Manufacturer/Distributor Joint Marketing Plans

Lately, Manufacturer and Distributor Joint Marketing Plans have been on my mind. This time of year I generally take a lot of calls from distributors and their supply partners on the topic. Allow me to share a few random thoughts.

There are two varieties of plans which seem to go by the same name. Let’s look at both of types:


Rebates designed to drive distributor behavior and reward performance.
These plans typically create an incentive which comes as a rebate based on the distributor following some guideline. For example, if the distributor carries all of the manufacturer’s products, they get a bigger rebate than the wholesaler who simply cherry-picks the best of the supplier’s product line. Other versions of this type of plan incent distributors for having a specialist, properly trained staff, the right level of demo equipment or the proper inventory. I like these plans as they drive the behaviors and incent the distributor for being more than just a logistics arm for the supplier.

Another common example is the growth incentive; grow your business by 5, 10, 20 or some other targeted percent and receive a fat check at the end of the year for your efforts. While this type of program sounds good on paper, I have reservations about using them. Here is why. Distributors have grown to depend on rebates. In the electrical industry, for instance, rebates account for something like 50 percent of the wholesaler’s bottom line. While everyone aims for maximum growth, there will be years when market conditions make substantial growth nearly impossible; just when the distributor needs the money the most, it goes away. The same holds true for the lucky wholesaler who enjoys a major project; there's a large temporary bump in business followed by a normal year. Year-over-year growth looks dismal because the pervious year was off the charts!  For more information read THIS ARTICLE. 

Non-rebate driven marketing plans
The variety of non-rebate marketing plans run the gamut of great to godawful bad. Some are just plain worn out. In the next few minutes we will rank them from mediocre to great. Before we do, allow me to say this. I believe the best joint marketing plans are customized to align the specific needs of the manufacturer and the distributor. Customized plans always end up better than plans that are laid down in a one-size-fits-all cookie cutter approach. Some very progressive supply partners have even developed departments whose main role is to interact with their distributors’ marketing teams and push the envelope forward.

Listed from “Just OK” to “Frank’s Favorite”:

10. Co-op Dollars for supplier-only logoed merchandise -
Wearing supplier-branded shirts and jackets is cool, but I have to wonder when the only option is something with just the supplier’s logo. Since there is nothing identifying the distributor, their use in “joint marketing” is kind of iffy. If you are a manufacturer, I would reconsider this as a plan. 

9. Co-op Dollars for manufacturer-distributor joint logoed merchandise – 
Sticking with the subject of shirts, jackets and other apparel, I feel this makes for a better option for employees. Since our industry flipped from business suits to casual back in the 1990s, jointly marketed clothing has become a big hit. I do believe there is value in providing this to distributor employees. Perhaps there’s even some marketing value as customers see the supplier and distributor logo side by side. Providing this to customers as a reward for loyalty or as a premium for attending some distributor/manufacturer sponsored event makes sense. However, I see the real marketing value of this practice lessening over the next few years.

8. Co-op Dollars for customer events where the supply-partner participates – 
When done right, local trade shows where training is a component are growing in popularity. I believe “Training is the New Marketing” and needs to be expanded at most distributors. I have mixed emotions about some distributor outings. For instance, some of the big picnics, turkey fries and other events probably favor the distributor more than the

manufacturer. Similarly, and don’t shoot me for saying this, some of the gigantic golf outings seem questionable. I like events which are more focused and target specific customers. (And, I hate golf.)


7. Co-op Dollars to cover training events for distributor people –
Trained people sell more. Sellers who understand their supply-partner's overall strategy drive even greater sales. I believe this is one of the better uses of co-op dollars. When the manufacturer foots the bill, they should expect much from the distributor attendees; things like prompt attendance, ready to learn and having lots of good questions. The class needs to be well thought out and truly designed to meet the needs of a distributor.

6. Co-op Dollars for demos and training product purchases –
Trained distributor sellers need demos. Distributors providing customer training (Training is the New Marketing) need professional quality demo equipment; as opposed to a home-made cobbled up pile of parts. Under the heading of “training product purchases,” I see things like large screen TVs, electronic whiteboards, projectors and other tools. These might be tied to the number of students attending training tied to the supplier’s product.

