|
The role
of a product support salesman is complex and varied. To list
some of the tasks is simple, but putting the whole package
into the field with a qualified salesman is a bit trickier.
His role
is comprised of:
- Promoting
the products of various manufacturers.
- Understanding
the policies, procedures and methods at the dealership.
- Being
a source of technical advice regarding machine operations.
- Understanding
the features and benefits of parts.
To some
people it is a defensive role. To others it is offensive.
On the defensive side, we must constantly protect the dealership's
market share in parts and labor. On the offensive side, we
need to increase sales to each and every one of the customers.
If we
look at the parts side of the business we must divide it into
a series of commodities, including:
- Hardware
- Bearings
- Filters
and fluids
- Seals
and packings
- Electrical
parts
- Hydraulic
hoses and fittings
- Engine
parts
- Transmission
parts
- Hydraulic
systems parts
- Ground-engaging
tools
- Undercarriage
Now we
come to a difficult question. Many observers in our industry
feel that the dealerships control their own parts market.
They feel the dealer holds more - and in many cases much more
- than half of the available market. In reality we have many
challenges. In each of the families of parts listed above
there are specialists, very capable competitors. Now I'm sorry
to sound so blunt, but I don't believe you control the majority
share of the parts business in any of these commodities. Do
you? There might be a few, but clearly there are very significant
competitors in each of these areas. This is not a criticism
-- it represents a terrific opportunity.
Moving
over to the service side of the business we see an even more
challenging market. The maintenance services provided on our
equipment equate to roughly half of the labor hours available.
The customer, in this case, is our most significant competitor.
Based on surveys that I have conducted over the past 10 years,
dealerships perform less than 10% of these services. On the
repair side of the business, the remaining 50%, I have not
found a case in which the dealership has more than half of
this action. So our opportunities for increasing the service
business is equally large.
DEFINING
A TERRITORY
One of the old debates (mentioned in the first article in
this series) is: Is it the shingle or the salesman that sells?
The most
appropriate way to eliminate any doubt is to establish a clear
territory. This means that we will limit the number of customers
that each parts and service salesman covers. As I've argued
in a previous article on market segmentation, it is clear
- very clear - that the rep can handle only a limited number
of customers. This number of customers is higher in an urban
setting than it is in a rural setting. That is due to the
travel time component.
Generally,
we would not be too far off to suggest that the number is
somewhere between 100-150 customers. So, to start with, let
us slice and dice your territory. Can you split your customers
up by county? This is where I would suggest that you start.
Then, within each county, run a report in descending parts
sales order. Then run another one in descending service sales
order. Using these two reports you will quickly determine
which customers you need to have covered by a parts and service
salesman. You know the geography, so you know the travel conditions
and time involved. Consequently, you can choose how many customers
to assign to each PSSR.
Many of
you have thousands of customers. Needless to say, the cost
of covering each of these customers is an issue that cannot
be overlooked. The contact that your dealership currently
has with the marketplace comes from equipment salesmen, in
some cases a rental salesman, your parts counter and telephone
sales force, your service departments, direct mail and advertising
and some others. The product support sales force is an extremely
important aspect of this coverage.
If, as
I have suggested, a product support salesman should have a
territory limited to no more than 150 customers, there will
be many customers that you cannot afford to cover in person.
For this reason we must be careful how we set up territories.
Surveys
I have performed reveal that less than 10% of your customers
provide more than 80% of your parts and service business.
A dealer who has 3,000 customers would require the parts and
service salesman to cover 300 of them. That would require
two product support salesmen.
You, of
course, would have to perform your own specific review. How
many customers do you have? What percentage of these customers
gives you more than 80% of your parts business? How many customers
does this represent? Now do the same thing for the service
business. How many customers does this represent? From these
answers you will know how many product support salesmen you
will require in your territory.
Next
you must look at the geography. How do you organize these
customers in a way that makes sense? It is not simply a matter
of dividing up the customers into territories for coverage.
You need to separate the customers according to their needs.
Are there needs in your territory to cover specialized markets?
For instance, mining industry customers have different needs
than quarries. Similarly, large general contractors have different
needs than landscapers. The territories must be viewed to
satisfy these individual requirements.
A salesman
who is assigned to the territory with a heavy concentration
in mining, for instance, has totally different coverage needs
than one that contains contractors.
"PAR"
FOR THE COURSE
Within your coverage model, you must make decisions regarding
the call frequency. It used to be called a "par." Many computer
systems have a call reporting subsystem. Within this call
reporting system a par can be established for each account.
While this is very basic it isn't a bad place to start. Also,
there are several contact management systems on the market.
Goldmine and ACT are two examples. These packages allow a
PSSR to keep an electronic record of each call and have a
structure in place that allows him to plan future calls. This
is a much more effective and helpful approach to covering
a market.
So there's
a start for you. Look at the total number of customers that
you have in your territory. Arrive at the number of accounts,
for parts and service, which provide you with at least 80%
of your parts and service business. Study these customers.
Separate them into territories that can reasonably be covered
by salesmen. Set up standards for coverage in your particular
dealership. Establish a system that will allow both the company
and the salesman to manage the customer coverage. Many details,
yet reasonably simple. At the end of this exercise you will
know how many territories you have for parts and service salesmen.
Once you have made the assignment, total up the sales for
both parts and service.
This will
give you the current parts and service sales volume of your
dealership's entire region. And that is the starting line
for the PSSR.
HOW
DO YOU PAY FOR THIS?
Once you know how many salesmen you need to have, the critical
question surfaces: What is it going to cost? We first have
an interesting decision. Is this sales function going to have
a salary, or is it going to be commission only? Perhaps we
need a combination of the two.
