The Problem with Year-over-Year Growth Compensation for Distributors

Viewed from outer space the Earth looks smoother than a

billiard ball. What’s more according to the experts at Discovery Magazine, the looks are not deceiving. Lumps on billiard balls (diameter 2.25 inches) can be no more than 0.005 inches in height. Applying this theory to our little outpost in the universe the maximum “bump” cannot exceed 17 miles in size. With Mount Everest at 5.5 miles high and the Marianas Trench (the deepest spot in the ocean) at nearly 7 miles deep, Earth is actually twice as smooth as that slick black 8-ball we sometimes shoot for the corner pocket.

What has this to do with year-over-year growth plans? Plenty.  Allow me to explain.

Everyone likes strong dynamic growth. Setting and achieving aggressive goals is a thing of beauty. Applying this philosophy, manufacturers sometimes decide to build incentives into their channel plans. Here’s how it generally works. It’s a pay for performance thing. Grow your business by 20 percent and you receive enhanced gross margin, an end of year rebate or some combination of the two.
On paper the whole thing makes sense. The supplier has done a great deal of market research, product deployment and plans to grow their business by this number, so why not simply push the goal down to their channel. This is where the breakdown occurs.

Remember our comment about the earth being smoother than a billiard ball? From a macro standpoint the statement is true, but try to explain this to the guy standing at the foot of Mount Everest. From that local vantage point, it doesn’t make sense.

Returning to the topic of channel growth and motivation, the supplier has developed a plan designed to move the channel forward, encourage investment (in inventory, people, training demos), drive aggressive activities, and perhaps even displace a competitor who shares “shelf space” at the distributor. When facing this type of situation, the best distributors respond and in the early stages the program works. They are rewarded and further increase their efforts. Everyone wins. Eventually, however, the time plan breaks down. Let’s look at a few reasons why this happens.

Market share increases
As market share increases, gaining new growth becomes increasingly difficult. The distributor has targeted and attacked all of their existing accounts. New applications are found, competitive products converted and the cost of acquiring more business becomes increasingly expensive.

In the best of cases, the manufacturer and the distributor work together to find and open new customers. This involves lead programs, additional prospecting, new levels of missionary work and lots of expensive stuff for both the manufacturer/supplier and distributor. New customers are found. New gains are made, but ultimately the territory microcosm has a breakdown.

Large customers hit a dry spell
For some distributor territories the world revolves around a single super user or very large OEM. For instance, most of us in the Midwest have heard the stories of how the entire Peoria, Illinois market follows the shirttails of Caterpillar.

When heavy equipment sales slip into a global slump, sales of everything drop off significantly in the market. No matter how hot the automotive business is, regardless of the shape of the Semi-con industry and in spite of good times in the food processing world, growth in Peoria falls somewhere between super-tough and impossible.

Similarly, for some distributors OEM sales are the brass ring at the end of the rainbow. These accounts use mass quantities of specific product groups and their usage of that subset of the distributors business often eclipses the purchases of the next four or five customers on the list.  OEM business can be cyclical; however, and during the down it becomes exceedingly difficult to maintain the growth rates for products used in large quantities by that OEM. Replacing the loss business is like explaining to the guy at the bottom of the Marianas Trench the Earth is smoother than a billiard ball. It just doesn’t look that way from his deep perspective.

The local economy fails of your product
Never mind recessions or even the Great Recession. Sometimes the local economy fails for your product. Here’s are a couple of examples. Houston was hit with a massive

hurricane last year. The flooding and water damage, while good for the construction industry, put a halt to the sale of lawn irrigation products. The dry spell created by the very wet spell, lasted for 3-6 months. Distributors selling those products struggled to keep their sales flat for the year, much less drive growth.

Sticking with the tales of Mother Nature, allow me to talk about the Twin Cities of Minnesota during the summer of 2016. The weather only approached 80 degrees twice during the entire summer. It was great for outdoor activities, but anyone in the heating and air-conditioner business will tell the same story. Sales of air-conditioners went swirling down the drain. Any distributor tied to growth that year, failed in a big way.

These downturns are good times to maintain selling pressure.  In my experience, distributor growth programs which breakdown during these times of localized turmoil actually work against the manufacturer. Having ramped up efforts funded with the extra margin, distributors find themselves challenged during the down times. Profitability can be deeply impacted.

To the manufacturer, who definitely sees the impact of major recessions, the local issues look like the Earth from the rear view mirror of Elon Musk’s late model used car in outer space; as smooth as a billiard ball; profits intact. According to unbiased benchmarking provided by a number of distributor associations, the profit margin (not gross margin) for the typical distributor stands somewhere between two and three percent. Because profits are closely tied to gross margin, a drop of just a few points in gross margin (and other incentives) moves the distributor into shaky ground profit-wise. Struggling to keep profits flowing, the distributor either divests themselves of people (70 percent of the distributor budget) or refocuses sales efforts onto higher gross margin lines.