5. Supplier provided newsletters or blog messages – 
Most industries are on their third or fourth generation of such messaging. We’re not talking about the insertion of some old ad or product announcement into a worn out newsletter just to provide filler; with a little effort we can do better than that. Instead, it will take just a bit of tuning to make the information pertinent to the distributor’s geography and customer mix. Further, measuring customer interest via web opens and click-through activity will put you into the modern times.

4. Customer Training with expert trainers provided by the supply-partner – 
Expert trainers provided to add some extra oomph to the distributor’s training, and perhaps used to attract customers who wouldn’t normally attend such an event, are great for uncovering new leads and jump starting the sales process. I like this type of marketing event.

3. Funds for web content to be uploaded onto the distributor’s site – 
Attracting customers to the distributor’s website is good for everybody. Distributors need to post new, relevant and exciting content onto their site about your products. Experts tell us videos are excellent SEO fodder. When distributors feature their own salespeople and specialists in demonstration and troubleshooting videos, customers are impressed.  It also reinforces the notion that these are trusted experts in the field.

2. Highly focused web-based advertising to uncover new customer contacts – 
One very innovative new joint marketing plan involves the use of LinkedIn paid placement of teasers onto the pages of select potential customer contacts in the distributors territory. The distributor and their supply-partner set parameters for geography and titles of contacts to be targeted. The contact sees the teaser and seeks more information. Product data is sent via the manufacturer followed by a well thought out presentation from one of the distributor’s sales teams. I particularly like this because it engages both distributor and their partners to build new business. I expect more advanced digital marketing will be part of our future.

1. Co-funded employees – 
This works especially well with specialists and others who are designated to focus on the supply-partner’s product line. Here, the new distributor and supplier set specific guidelines as to how the new employee will be used to drive sales growth within the distributor’s territory. Things like number of calls, training, reporting structure and other rules of engagement are laid out ahead of the actual hire and goals are set for growth. The distributor and manufacturer see marked increases in activity and sales. This program meets all of our criteria for a great joint marketing plan. We have seen this work well for dozens of our clients and feel this is something which deserves consideration in many instances.

A few final words on Joint Marketing Plans
Joint Marketing Plans should use the power of our supply-partners who generally have greater expertise in pure marketing and the distributor’s innate understanding of their customers. We should also understand most manufacturers have deeper pockets for exploring new technologies. For example, our reference to LinkedIn might be something where the manufacturer has the expertise to determine the best type of teaser to get a strong response. Their (manufacturers) costs of developing such talent is spread over a wider customer base than most distributors.

Joint Marketing Plans work better when customized for the individual distributor. What works in large metropolitan areas doesn’t necessarily work in the cornfields of Iowa.

Salespeople aren’t always great at developing marketing plans. There is a difference between marketing and selling. I know, I have been on the front lines of both.

Finally, I would appreciate hearing your thoughts and perhaps learning about some of the best Joint Plans you have seen.  Feel free to drop me a line here with your thoughts.

We have been thinking a lot about marketing for our kind of distributors and manufacturers.  Here is a little infographic to get your juices flowing.

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Inside Sales – On the Front Line of Customer Interaction

I cannot accurately comment on the “good old days” of

Computers were a bit scarce
when these suits were popular!

distribution; I wonder if anyone truly can.  Despite growing up in the industry and launching my career back when our country’s President was a Peanut Farmer, I don’t have a handle on historical perspective much longer than a few years ago.  A person would have to be wearing blinders; however, to have missed what I feel are the top changes in distribution over the past four decades.  I believe these five things have dramatically changed our industry:

1. Improved shipping logistics from UPS and others – This increased the coverage area for many distributors.
2. Computerization – Believe it or not, distributors didn’t have this in the 1970s.
3. Fax Machines – Customers expected faster response times and started asking for written quotations and confirmations of order dates.    
4. Email –This game changer moved expected response times to near instantaneous.
5. The Internet – Customers can access information from any supplier and often have as good of information at their fingertips as the distributor.

Thinking about these changes in terms of the way customers interact with the distributor, no group has been more affected than Inside Sales.  Extending further, no group has changed in importance more than the inside sales group.  