Let's
start with a small example: a dealership with sales of $35
million a year. The equipment portion, sales and rentals of
equipment, totals $20 million. The remaining $15 million is
split 2-to-1 in favor of parts: $10 million in the parts department
and $5 million in the service department. The same type of
ratios that exist in this hypothetical dealership also exist
in your dealership. Somewhere between 55% and 65% of your
sales will come from the equipment group. Parts will be roughly
twice the size of your service business. So you can perform
this same type of calculation for your company based on this
example.
|
Department
|
Sales
in Dollars |
| Equipment
Sales & Rentals |
$20,000,000 |
| Parts |
$10,000,000 |
| Service |
$5,000,000 |
Remember,
it's 80% of the product support business where you're going
to put your PSSR's greatest efforts. Eighty percent of the
parts business would represent $8 million, while 80% of the
service business would be $4 million. The total parts and
service business you'd attempt to cover will be $12 million.
If the gross margin on your parts business is 25% and the
gross margin on your service business is 65%, the gross profit
dollar value will be $4.6 million. Further, let's assume that
this dealership requires six product support salesmen. Each
territory would contain roughly $2 million worth of business,
generating approximately $767,000 of gross profit.
The argument
that is normally waged when talking about a sales territory
is that it needs to be large in dollar volume, not small.
There is a balance that needs to be achieved, but, contrary
to that thought, it's generally the smaller territories that
tend to maintain high market shares. This is due in part to
the stronger relationships that can be developed between the
customer and the salesman.
| Product
Support Territoties |
| Category |
Total
Sales |
Total
Territory |
Territory
Gross |
|
Parts |
$10
million |
$8
million |
$2
million |
| Service |
$5
million |
$4
million |
$2.6
million |
| Total
Dealership |
$15
million |
$12
million |
$46
million |
| . |
. |
. |
. |
| Territory
Parts |
. |
$1.334
million |
$334,000 |
| Territory
Service |
. |
$667,000 |
$434,000 |
| Total
Territory |
. |
$2
million |
$768,000 |
Each salesman
-- in this illustration there are six -- will cost us between
$50,000 and $75,000 per year for personnel, vehicles and other
operating expenses. This represents somewhere in the neighborhood
of 2.5% of sales (at $50,000) or 10% of gross margin (at $75,000).
Now before we start making assumptions on the cost ratios,
let me say that the commission structures employed will have
a strong impact on these ratios. I give you these ratios so
you can consider the expense relative to sales as well as
gross profit. Check out the ratio of the equipment salesmen
to sales and also to gross profit. By themselves, the numbers
can easily be misleading. No single measure, by itself, is
sufficient to come to conclusions.
Let's
continue through this exercise. The combined gross margins
for the parts and service business, from the table above,
is 38%. This means that to recover the $50,000-$75,000 of
expenses, parts and service sales would need to increase by
$131,5000 and $197,250.
If, as
your PSSR goes about the business of covering the customers
in his territory, you are not seeing increased sales in each
territory by at least these amounts, there is something terribly
wrong.
Translate
the increase into labor. This is an increase of one to two
more billed mechanics per territory. This would mean between
30 and 60 more maintenance contracts. This is a fairly reasonable
increase expectation, isn't it?
MARKET
COVERAGE: PROTECT WHAT'S YOURS, THEN GET MORE
Many of you have product support sales territories that have
considerably larger sales volume than the $2 million-per-territory
that is outlined in our example. This also makes some dealerships
feel more comfortable with the expense ratios, as they will
obviously be lower. This is more about market share and market
coverage than about a ratio. I would submit to you that the
smaller the sales volume is in each territory, the higher
the probability that the sales can increase.
There
will be some customers whose volume is in the millions by
themselves. Suffice it to say that an account of that size
would have to be treated differently by a product support
sales coverage plan than the more normal-sized customer account.
Several different options can be considered for larger accounts:
a salaried coverage position, a house account, an account
specialist who covers all aspects of the customer's needs,
from equipment right through to product support. No one model
will be satisfactory for everyone. But the principle in market
coverage is that we must protect what we have and obtain more
of what we don't have.
You'll
also see that if we had 100 customers in this territory, the
average sales per customer of parts and service would be $20,000
a year. This should suggest to you that there will be a few
very large customers in each territory and more of what I
would call medium to small size. So again, the coverage model
for the largest customers must be chosen with care.
A chief
task for the parts and service sales rep is the ability to
demonstrate to the customer how to reduce the owning and operating
costs for each machine while protecting the residual value
of the equipment. This is most effectively done when the customer
chooses to buy parts and service from the dealership. Developing
and maintaining a relationship with the customer is critical
to selling parts and service. After that you can focus on
the operational effectiveness of the equipment.
For the
PSSR, the list of equipment owned, machine population, the
hours of work per year per machine and the conditions of work
are the key bits of information. With this we can calculate
what the parts and service potential is for each customer.
When we have the potential calculated we can see what our
actual share is for each customer. This will allow the rep
to determine what business is being lost and ultimately to
whom it is being lost. Specific selling then becomes the job.
This might
sound like an impossible dream, but the determination of the
potential parts and service business is readily available
with a bit of work. Without a revenue potential model we can
be easily misled.
Knowing
your customers, knowing your competitors and knowing your
products and services will allow the PSSR to increase sales
to each and every account. That is what the job is and that
is how we can pay for this function. Increasing sales is the
job of the salesman and it develops benefits for both the
employee and the company.
Without
a product support sales force the future of the dealership
is in jeopardy. Parts and service sales is the backbone of
the dealership, and it's the foundation on which your customers
depend.
|