These localized downturns are precisely the right time to take the opposite approach and ramp up sales activities. Why? The distributor has unused resources and, based on gross margin, advantages will continue to push out into the uncharted territory of new customers and new applications. This effort pushes market share. When things change on the local scene, business will ramp to new and greater heights.

If not growth based programs, what?
Like my thoughts on commission as a model for sales compensation, the only thing good about them is they are easy to manage. Again mirroring commission, growth based plans outwardly appear to tie the needs of both parties together; manufacturers need growth and distributors need enhanced profitability. The similarities continue. A mediocre seller in an expanding market receives a fatter commission check regardless of his skills, drive or activities. Conversely, a highly skilled and motivated guy in the wrong territory receives a skinny commission report. Understanding the entire situation requires extra management attention and thus commissions continue.

Each of these quick suggestions involve more effort and expert subjectivity than a vanilla growth plan. However, I believe they will push behavior, open the door for communications and enhance the manufacturer’s overall position. We will call them action-based programs:

1. Creating and reporting on targeted customers and opportunities.
Companies working together to “tag team” specific customers drive results. These require follow-up and effort on both sides, but research indicates organizations who target are 47 percent more effective in reaching their goals.

2. Providing detailed reports of sales calls and other activities at selected accounts.
Not only does this help put a metric on the work done on the manufacturer’s behalf, it allows the local sales team to proactively assist in account conversation and in providing the right backup support.

3. Moving competitive products to non-stock status.
I am not fond of manufacturers using their clout to “cart blanche” forbid distributors from selling competitive products. There are times when having a competitive line keeps the doors open for future conversions. I might be on shaky ground when I say this, but I believe transparency might be important so both manufacturer and distributor understand the situation.

4. Providing timely and meaningful follow-up reports on leads provided.
Leads are important to distributors and expensive for manufacturers. Most don’t realize the real cost of a lead, which often reaches the $150 level. When they turn into business, everyone wins.  Over the years; however, many folks have missed the opportunity by not getting the leads into the right hands and not following up with the prospective customer fast enough. Distributors need to provide feedback as to the quality so the manufacturer can measure the payback of their process for generating leads.

5. Number of accounts for the manufacturer’s productGrowing the user base is important. Each time the distributor sells a supplier’s product to a new customer, they are creating an annuity for the future. In this metric, it’s not about dollars sold but number of customers buying. Grow the customer list and eventually the dollars will flow.

The list provided above is in no way a complete list. Think of it as a starter point. Much depends on the product, market served and other points tied to the relationship. No matter how you slice and dice things, in my mind, growth-based programs need to be revisited.

As always, I am open to questions, discussion and occasionally good old fashioned disagreement.  Drop me a line with your thoughts.

Shingles: Best Left on the Roof

This post may seem a bit astray from my usual musings, but with so many down with a multitude of illnesses this season, I felt I should take a moment to share how my New Year has gone so far.  It ain't pretty.

A few hundred of my closest Facebook friends already know this, but Mr. Distributor Expert Extraordinaire had the shingles. Yep, without warning, without prior notice, that little bit of chicken pox virus that has been in my system since the summer between first and second grade has decided now would be a great time to come back to life. Allow me to give you a four minute play by play of the disease in action.

Let it be known, I like memorable birthdays. I have referenced this before, but old Frank’s birthday falls squarely over the top of National Pie Day. Typically, I skip past the birthday cake, ice cream and candles to have a gigantic slice of pie to celebrate. This year, I skipped the pie; perhaps missing the curative powers of a flaky crust and raisin filling. Shingles took advantage.

Aerial view of LeClaire, IA

Celebrating the day with a friend and neighbor, whose birthday I have celebrated for my entire life, I enjoyed a great night out in scenic LeClaire, Iowa (home of American Pickers) starting at the brewery and walking our party down the road with food, fun, conversation and a selection of grown-up beverages. It was a great night. The next morning was a different story.

I hate to disappoint those who were thinking hangover, but it was a little pain above my right eye. Assuming the pain was tied to winter related dry sinus I applied lots of “ocean spray” and continued by day. The next day, however, I noticed a painful bump under my right eyelid. It felt like a seriously ingrown hair follicle and the pain was persistent. The following day, I had a routine insurance related appointment with my new friend and Nurse Practitioner in our local neighborhood clinic.