Back in the day, inside sales was mostly ignored by managers.  They saw inside sales as the launch pad for new outside salespeople as well as the final resting spot for folks who lacked the personality, drive or ambition to make it in outside sales.

Perhaps a leftover from the days gone by or because many distributor managers lack a strong understanding of the precise work done by the department, distributors struggle to provide processes for measuring and improving their inside team.  

Since we are often asked for process improvement ideas in this department, allow me to provide you with 20 quick ideas for establishing activity-oriented management by objective (MBO) bonus programs for specific inside sales work.  As with all MBOs, the plan is to develop skills or habits which become part of the inside department’s sales process.  

MBO Incentive Ideas for Inside Sales 

1. Follow-up on quotations 2-3 days after they are provided to the customer to gather additional feedback.
2. Add-on product sales to at least two orders per day.  These are products which naturally go along with the other things in the customer’s order. 
3. Selling some new product – not specifically an add-on sale.  The inside salesperson shares details on something new and customer specific.
4. Signing up customers for some training event.  I believe every inside salesperson should have a “goal” for the number of customers attending each training event.
5. Update the company CRM system with correct phone, email, title, etc.  What we see in most distributors is abysmal; Inside Salespeople can simply say, “While I have you on the phone, can we make sure your information is correct in our system?”
6. Capture names of other people at an account who might value from your products or services. 
7. Improve pricing strategy by ensuring the customer is in the right price class. 
• Small customers who have received “large account” pricing in the past.
• Misqualified customers, i.e.  End Users who are getting OEM pricing.
• Establishment of SPAs with manufacturers to improve margin when it drops below a specific percentage.
8. Gathering competitive information.
• Which local distributor is stocking which products?
• Who is actively promoting some new technology to customers?
• Who is offering special pricing deals to customers?
9. Capturing incoming freight on special order items.
10. Charging outgoing freight for small orders to small customers.  Strangely, inside salespeople are notorious for waving freight because they see it as a demonstration of customer care.
11. Working through and resolving open orders on a weekly (or more regular) basis.  Verifying open orders serves as a check against customer orders lost in your process. 
12. Proactively calling customers who have not placed an order for 30 days. 
13. Selling only package quantities of items coming in cartons of 10 or less.
14. Selling a product which has been identified as “dead stock”.
15. Entering more than (a specific number) of lines per month.  In some industries, the number is 300, while in other lines of trade, it can be double that number.  However, measuring and setting objectives seems to ramp up productivity. 
16. Scheduling a sales call for the outside salesperson.  This
    one requires visibility and coordination of calendars.  We recommend that anyway.
17. Cross-referencing products for customers to convert to your brand.
18. Participating in select supply-partner online training.
19. Training other team members on a product or technology.
20. Training other team members on a better way to maneuver through the computer system.

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NAW SmartBrief Features Frank's Work for the First Time

This week marked a first for Frank Hurtte and River Heights Consulting.  After 13 years of consulting, speaking, blogging and writing for national trade publications, the National Association of Wholesaler-Distributors (NAW) recognized Frank's work in their SmartBrief publication.  This online publication "filters thousands of sources daily to deliver the most relevant industry news in partnership with more than 180 trade associations, professional societies, nonprofits and corporate entities."  The NAW works with over 30,000 companies.  This is a great honor to also be shared with Rich Vurva of Industrial Supply Magazine.  Click HERE for the full article.

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E-Commerce by the Numbers

Many knowledge-based distributors are seriously considering

the move into e-commerce. A few of the forward-thinking companies have already started their efforts. Along the way, these early adopters have discovered some of the pot-holes in the road to a credible e-commerce platform. The whole “e-commerce thing” is still developing. There are a million (well at least a couple hundred) misconceptions floating around. Based on the situation, we decided to share some numbers.

12,000+ Automation related Google searches per day: Just in the State of Ohio
Why pick on automation? We used automation related terms because less spill over into other hobby or DIY topics was less than what might be seen with electrical, plumbing or other lines of trade. The assumption is simple: those searching for Variable Frequency Drives, Programmable Controllers and other automation equipment are industrially focused and most likely the types of customer contacts knowledge-based distributors serve.

