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The Secret to Profit Production: A guide for electrical distributors

April 8, 2013
"Failing to get more on each order is like leaving runners on base during an inning. And you only get so many chances to hit a home run in business."

The baseball season is finally here and your favorite team is busy trying to assemble the right lineup to maximize run production. Different teams take different approaches. For instance, it’s no secret that the New York Yankees look for home run hitters. They have also been absent from the World Series since 2009.  In 2012, The Yanks hit 245 home runs and scored 804 runs. The world champion San Francisco Giants hit only 104 home runs but scored 718 total runs.

That alone should make you think, but regardless of the percentage of runs that home runs produce through two-run, three-run, grand slam or solo homers, overall home runs are responsible for less than 35% of all runs produced. That means most of the time you need to put together a lot of singles and doubles to score.

It’s the same as profit production in your business. You raise your on-base percentage by getting an order. But failing to get more on each order is like leaving runners on base during an inning. And you only get so many chances to hit a home run in business.

An inning is like an order. Once it’s over, you’ve blown the chance to get more items and more gross profit on the order. You left runners on base when you let one go without trying to sell additional items. It’s important because the profit on an order depends on total gross profit dollars exceeding transaction costs to service the order, and gross profit dollars depends on the number of line items.

So, for most of you driving profits out of the park in your business is mostly dependent on walks, singles and doubles and not home runs. In your business, that translates to displacing a competitor’s brand at a major plant, getting more sales of tie-in items on each order, and selling the benefits of procurement cost reduction to major accounts so they will buy more from you versus competitors.

In our last article (EW – March 2013, p. 20), we explained how high line items per order drives gross profit per order. Since transaction costs to service an order are relatively fixed, driving up the gross profit dollars per order is hugely profitable. So why don’t distributors really put effort into increasing line items and quantities per order? Dozens of reasons exist, and most are dependent on changing behavior of your people to change the behavior of your customers. Your employees need to understand that customer interactions are like innings and you need to maximize the production of at-bats during an inning.

Overcoming excuses and driving your profits.Your outside, inside and counter salespeople will typically have dozens of excuses for why they can’t get customers to buy more products on an order, or convert them to your brand. This is just like the challenges that rookie batters have when they’re trying to hit a major-leave curveball or slider. They want fastballs all the time, and that’s not going to happen. They must learn to hit all sorts of different major league pitches to raise their average or they will get sent down to the minor leagues. In baseball, your favorite team will increase its run production when they raise their on-base percentage even five points. In the electrical market, you raise your profits dramatically when you increase your success rate in getting extra items on the order.

You need to swing to get a hit. Your people need to realize that in selling, just like in baseball, you shouldn’t swing at every pitch, because some of them are definitely not hittable. Heck, even when batters choose to swing at a hittable pitch, they miss more than half the time. However, statistically speaking, you miss 100% of the pitches at which you do not swing, so you don’t want to be caught looking at strike three and get called out on strikes, just like a hitter who doesn’t take a hack.

Salespeople don’t like to ask for more items on orders and get a “no,” so they don’t ask a lot of the time. That’s when they get caught looking at pitches that they don’t consider perfect for a “yes.” They will tell you, “I’ll be annoying the customer,” or, “We don’t have the right price on that,” or, “I think they have a blanket with somebody else.” The most irritating excuse is, “They think they’re giving us enough already and are saving some for another distributor.”

If you hear some of these same excuses, what is your task is as a manager of salespeople? You probably already guessed — get your people to not care about rejection. Get them to ask for more on each order, and teach them how to overcome objections. The strategies and tactics to do that fall into the following three major areas.

1. Drive outside sales to get end user and contractor customers to agree to purchase a broad mix of product lines.

  • Create a report that details each customer in rows and product line purchases in columns as a percentage of total. Sort by salesperson and have them review product positions at each customer.
  • Get sales to research competing brands purchased by product category and approximate annual purchases.
  • Note where you are relatively lighter in purchases for each customer and target these for development.
  • Create a target account program and include suppliers to convert users and contractors to using your brand.
  • Push your suppliers to create a “differences” training program for the products you need to penetrate your important accounts most.
  • Plan appropriate strategies such as storeroom management programs to save customers money on transaction costs and inventory costs, demonstrations, sample distribution and factory visits.
  • Track joint calls and progress with each customer.
  • Reward salespeople and suppliers for outstanding performance.

2. Get inside sales and counter personnel to recommend tie-in sale items on every order possible.

  • Measure number of orders, average line items per order and average gross profit per order for each inside and counter salesperson.
  • Create incentives to drive tie-in selling of related items on each order, such as cents per line item above a threshold, like four line items for the order.
  • Double up the incentives for “supplier of the month” promotions and get the supplier to kick in. Promote their products at the counter, in person on sales calls and via web, email, catalog and all other media.               Train counter personnel and inside salespeople on related product purchases. Analyze product purchases for the highest purchase correlation between products on the same order (frequently bought together) and train personnel to always ask for these items as a service to customers, in case they forget critical items.
  • Report the “standings” of inside salespeople and counter personnel on their performance. Put them on teams and reward team performance as well.

3. Customize your marketing mix to each customer with direct marketing techniques. To do this, identify what each customer is not buying but should be because of the natural correlation of products. Then send the right product messages to each customer to broaden the mix. Coordinate marketing with sales efforts.

  • As in #1, measure customer percentage of purchases in each product category by market segment.
  • Decide where you are light and need improvement by customer by product line.
  • Select these customers and run the appropriate direct market promotions to them.
  • Notify outside sales when you send your product messages and arm them with collateral to follow up on sales calls.
  • Notify inside salespeople and counter personnel about the customers to whom you sent these messages.
  • If possible, offer samples and use an offer code for a special premium or price if customers provide their contact information. Then track progress with these customers and report the results of the special offer.
  • Consider using an online marketing engine like to manage your campaigns.

Managing different marketing impressions through multiple media and to different target markets is exhausting. We’ve had clients do one campaign manually and never want to do another. However, you can create powerful, pre-programmed marketing campaigns that launch messages on a predetermined schedule based on your targeting parameters. You can set up a five-impression campaign with conditional message paths based on the nature of a customer’s response. Do it once and walk away to design the next one while all your other campaigns just run themselves. 

These are some very basic strategies and tactics to drive high line-items per order. More exist, but our goal in this article is to get you thinking in the right direction. We know you will think of even more. After you’re done with that, we will be back next month to talk about maximizing gross profit with some unusual but practical pricing strategies. Meanwhile, don’t get caught looking. Get out there and play ball to win.