Looking over the sore spot and seeing other bumps rising across the nerve path across my forehead, Beverly told me it was more than infection. I had the dreaded shingles. A number of thoughts crossed my mind. Holy cow, how sick would I be? More importantly, how much pain would accompany the disease? Armed with a supply of anti-viral drugs and a healthy dose of prednisone, I braced myself for the worst. What you are about to read is a detail of that journey.

On day two, my forehead began to break out in earnest. A number of liquid filled bumps followed the outline of the nerve that traces from above my right eye across my face to the hairline. The path was clearly visible and the bumps seemed to be growing before my very eyes.

The pain associated with the bumps was tolerable, except when attempting to sleep. As you know with any illness, sleep is imperative. That night as I laid in bed, I could feel the pulsing of my heart through each one of these spots. It was more like a dull throb with occasional flare-ups that were quite painful. I made every effort as humanly possible to not scratch or rub the bumps. During waking hours this was through sheer force of will. At night, it was impossible to control in my sleep.

On day three, the virus spread to my right eye; or at least the eyelid. In a matter of hours my eye went from nearly normal to swollen beyond belief. I looked like Rocky after his fight

That's right, kid...look away.
It's far too hideous for real pictures

with the big Russian dude in Rocky IV; eye puffed out well beyond the socket. The pain was fierce, but the worst part was not being able to open my eye. Reading, watching TV and just going through the motions of daily life brought on headaches. It was decided that I should visit the eye doctor. It was eye opening.

During my visit with my eye doctor, I was told two important points. First, shingles in the eye is serious mojo and can lead to vision loss and several other complications. Second, at that point it looked like I was going to be spared the “in the eye” torment. After a couple of repeat visits, I still don’t have a complete bill of health. There was a tiny amount of stuff in my eye, but it still looks like I dodged the bullet.

Over the following weeks (it has been three as I write this), the bumps have crusted over and are nearly invisible. The eye swelling is ninety percent gone. It appears as though I am through with this bout with the disease. But, I still get plenty of questions. Here are a few examples.

Are you contagious? The answer is only to people who have not had the chicken pox or the chicken pox vaccine. Further, shingles is not as contagious as chicken pox. However, there is a risk to those listed above if they come into contact with the still oozing bumps. Once the bumps have crusted over (day 5 for me), there is no chance of contagion.

You look ok, are you? The short answer is “sort of” because in times of illness, sometimes you feel like your life will forever be stalled at the stage you’re in. I feel better, of course, but not 100%. Unfortunately, others experience nerve pain for months up to a year afterwards.

Why does it seem like so many people are getting shingles? This is again tied to the vaccination. Since the 90s, most children are given a chicken pox vaccination. Most adults don’t come in contact with the virus as much as in the “good old days”. Back then, every contact with a child sporting the virus gave our immune system a little natural “booster shot.” We don’t get it anymore making shingles more prevalent.

Finally, a public service announcement. Get the vaccination. Even if the doctor says you are too young. Insist. You don’t want to be like me. Just saying.  Bring on the hate mail...







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150,000 Reasons Why You Need an On-boarding Program

Research by industry consultant Brent Grover indicates the typical distributor invests over $150,000 before a salesperson generates profit for the company. Here’s an attention grabber, that new guy out there struggling to figure things out is burning through dollars like a forest fire.

A couple of months ago, I hosted a meeting of new distributor salespeople. Their common link; they all had fewer than 18 months experience in the outside role. We asked which of them had any training when they hit the road. Unfortunately, most were introduced to their new job the same way as their bosses: “Here’s the key to the company car, there’s your territory, go forth and sell.” Despite high costs and financial mounting financial pressures, most distributors start new salespeople off without a well thought out onboarding process.

One of the critical points of bringing on any new salesperson comes in setting process expectations. They start their career without truly understanding some of the fundamentals of how you expect to do business in the future. I believe that process is critical to efficient organization. Nothing elaborate, however; every good distributor does need at least a few process points. Let’s explore.

Establish Expectations
First, lay out some financial guidelines. What makes a salesperson successful in your organization? When a salesperson starts off with an expansion territory, they need to know growing their business is job one. But, how much growth equates to success? If a successful salesperson should be handling $2 Million and their new territory generates $500,000, doubling the territory in three years is good, but not necessarily a win for the company.

Lay out growth plans for the territory including the types of accounts, the products you believe are ripe for growing and how the growth will impact their income. Make certain they understand growth greater than the organization is expected and doesn’t necessarily translate into massive profits for the company.

While I don’t believe in micromanagement, expectations should be set on working hours, number of calls made, appointments and timeliness of communication. As strange as this may seem, I continually hear stories of sales managers discovering that their new salesperson has the habit of not starting the day until 9:00 because they like to drop their spouse off at work each morning or sit in line for fancy coffee. Why not nip the issue in the bud by laying out expectations the first day?