81 Percent of Industrial customers are buying online: River Heights driven customer survey
This number comes from a half dozen surveys we conducted for distributor clients. In follow-up conversations with the customers, we heard a plethora of reasons for buying products online. Our first assumption was customers were buying unusual and hard to find items over the internet because their local distributor did not stock the products. This turned out to be the case in many instances; however, the second most common reason customers purchased online was to speed up the purchasing process. One customer related it took 3-4 days to process an order through their purchasing department but they could circumvent the issue by buying online. Typically, they knew the estimated arrival date the moment they pushed the enter button. Surprisingly to some, price was mentioned as a driver less than 10 percent of the time.

40 Percent of Distributors have minimal or no e-commerce presence: Industry Report 2018
According to a report by Jonathan Bein, the percentage of distributors doing more than 10 percent of their business via e-commerce grew from 34 percent to 41 percent in 2017. Our own research indicates much of this business was driven by “larger” distributors, while the typical sub-$50M distributors stood on the side lines mostly based on the cost and manpower required to build a credible system.

$299/month: Cost of a full-scale Shopify account
We chose Shopify as it was picked by Codeinwp.com as the best webstore setup of 2019. That price sounds fairly reasonable, except for one major issue. Setting up a webstore is like leasing an empty storefront and calling it a distributor branch location. The empty storefront could be used as a shoe store, a cell phone place or a flower stand; it’s nothing until equipment, signs and inventory are added. Once all the equipment, inventory and other goodies are added, there is still no guarantee customers will find your location.

Webstore providers deliver the framework but not the content or the means for attracting customers. Distributor e-commerce web stores need mega content to serve customers and the right kind of content to keep them coming back. Great content, and lots of it, is not easy to come by.

250,000 needed SKUs for the average Knowledge-based Distributor
Obviously, this number is different for every distributor, but since this article is about numbers, let’s do some math. We will look at the average Automation distributor (again selected for convenience):

· Number of Supply-Partners 30 Minimum

· Number of SKUs per Supply-Partner 10,000 Conservative average

This puts the needed number of SKUs at well over the 250,000 previously mentioned. While these numbers don’t represent the products actually sold, they do represent the mass quantity of catalog numbers needed to do a respectable job of covering each of the suppliers catalog.

One of the advantages of extending the catalog numbers into the “long tail” of products available for sale is the ability to attract new potential customers. These customers are unable to find the product through their normal supplier, so they do an internet-based search. Your web store pops up on their Google search and, at the very minimum, you have the opportunity to acquire a new lead. In the best of situations, you sell the customer a non-stock item and place an order with the supplier’s factory.

5 Minutes to create content for each SKU
Good content is hard to find; we are talking pictures, specifications and other needed information. Most distributors find themselves creating content from rough information available through their suppliers. A few hire the work done via companies who specialize in pulling data from the internet and providing it in a rough but more workable format. Either way, somebody must create the content data.

For those launching into the e-commerce business, the idea of creating data is appealing. Hire an extra IT guy and assign them the task and you are done. However, the numbers speak for themselves:

· 250,000 SKUs times 5 minutes per SKU EQUALS 20,833 Man Hours

Clearly, this is a gigantic task and not something that can be accomplished as a hobby.

$250,000 spent Acquiring Content and Still not Done
Talking to distributors around the country, the reports are the same: the cost of acquiring content is costly, very costly. This expense alone puts a damper on the ability of smaller distributors to create a credible webstore on their own.

16 Percent Growth of Online E-commerce Business Predicted: 2018 Report
The e-commerce march continues. Several distributor behemoths publicly announced their online sales have grown faster than the rest of their business. While there is a big difference between folks like Grainger and the average Knowledge-based supplier, distributors simply can’t ignore this phenomenon. We all must grow, if for no other reason than to provide expansion for our supply-partners who depend on us for market share and competitive positioning.

Solutions for “our kind” of distribution
First, many distributor associations have worked together to accelerate the formation of product content. The best work seems to be focused around commodity items, where the need for detailed specifications is not as critical as in the Knowledge-based distribution world. Further, my own observations indicate a good deal of the content has been scrapped from manufacturers’ own data. While this content captured from other sources is better than nothing, there are major flaws I believe could hinder future success.

