded transactional and administrative tasks from their field sales reps to a supporting and tiered team sales approach. These distributors manage the appropriate level of sales effort and service by first segmenting customer groups by their buying behavior and profitability, not by their size alone.
Instead of trying to herd a pack of lone-wolf quarterbacks, management is directing much more specialized field sales activities to support company strategy. In fact, my observations this year are that those distributors who started this process awhile back and also invested in technology, such as good customer relationship management (CRM) tools, have enjoyed growth and deeper customer penetration in this current environment.
I think this is one of the toughest areas distributors face and one of the most critical. Nobody wants to mess with the rainmakers. Much of the work in this transition to a new model involves risk management, commitment and a defined timeframe to accomplish effectively.
Tom Gale is the president of Industrial Market Information Inc. For more information on the product line analysis IMI can provide, please contact IMI or complete an information request form.