Joint calls are an important selling tool as well as an opportunity for the new salesperson to gain valuable on the job product sales training. Many distributors allow new salespeople to go untrained in how to use this resource. I believe expectations should be established around when to use outside resources. Metrics and instructions can easily be defined for joint calls with specialists, key supply partner reps and distributor management.
For example:
• How many calls are expected per month?
• Who is responsible for setting up the call?
• What follow-up might look like?
• How will the calls will be tracked and measured?

We have a multitude of communications options available. Expectations should be set based on the mode of communication used with customers and vendors.
Response times could resemble the following:
• Customer Phone Calls – 4 hours
• Customer Emails – 1 business day
• Inside Support Staff Calls – 2 hours
• Key Supply Partner Calls – 4 hours
• Vendor Calls – 1 business day
• Management Emails – returned on the requested day or an explanation provided immediately

How do you capture customer data? If you are a distributor using a customer relationship management (CRM) program, the new guy should understand the information required and the timeframe for data entry. This includes new customer contacts with accurate names and titles, product interests, calls, etc. For example, contacts from all customers will be added to the CRM record within 2 working days of the meeting. Failure to set measurable guidelines creates sloppy habits which are difficult to change.

Sales managers and their new charges are often frustrated by attempts to monitor their ongoing progress. When an opportunity tracking system is laid out, coaching and mentoring occurs with greater efficiently and regularity. Lay out rules for opportunity tracking. This includes the size and type of uncovered potential and how it is to be recorded. An case might be look like this: anyone who uses over $5,000 of our equipment is recorded into the CRM system along with competitive information, technical issues and the decision maker’s name. This information should also carry an expected time of entry.

Quotations are another stumbling block of many distributor organizations. A savvy sales manager takes the time to define which quotations are handled by the new salesperson, which are handled by inside sales, and which are developed by specialists. Further, setting follow up expectations within your company is important. Our experience indicates that failure to follow up on large quotations often results in missed opportunities. Set a time and responsibility for these quotations.

Establish the Right Behaviors
It’s amazing how many salespeople go into calls without defining a purpose. Early in the customer/salesperson relationship the purpose is sometimes hard to define, but still the call should be more than simply shaking hands.

When salespeople know what questions they should ask before the sales call, they gather more information, listen better and accelerate the relationship. Insist the new salesperson establish a list of customer questions. These might range from the market the customer serves to the companies the customer sees as competition to product preferences to the type of training they need for employees. The answers to these questions need to be recorded and stored away somewhere besides the sales salesperson’s ironclad memory.

Our next point involves the need to remember the answers to ground breaking questions. Salespeople need to take notes during customer visits. For years, I recommended the use of a composition book with pages which are not easily detached. This meant the salesperson always stored customer data in the same place. Today, notes might be taken electronically via phone, tablet, laptop, etc. Insist on a well-defined method for categorizing, storing and maintaining the notes.
When new salespeople hit the street, there is often a tendency to use price as a door opener. While the strategy may produce temporary gains, I believe these gains create long term pains. Margin erosion has become an epidemic issue with wholesalers across the country. Any new salesperson should be given pricing direction. Regardless of whether they have industry experience or not, your business model probably requires a different type of gross margin strategy.

Minimum gross margin deviation ought to be spelled out before the salesperson shakes the hand of their first customer. If you have a pricing process like David Bauders’ Strategic Pricing Associates, spend time briefing the new salesperson on how and why the process works. Furthermore, measure the salesperson’s adherence to that pricing strategy from day one.

When Special Pricing Agreements (SPAs) are required, new salespeople should understand your company’s position on the proper use of an SPA to capture and lock in important customer opportunities. And, if (for some reason) you do not have a plan for how these agreements are registered within your own organization, this should be established immediately; for the whole sales team’s benefit.

The Right Tools
Ok, we’ve walked our way through setting expectations, establishing work habits and this brings us to equipping new team member with the right tools. Most of us have given thought to the right phone, laptop, tablet and company car. But the tool box needs to hold more than just the physical tools. Let’s go a bit further and talk about ERP system tools.

Every new salesperson needs to understand the purchases made by their accounts. Ideally, this should include more than just a top line sales number and gross margin percentage. I suggest reports outlining products purchases broken down by customer. If the product can be segmented by technology groups, it’s all the better. Sales managers must invest the time to instruct salespeople in the reports available and how to interpret the reports. This should be part of a monthly coaching session to ensure the data is correct and there are no issues with account groupings.

The salesperson should know where and how to get this data in the future. Bouncing back to our first message, set expectations as to how often you anticipate this type of information to be reviewed at the salesperson level. Strangely, even experienced salespeople from other companies within the industry have no realization as to the importance of understanding where their sales come from.