Second, and in the industrial automation space, a new company, KYKLO, has taken a uniquely different approach. Rather than sell content, they sell a complete solution. Here is what I like about their system:

· The content is created “from scratch” by their own team of engineers. The majority of these people have industry experience and know precisely what is required to attract customers.

This is full of un-normalized
content

· The content is normalized, which is the internet term for standard across all of the products. To get an idea of what “un-normalized” content looks like, open any 1990s catalog produced by distributors. The book looks like a collection of pages from a number of different catalogs. Why? It’s simple, most distributors merely lifted relevant pages from their supply-partners.

· The content is designed for search engines. This means not only is the content there, but it can be found by your customers.

· The cost of content and maintaining the content is spread over the whole of KYKLO’s subscriber base. This brings the cost down to each participating distributor.

· The subscription price means it’s not a sunk cost. If you invest 250,000 dollars on a specially designed website, you are stuck with the cost regardless of what new innovation takes place on the web. Innovation is a never ending thing.

· The temptation to not maintain your website during times of economic downturn is removed. Content needs perpetual maintenance as manufacturers add new revisions and new products while you add new product lines. I believe you need better technologies during recessions. Further, distributors have the tendency to think of internet-based expenses as a one-time deal. There are dozens, perhaps hundreds, of five year old distributor websites. When new, they were cool, a half decade later-- they are beyond obsolete.

· KYKLO must develop and refine their service each year or the distributor can simply pull the plug and move to something else. Further, the CEO of the company readily admits, they will face competition in the future. Competition is good for users of services like these.

The numbers don’t lie
For the past five years, I have recommended that Knowledge-based distributors hold off on launching a webstore. I feel the advice was justified because the cost of moving forward was prohibitively expensive; we at River Heights Consulting believed better investments existed for our client’s money. Additionally, I predicted the costs of entry would come down and they have. But, it’s not about technology or our costs. The real deal is growing customer desire to do business differently, even in our line of trade. Those who hesitate further could find their business migrating to others.


Finally, it’s not a situation of just Building a Webstore
If you are thinking about starting up a webstore and then just sitting back and waiting for the orders to come flowing in, I fear you will be disappointed. The webstore is just the first step in digitization. Distributors must have a strategy for allowing their customers to take a “multi-channel” approach to your business. They may enter an order online, then call with questions or add-ons to the order. They may call with questions today and place the order online tomorrow. Your sales team might use the online platform to build a professional quote. Inside sales might steer a customer to the website to answer technical questions or grab suggested “tag along” sales.

It takes time to build a strategy and the time to start is now.









































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Santa on eCommerce

Gathering, contrasting and benchmarking information from a variety of sources drives clarity of thought almost as well as Santa’s famous “On Dancer, On Dasher and On Prancer” line drives a team of eight tiny reindeer. One big part of my role as a distribution consultant comes via interviews with wholesalers across a wide range of geographies and industry segments. Over the past year, I have interviewed leaders in the field from Asia to Alabama, from New Orleans to New Brunswick and all points between. I gathered some pretty amazing insights. But, none of these compared with what I learned from the guy who runs what is potentially the largest distributor on the planet and certainly the leading business of any kind north of the Arctic Circle, North Pole Industries Founder and CEO, Santa Claus.

After at least a dozen phone calls and emails, my assistant, Jenny, was finally able to pull some strings and arrange for a rare face-to-face interview down at the local mall. It seems Mr. Claus is a hands on sort of guy and likes to spend time interacting directly with his customer base and we caught him just before one of his grueling shifts in what he calls “The Santa Seat”.

After exchanging a few niceties, mostly touching on my naughty behavior back in 1962 and the time my little brother ate the reindeer treats, our conversation took a serious bend. As we went, I took copious notes and thought I would do my best to share them with you.

Me: Mr. Claus, what do you feel is the biggest technology tool applied to your business today?

SC: First, call me Santa, most do and I like the personal side of our business. As you can see by the long line of kids waiting to share their thoughts with me, I devote a lot of time to whole “personal touch” part of the business. But to answer your question, a few years ago I was big on CRM systems. Seems like we talked about that one and, some 3 years later, I am happy report it’s going very well. So let me share my latest “hot button” of technology. I am jolly on eCommerce and Digitalization.

Me: eCommerce and Digitalization? Santa, this doesn’t compute. You mean you’re taking North Pole down the Amazon trail?

SC: Frank, think of this... According to the latest data, there are something just north of 526,000,000 Christian kids under the age of 14 in the world who celebrate Christmas on December 25th. While we have a crack team of Elves willing to work for, well…. Cookies and Cocoa, the sheer numbers have grown overwhelming. Even the guys at the North Pole mail station are grumbling about the pile of letters. Think about a half billion letters; we’re talking 31 million pounds of paper. We had to do something and it seemed like digital was the way to go.

Me: Santa you mean kids aren’t writing you letters with requests for toys?

SC: Creeping Candy Cane, Frank. Where have you been? Kids are sending us emails by the gazillions. Lots of tots just jumping into first grade are looking for a better way. They want to know more about the dolly and trains before they arrive. These kids are might be little, but they sure know how to manipulate a mouse.

Me: So Santa, you’re talking about a North Pole “webstore”?

SC: You bet. These kiddies can search for electric trains, then drill down to the train of their choice, I like HO-HO-HO scale but that’s another story. Using their parent’s computer, the find exactly the toy they want; no pouting because they wanted Thomas the Train and got a Lionel like you had as a kid.

Me: So you’re talking about a massive magical webstore that only kids can find?

SC: You’re starting to get the picture. We will be launching it full time next year. But, there are a few problems. For one, getting the right product content is like a Grinch story unto itself.

Me: Content? You mean pictures and details on the toy? And Grinch, how did he get into this conversation?

SC: Think about this. One of my Elves told me there were over 25,000 different kinds of Barbie dolls in existence. For you the difference between a “Total Hair Barbie” and “The Look Barbie” are miniscule, but for some little girl, it could mean a Great Christmas or a great big disappointment. That’s just for the girls. Boys have their own little nuances.

This means North Pole Industries must create perfect content on each of these products. No magic here, each number is hand entered by a specially trained Elf. It takes more than five minutes to enter the information. With all the breaks the Elves get, we’re talking about one and a half Elf-years to enter the Barbie dolls into the system. It’s enough to make Santa give up on the whole idea and go back to the letter thing, but…

Me: Gee, five minutes per “SKU” or whatever you call each of these Barbie variations. Can’t you just get information from the manufacturer?

SC: Nope. Wish we could. They’ve got their own problems and helping North Pole Industries isn’t exactly high on their list. We tried using a service that captured data from other websites and formatted it for use in our magical webstore, but quite frankly, Frank… Ho, Ho, Ho… I couldn’t help myself, it wasn’t very magical.

Me: Wow, I had no idea. All this must be pretty expensive. Care to comment?

SC: Well you know, we are on a pretty tight budget. The Elves need more money, Reindeer food is going up and heating a place like ours in the North Pole is pricy. We’re watching the cost pretty closely. The software is affordable, but the cost of the toy pictures and data is killing us. When it works, it will be cool, but along the way it’s really tricky.

Me: Santa, are you worried about the number of new toys coming out every year. Won’t you need to add them to your magic webstore?

SC: You know, I never thought much about that. I’m not sure whether this means you deserve an extra listing in the “nice category” or a double ration of coal this year. There are thousands of new toys every year. That means our work will never be, what your buddy Pat Freilinger calls Done-Done. Holy Snowman, another thing to worry about.

Me: I wish those kids were selecting automation parts instead of toys. I know someone who could help you… It’s a company called KYKLO. I have to think about your problem a little more….

SC: Well Frank, give me a call sometime next year. We’ll chat. My busy season will be over soon. In the meantime, I have a bunch of nice kids eager to talk to me. Tell all your distributor buddies, I’ve been watching them. My guess is there will be no shortage of coal for the buttons on snowmen in their neighborhood.

Me: Thanks for your time Mr. Claus, I mean Santa. It was a pleasure to see you again. Can I have a new harmonica for Christmas?

SC: We’ll see Frankie boy… Ho Ho Ho.















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Did You Miss Frank's Recent Webinar? Here it is!

In case you missed Frank's recent webinar hosted by Industrial Supply Magazine and sponsored by Epicor, here it is!  Let's take a look at the value-added services that distributors offer customers. Distributors often boast of the value-added services they provide customers, but are they reaping the benefits?