With this final word, I challenge you to sit down with your newest successful salesperson, the one who is showing real promise, and ask what they wish they knew two years ago. Maybe they could whittle your investment down to $100 grand.


Published in Industrial Supply Magazine several years ago, but still pertinent today.









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The New Seller Project and Frank’s New Book

Our industry adds another new seller to the ranks daily. Over the past year, we have had the opportunity to speak to dozens of them, but compared to the vast number out there this is but a thimble full of water in a sea of people. For the coming year, I am determined to change that percentage.

Why?

First, the demographics demand it. Every time we speak to a group of distributor sales types, it’s hard not to notice the number of folks who are pushing up against retirement. A few weeks ago, I took a quick poll and over 40 percent of my

audience qualified for AARP membership (50 plus). There is nothing wrong with being an experience salesperson. As a

matter of fact, it is probably a good thing. But, our industry will need to fill the ranks.

Second, I am convinced our industry must change and one of the big changes comes in how we find new people. The days of doing nothing till you need someone, then going out to “steal” an experienced person from the competition is getting harder. There isn’t a big enough pool of experienced hands and, for the most part, competitors are holding on to their promising talent with greater tenacity.

Finally, it’s about economics. Laws of supply and demand are driving up the cost of qualified people. Freshly minted engineers, green as the grass and straight from campus, are receiving compensation packages in $55-62,000 range (depending on location). So if you are selling technical products, the cost of talent is rising fast. The faster we can convert new salespeople to highly effective selling machines, the better for our bottom lines.

With these realities, you would expect new seller training would be planned, robust and well-focused. It is not. Or at least that’s my assumption based on the 20-some new sellers I’ve spoken with in the past several months. It’s hard to believe this important piece has slipped through the cracks and sent money and potential profits swirling down the drain.



Here’s a recap of new seller training.
After these interviews, a trend emerged. Here’s a recap in 85 words:

“My first two weeks were spent in the warehouse under the tutelage of the warehouse manager. I learned how to find products and helped unload a few trucks. The next two weeks I was assigned to inside sales. I did get a bit of a lesson on how to find stock, but mostly I watched others talk on the phone. After a month, I was given a list of account and an old list of contacts. I took my business cards and started visiting customers.”

What about sales meetings?
Sales meetings trend toward product-centric discussions. The new sellers appreciate the information and many attempt to connect with the factory people and/or local reps who conduct them for additional one-on-one training. However, the general report back is that without ideas on applications and selecting the best customers, most of the time they find the information interesting but not useful for growing their business or making additional sales.

One new seller took an approach similar to the one I used way back when. He takes new products to a friendly customer and asks the customer to give him a “real world” opinion on who might want to use/buy the product. The customer seems to enjoy providing him with useful commentary and sales mentoring. I asked what happened if the customer didn’t like the product and he candidly shared he simply quit mentioning it to any of his other customers. I believe this should be a red flag. Not knowing the customer, one might wonder about his feelings about new vs. time tested technologies, quality vs. price or a dozen other variables.

These new sellers aren’t lazy.
The ones we talked to are willing to work hard. A couple reported putting in extended hours to complete quotes and get information packaged for customers. However, in my opinion, they are not putting their time to the best use. Since they don’t have a lot of doors open to them, they are willing to zig-zag across their territory providing urgent care for some very small issues. I believe this comes because the small customer problems offer them the opportunity for some customer contact.

The group, as a whole, has some of the common misconceptions of when customers might be open to seeing a salesperson. As a group they shy from trying to set appointments before 9:00 AM. This doesn’t happen because they want to sleep in but rather because “somebody” told them customers don’t want to be disturbed until after they’ve completed their morning tasks.

Only one new seller has had sales training.
We asked the question every time and made it clear we weren’t talking about “formal” training. Quite frankly, we were looking for any kind of training. Out of 20 new sellers only one single soul had sales training. In this particular case, it was a Carnegie type course and they felt it didn’t reflect on the work of a distributor salesperson.

We also asked about books. Have you read any books on the selling profession? Three had. These were random selections made via Amazon or the local book store rather than books recommended by a sales manager.

No leadership guidance causes them to leave.
For one new seller, this was his second company. After graduation, he joined a company with a “management training program” only to find out the program was being dropped. He was making headway but had a remote manager with no time to discuss issues and unwilling to provide guidance. This very promising seller wisely jumped ship for a company with an accessible leadership team. I suspect there is a lesson there.

I want to speak to new sellers. Here’s why.
I want to speak to sellers with less than two years in a position. I am researching for a new project to help guide them and their boss through the first two years of business. If you happen to be one of these folks, send me an email. We’ll schedule a time for a 20-30 minute phone call. I am not going to sell you anything. I will not embarrass you. I promise to ask a lot questions about your experience to date. My email is frank@riverheightsconsulting.com

If you know somebody in this category, please, pretty please, forward this blog to their attention with a note telling them Frank is a nice guy. Santa even says so.




Finally, buy my book.
Fresh off the presses and available at Amazon. Plan on Breaking Through: Customer-based Strategic Planning for Sellers. This book steps you through setting up a plan for your biggest and best customers. I recommend it as a training tool for new salespeople.


















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Customer Surveys – A Strangely Interesting Phenomenon

We have done a lot of Voice of the Customer Surveys for our clients lately. Along the way we discovered something strangely interesting. And, it has nothing to do with the customer. Allow me to share.

After collecting several of these surveys, we observed a bit of reluctance, perhaps hesitance, of the front-line sales teams when asked to promote the surveys. Maybe it was caused by fear of the unknown, things like how management might use the survey, or wondering if customers might see the survey as an intrusion or perhaps the results would reflect poorly on the team. Some salespeople believed the process was redundant because after all, they represented “the eyes and ears of the company,” ever vigilant for changes in behavior and shifts in thought.

After receiving the final report, most view the survey information as a positive tool for better understanding what’s going on in the minds of their customers. However, during the early stages, the actions of the group are, at best, neutral to the implementation of the tool.

To alleviate anxiety over precisely what is on the survey, we started asking the sales team to anonymously complete a trial run of the survey. This process allowed them to:
• See exactly what questions would be asked of their customers.

• Understand the minimal the time required to complete the on-line portion of the survey.

• Better understand the mechanics and see the very gracious wording used to ask customers for the gift of feedback.

• Demonstrate that nobody in management can see answers.  Responses are truly anonymous, protecting the customer as well as the seller.

• Learn of the nice gift awarded for participation in the survey (we generally recommend a $10 Amazon gift card, a cool tee-shirt or some other memento).

As part of the live trial, we ask the distributor staff to go through the survey and answer questions as they feel one of their best customers might. Here-in we have discovered some very interesting results.

The value of the anonymous report
Before we get to the interesting stuff we have discovered, let’s drill into the “anonymous” third party survey thing.  Both employees and customers are weary of providing brutally candid comments if they feel the remarks might be traced back to them.   While you probably enjoy great relationships with customers and your team, it is human nature to sugar coat negative information.  

If there is one point I have noticed after over four decades in sales, it’s this.  Customers would rather say, “Your price is too high…” than go into details about slow response time, erratic delivery schedule and lack of knowledgeable sales people.  It’s their way of being nice folks.  Adding a degree of separation to your survey gets better results. 

Further, in spite of all the online templates designed for gathering customer information, very few, if any, have been designed with our industry in mind.  The questions necessary to gather the right kind of information take time, effort and experience in developing.  Your customers are busy.  A poorly worded question can be all it takes for them to abandon the survey giving you zero feedback.

A good third party survey combines online surveying along with short (and opt in) phone interviews.  These one-on-one sessions allow the customer to elaborate and provide more detail on their specific experiences.  Plus, a good third party survey understands your business well enough to ask the right kind of follow-up questions.  With the right kind of follow-up, the answers to these questions become immediately actionable, providing quick fixes to urgent issues of the day.

Your staff knows some of the issues
Deep down inside, the staff knows many of the issues associated with customer relationships. Allow me to elaborate.

Speed of response time comes to the surface when inside sales and customer support is short staffed. The team knows customers are frustrated; they hear off handed comments about how hard it is to speak to a live person on the first call. Products missing from the portfolio are often defined to a tee.  So too are inadequacies in shipping times and paperwork flow.

One of the other issues we see are needs for training. The distributor staff often outlines product, technology and regulation training required by customers, but deeper exploration points to needs for internal training on the same topics.

Distributor teams indicate lack of internal skills through the eyes of their customers. While the distributor personnel tend to be harsher on themselves than customers, reviewing and interpreting the data is always an exercise in learning.

A few final thoughts
Here are some thoughts and observations on the topic of customer surveys:
• Customer feedback is a gift.

• Your best customers want to help you improve and they will provide valuable feedback.

• Many will not share this information with your sales team directly. Why? Your people become defensive and often launch into a litany of excuses for less than adequate service. Other times, they simply don’t want the information to come from them or any potential recoil from negative feedback.

• The Customers’ world is changing. Without feedback it is easy to misjudge current trends such as the real reason for internet purchases.

• Feedback today has a short “shelf life.” In the old days, conducting a meaningful distributor “voice of the customer” exercise was massively expensive. Wholesalers only conducted one every 5-10 years, if ever.