And don't forget our HALF PRICE BOOK SPECIAL, just in time for the holidays!  Get The Distributor's Guide to Annual Planning for just $20.  Already own the book?  Well send you a copy of our quick plan for more Gross Margin in 2019.  Get all the details HERE.












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"Can Your Value-Add Beat Amazon?" Frank's Upcoming Webinar

• How often do the services you provide cost you more than money than they bring in?
  
• What determines why one customer access to free services while others are charged?
  
• Do any of your slow pay customers receive free services?

Frank Hurtte answers these and other often controversial questions in the November 14th Webinar hosted by Industrial Supply Magazine and sponsored by Epicor.  Register here to join us!  This event runs from 12:00 pm-1:00 pm Central Time.

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End of Year Planning Questions

Does customer attrition play a part in annual planning?
How many of our customers will go away?

In setting growth plans for the coming year, one should ask, “what percentage of my customers might go away?” Some will go out of business and they stop buying. Others might be folded into a larger organization. If that organization has a relationship with a competitor, your business could be switched to another supplier. Further, some aggressive competitor could make inroads into your account through hard work and/or better relationships, by way of a valuable new service or through jaw dropping price levels. This is hard to face, but it happens. The question is, how much would any of these affect your business?


To the best of my knowledge, the only industry to truly study this phenomenon is the HVAC/R industry. Three years ago, HARDI (Heating, Air Conditioning, and Refrigeration Distributors International) hired Mike Marks and Steve Deist of Indian River Consulting Group to do a study which resulted in meaningful numbers. These results, which shocked the industry, were published in a book titled Myths & Misperceptions: How markets are really made in HVACR. I recommend the book to everyone in the HVACR business and believe the points made apply to distributors in many other lines of trade. Here are a few highlights from their work:

The average small HVACR Contractor switches suppliers at a rate of four (4) percent per year with well over half of the attrition (2.5%) tied to distributor dissatisfaction. Larger, and more professional contractors switch at a rate of 11 percent per year with 7.8% of that tied to distributor dissatisfaction.

Another group, which lumps Commercial, Institutional and Industrial Accounts together, switches business at a rate of 29 percent per year. I believe this higher attrition rate may well be tied to the point that HVACR distributors tend to be geared to better serve contractors than other types of customers. Further, if the institutional portion of the mix is higher, we might assume some of those institutions are government-run organizations who base purchasing practices on price (low bid orders).

For our discussion, there are two points to consider:
1. Even the best of customers leave the fold at a rate of four (4) percent a year with the average nearing double that number.

2. If you are planning to grow your business by 10 percent next year, plan on 15 percent growth. Losing some of your existing customers is probably in the cards.


Retention is the opposite of attrition
Nobody starts off with a plan to lose customers, but things happen. The inside sales team gets stretched a little thin and service wains. The warehouse gets careless and the customer finds themselves facing a box with the wrong parts. Even salespeople, charged with keeping customers, forget to cover all the bases with their customers. Your top suppliers experience delivery issues and you take the brunt of the blame. The list goes on and on.

Done properly, end of year planning allows for contemplation, reflection and plans for correction. Planning allows for an objective view of the current situation and how retention might be improved going into the next year.

Have you reviewed the (hopefully short) list of customers who have stopped buying from you?

·         What happened? 

- Has anybody from management done an exit interview?

- How might the situation have been different? 

- What preventive measure could avoid the problem in the future?

- Are there trends?  Could it be that dealing with "Danny" is toxic to customer health?

- Are there policies or procedures impacting business? 

·         How long did it take for you to realize something was wrong?

-Who in your organization monitors customers for significant drops in business?

·         Not every ex-customer can have facial warts and a bad attitude?

- Did you listen to the customer’s comments without tossing out excuses?

·         Are there existing customers on the cusp of leaving?

- Are there early warning systems which might point to issues?

- How might management assist the team in determining ongoing customer satisfaction?

Two important thoughts for your end of year plan
First, customers are more likely to switch distributors because the incumbent distributor did something wrong than because they were “sold” on the new distributor. This runs contrary to the common “sales think.”