• Doing a customer survey with a third party, like River Heights Consulting, costs 80 percent less than just a decade ago.  (In a past life, I paid upwards of $30,000 for something similar!)

• Feedback from RHC is compiled quantitatively and qualitatively, meaning you will receive hard numbers, how to read them and statements/comments backing them up.


~Self-serving, blatant and crass promotion~
River Heights Consulting does "voice of customer" surveys.












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Guest Blog: Instrument Calibration

A Guest Blog…
In the past we have invited the readers of the distributor

channel to provide perspectives on their world and how distributors might benefit from technologies and processes. Over time we have received many requests to speak to our “family” here at The Distributor Channel. Many of these were crassly commercial and a lot had nothing to do with distribution.
We generally respond with these rules for creating a blog post:
1) The information has to be of interest to distributors.
2) The information can’t be overtly commercial for your business.
3) The information has to be moderately well written (The Good Lord Knows I am an Engineer by training who pretends to be a writer).
Allow me to introduce Edward Simpson – who shared his thoughts on how distributors might make money in the recalibration of customer equipment.

How Distributors Can Increase their Sales by Helping their Customers with Instrument Calibration

Have you ever truly wondered about the importance of the calibration process?
Calibration is a technique of setting a measuring device by adjusting it with a known accuracy, also known as a “standard.” This technique determines if an instrument is producing accurate and measurable results within the given limits as compared to those produced by a definite standard over a suitable series of measurements.
The Importance of Regular Instrument Calibration
Even though your instruments produce accurate results, they

are bound to slip up at some point, leading to a drift in the accuracy of the readings. Factors that affect this are daily wear and tear, external and environmental factors like mechanical and electrical shocks, which cause a gradual drift. Regular instrument calibration reduces these uncertainties and prevents the drift from occurring.
How Often Should Instruments be Calibrated?
The need for calibration varies from instrument to instrument. While calibrating infrequently is known to cause problems, calibrating too often is not ideal either. It is also expensive. Here are some factors to help determine how often you should calibrate your instruments:1. Critical measurement locations need to be more accurate.

2. Keep track of the operating conditions and workload of the instruments. Those operating in tough conditions need to be calibrated more frequently.
3. Check your instrument’s calibration history to see how often it has been calibrated in the past.
4. Make sure to calibrate your instruments before taking any important measurements.
5. Calibration can be affected due to certain unforeseen circumstances whereby you need to consult a lab calibration service immediately after to maintain accuracy.
6. If you feel that there is any inconsistency in the final product or if there is visible shift in measurements, then it is time for you to calibrate your instrument.
7. Make sure to stick to the timeline and frequencies suggested by the instrument manufacturer.

Why Using a Third-Party Calibration Company is better than Doing Calibration in House?
Using outside suppliers who comply with the updated FDA standards and guidelines ensures your instruments will always be properly calibrated using the most advanced technology.
Third party calibration companies make a better choice to calibrate your instruments than in-house lab calibration services:
● They have more experienced professionals with in-depth knowledge about calibration
● They are cheaper than setting up an in-house lab, resulting in better ROI for you
● They follow current FDA guidelines and standards
● Their staff is familiar with the latest technology and equipment that is needed to calibrate your instruments

Also, using outside suppliers who are aware of CGMP compliance ensures that customers are aware of the recent trends in the industry and avoids the “that’s how we have always done it” approach. A good third-party service should provide dedicated primary and secondary technicians who take the time to learn about your facility and your company procedures to ensure that you get compliance and possibly reduced training costs.

How You as a Distributor Can Approach Your Customers on Behalf of Third-Party Lab Calibration Services
Distributors should share professional opinions about using third-party calibration and its benefits. Your customers value and appreciate your knowledge.
Hiring a third-party calibration company can reduce costs for your customers and improve compliance associated with internal calibration programs by as much as 60%.
I hope this article helps you better understand about the calibration process and impart the same knowledge to your customers as well.




Author Bio: Edward Simpson works for RS Calibration Services and has a knack for finding faults in machines and does not rest until they are rectified to perfection. He lives in Pleasanton, CA and loves to write about how machines work and about the importance of proper care and calibration of equipment. When he's not working or writing, he loves to run to stay fit.



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Rebate Programs in Distribution

Many segments of the wholesale business use rebates as a plan to modify and reward distributor behavior. While the roots of these end of year rebates and similar programs are mostly lost to history, they have become an important part of the distributor financial sheet. For example, Electrical Distributors typically report around 40-60 percent of their bottom line comes by way of rebates. Other lines of trade indicate similar numbers. This information is not anecdotal. This is not beer talk, the Profit Reports published through groups like NAED and others back up the statement. Without rebates, the channel could be in serious trouble.

Marketing and Buying Groups help drive the rebate dollars
Many independent distributors receive their rebates through 

marketing groups. Organizations like IMARK and Affiliated Distributors (AD) in the electrical industry come to mind, as

do groups in other lines of trade. Here is a short list (mostly top of mind):
• Distributor Partners of America (DPA) in the Industrial Space
• Safety Marketing Group in the Safety Industry
• Evergreen Group in the Industrial and Contractor tools and supply group
• IBC in the Industrial and Bearing business
• The Embassy Group in plumbing and HVAC/R industry
• The Blue Hawk Group in the HVAC/R industry
• The Virtual Rain Group in Lawn, Turf and Irrigation
• IWDC in the Welding Industry.

Further, AD has expanded into the following industries: Power Transmission, Building Materials, HVAC, Industrial Products, Pipe Values and Fittings and Plumbing Supplies. What’s more, Industrial Supply Magazine has a page devoted to the groups here. 

These groups list their mission as helping independent distributors better compete with the much larger national chains. They do this in many ways, including benchmarking, networking and marketing assistance, but make no mistake, the rebate check drives the membership.

So why are we talking about this?
While rebates are important, they are seldom discussed in the rank and file of our industry. Sadly, many supplier salespeople have the attitude shared by a mid-level salesperson I recently interviewed. He said this, “My company writes some big rebate checks to the owners of the distributors I work with. And, for the most part, I don’t understand why. The distributor sales guys who work hard to sell my stuff don’t get commission, so it doesn’t incent them. From where I sit, these things are basically a slush fund for distributors to buy their next boat or vacation home.”

We have already hit on the financial importance of rebates. Without these incentives, distribution, which is already a low margin business, would become unsustainable. Typical bottom line numbers for many of these companies already stand in the low three percent range. Dropping that margin (not gross margin, but real bottom line margin) to a one or two percent mark would equate to distributor owners putting their money into low interest, no risk savings accounts.

This still leaves my young friend’s comments about commission payments not being tied to rebates. First, I believe commissions are obsolete for a number of reasons; mostly tied to a belief they no longer drive the type of behavior required in distribution. Since most distributors have yet to see the light and switch to a new system, let’s drill into some of the issues tied to rebates and commissions.
First, few companies calculate commissions on rebates. About the closest we can think of are those organizations who pay a slight commission premium to sales made of suppliers who are part of their buying group. In my opinion, these are mostly feel-good programs that rarely drive behaviors during the adrenaline rush of selling.

Second, most companies have built their compensation model around the gross margin number with little or no real concern for costs of doing business. Costs have been rising faster than gross margin production at many distributors. This is complicated more with the addition of new selling resources, which are rarely, if ever, factored into commission rates.

Finally, there is strong evidence that when special pricing is provided to distributors “the salespeople give it away” (not my words but I agree). Countless stories of special one of a kind into stock specials exist. Most of these end with the same story line, distributor receives 15 percent lower price than anyone in the market and within months the new sell price has followed the cost down by 15 percent. But, rebates are hard to give away.

We need to talk about rebates
What’s the moral of this long-winded story? We need to bring rebates and program dollars out of the shadows and into the open. Distributors who don’t discuss them are destined to have employees who question their fairness and ownership’s intentions. Distributors who don’t talk about them with their suppliers will always have vendor salespeople thinking, “These things are buying the owner’s dude ranch in Montana.”

Finally, for the enlightened suppliers who happen to be reading this. Here are four points:
1. Regardless of how they started or whether you like rebates or not, they are a part of our industry. You need to understand how your competitors use them. If you do and they don’t, pushing the conversation forward is in your best interest. Conversely, there need be a solid financial reason why you do not provide. Saying it is against your principles is not a good excuse.

2. Programs and rebates must be well thought-out and tested against future scenarios. No one complains when you begin providing a rebate. However, if you change the program after three years, you will create pain, suffering and disharmony.

3. If your rebates are based entirely on growth, think about this. Eventually, every distributor has a flat year. Rebate programs heavily skewed in the growth direction take revenue away from your channel when they need it most for driving your sales forward. Progressive distributors gain market share during periods of flat or negative growth in their territories.

4. The best rebate programs are built around distributor behavior. If you want distributors to provide quality Point of Sale (POS) data, tie it to rebates. If you want to displace niche competitors on the distributor’s shelf, link the rebate to being the only product line on their website. Want better visibility in their showroom, base the rebate on being the only product line displayed. We could list a dozen more points like this but, you get the picture.

A final note
My writing gets interrupted often. My parents trained me to answer the phone in three rings or less. I literally just hung up from a conversation with the regional manager of a manufacturer. Our conversation covered several topics. One of which was a distributor incentive program. His words for the program was “(distributor) owner kickback.” I hope he reads this…