Second, distributor sales teams aren’t great about staying in contact with the other guy’s customer. After a short flurry of activity, which produces little or no results, they engage with existing customers and let the potential customers fall out of their mind. Most of us understand this is a mistake, but it is the reality of the situation.

Progressive distributors have established a plan for a continuing outreach to their competitors’ customers. Is this in your end-of-year plan?

Do you have an end-of-year plan?
We are offering a special deal for distributors who are looking to build a better plan.
We are offering our end of year planning book for half price. Just send along a crisp new twenty dollar bill with your business card stapled to it and we will send you your own copy. Since you are breaking some obscure law by stapling legal currency, we will send you our quick plan for helping you make more Gross Margin in 2019.

Send business card and money to:
River Heights Consulting
226 Hillcrest Avenue
Davenport, IA 52803


What if you already own the book?
We don’t want to keep you out of the loop on great deals. Send us a picture of you holding the book and we will send you a copy of our quick plan for more Gross Margin in 2019, just because Frank’s a nice guy.

Want some help with end of year planning?
Frank is offering end of year plan coaching at a special discount rate. Schedule an hour with Frank on any Saturday morning between now and Christmas for only $100.









**No one named Danny was hurt in the writing of this article.**
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End of Year Planning with Bonus

Few practices drive more value to your business than year-

end planning, yet many distributors fail to put the proper effort into their plans. There are a thousand reasons/excuses ranging everywhere from the perennial, “We’re too busy driving business to spend time planning” to “Planning just doesn’t apply to our business.” A few don’t build strong end-of-year plans because they simply don’t have a workable model to use in their efforts.

End of Year Planning is Important
Once a year, it’s a good thing to pause and consider how things have changed in the past and the impact of those changes in the future. Like the proverbial frog in boiling

water, slow and steady environmental changes are difficult to comprehend in “real time.” A subtle shift here, a little bump in the economy there, add a dash of personnel changes and before you realize it, your business is performing like a 1984 Renault Alliance (the crappiest car ever owned by anyone in our office).

In reality, many distributors do a bit of year end planning for their manufacturers. Most of us have done the quick fill-in-the-blank forms to appease our supply partners. Most of the time, these are done on the fly with little thought and certainly without ongoing review. While this exercise probably does have a modicum of value, the results certainly do not take a holistic view of the entire distributor business.

Planning pulls the entire distributor team together, explores some of the interaction between people, products and projected profits. Further, planning serves as a communications tool within the distributor and with suppliers.

Planning calls for the evaluation of suppliers. Wouldn’t it be nice to understand vendors whose policies impact your business negatively and create a plan for removing friction from the supply chain? How about marketing opportunities? Distributors who create real synergy between their supplier’s marketing team and their own generate more sales, which is the purpose of our existence.

For those looking for a place to start…. “We’ve gotcha Covered”
River Heights Consulting has the Distributor’s Annual Planning Workbook. This provides the user with a comprehensive guide for annual planning. It is designed for use by distributors selling into the manufacturing sector. These include the following categories: Automation, Electrical, Fluid Power, Industrial, Power Transmission, Safety, Pipe Valve and Fittings, and related lines of trade.
Based on years of hands on industry experience and the observation of industry best practices as a consultant, we have designed a working model for annual planning and development. There are sections on sales forecasting, developing inside sales strategies, marketing plans, vendor relations and accounting.


This isn’t heady academic stuff
This is designed for distributors by a real world distributor guy. Everything in the book is straight talk and common sense. No fancy research breakdowns, no flowery word – just action plans you can easily modify to match your business.





The best thing yet.
We are offering the book for half price. Just send along a crisp new twenty dollar bill with your business card stapled to it and we will send you your own copy. And since you are breaking some obscure law by stapling legal currency, we will send you our quick plan for helping you make more Gross Margin in 2019.

Send business card and money to:
River Heights Consulting
226 Hillcrest Avenue
Davenport, IA 52803


What if you already own the book?
We don’t want to keep you out of the loop on great deals. Send us a picture of you holding the book and we will send you a copy of our quick plan for more Gross Margin in 2019, just because Frank’s a nice guy.

Want some help with end of year planning?
Frank is offering end of year plan coaching at a special discount rate. Schedule an hour with Frank on any Saturday morning between now and Christmas for only $100.












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