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Product
support selling isn't just some nice subject to talk about
in the abstract. It's absolutely critical to your dealership's
long-term growth in this day and age of equipment commoditization,
customers' increasing preference to rent rather than own machinery
and ever-narrowing margins. You'll need to consider and address
many details to ensure a successful product support sales
program.
So where
were we? In the first article in this series, I defined what
product support selling is, its role within an equipment dealership
and why your dealership should engage in it -- if it isn't
already. I defined some of the tasks of the product support
sales rep and talked about his or her place within the dealership.
In the
second article of this series, I talked about market segmentation,
market share issues and how to allocate resources to a product
support sales territory to ensure appropriate return. As a
result, you should now be able to clearly and properly define
your dealership's product support sales territories (which
should have no more than 150 customers each). You should know
what each customer in each territory is buying: parts purchases,
service purchases, new and used machine purchases and rental
revenue.
And now
let's talk about how you'll compensate your product support
sales reps to stimulate maximum performance.
COMMISSIONS:
YOU REAP WHAT YOU SOW
AED members employ a mixed bag of commission plans. Some dealers
pay a fixed salary, others pay commission only. The interesting
thing about commission is that it is intended to modify behavior.
It rewards success in the selling effort and leaves everything
else alone.
Most product
support sales reps are former parts department employees who
are used to being paid a salary and like the security of that
form of compensation. But the true sales personality is entrepreneurial
and doesn't want any restrictions on his or her ability to
earn. They want commission only. In effect, they are independent
contractors who sell for your dealership. So your commission
program should be designed to move the PSSR in specific directions.
- First,
we want to grow sales, so we should pay higher commissions
to territories that grow sales than those that do not.
- Second,
we should pay higher commissions for products and services
that generate more profit for the dealership.
- Third,
we should tie the commission program to the PSSR's coverage
of the marketplace.
We start
by segmenting customers by their volume of parts and service
consumption. We take the top customers in parts and service.
We divide those customers up into geographic territories.Let's
start with one of those territories.
Total
up the part sales for each of the customers in this territory.
Do the same thing for service sales.
Then total
up the gross profit for the parts sales for each of these
customers. Repeat the process for service sales. I like to
have three or so pages, per territory, with five columns on
each. The first column is the customer's name, the second
column is parts sales, the third column is parts gross profit,
the fourth column is service sales, and the fifth and final
column is service gross profit. (See Table 1 on page XX.)
Putting this chart together gives me a clear picture of each
customer's business within each sales territory.
You can
see that the gross profit generated from the parts business
($8,584) is lower than the gross profit generated by the service
business ($19,500). With parts sales, the gross margins will
range from the 20%'s to the 30%'s. But with service sales,
the margins (using wages only as the cost of sale) are much
higher: from the 60%'s to the 70%'s. Why? The service figure
includes labor, and the potential for me to service my customers'
machines is unlimited.
Since
I make more money on service sales, it makes sense for me
to pay a product support sales rep more for selling service
than for selling parts. The commission rate for parts is always
significantly lower than the commission rate for labor. (See
Table 2 on page XX.) So I can justify paying two to four times
more commission on service sales than on parts sales. And
how will my PSSRs react to this? By selling more than just
parts.
(Of course,
these are just illustrations. You'll need to determine your
own structures and rates. In all the years that Iíve been
doing this, although the concept remains the same, the plans
are all different.)
Notice
that there is a sales level for which I recommend that you
pay no commission. This is the amount of business you can
expect to get out of the territory even if there is no sales
rep covering the customers. It reflects the fact that a territory
without a sales rep will continue to generate, at least in
the short term, a certain level of business. I do not want
to leave the territory without a sales rep for very long,
but if I did the sales would not fall below 80% of the past
two years' average for some period of time. (On the other
side of the ledger, it takes a sales rep 18 to 36 months to
begin realizing the maximum return for his or her territory.)
In Table
2, the different levels of commission rates are intended to
push the sales rep to greater heights. The more he or she
sells, the more he or she can earn. The only potential snag
to this formula is that the sales rep's earnings can be impacted
by the service department's ability to close work orders.
THE
IMPORTANCE OF SELLING PROGRAMS
There's yet another item you need to consider: that a product
support sales rep can - and should - sell programs, not just
random parts and service. These programs can cover a wide
variety of things: from warranties and maintenance to hardware
bins, from oil sampling to hose presses. (The next part in
this series will cover product support sales programs in more
detail.)
Back to
the commission plan. You will notice that I've listed parts
sales and service sales as percentages. From Table 1, we have
the total parts sales for the territory and the total service
sales for the territory. It is against these totals that we
calculate the actual levels using the percentages listed in
Table 2.
For instance,
in a territory with $1 million of parts sales, the 80% level
would be $800,000. That means the first level for parts sales
would be from zero to $800,000.
I usually
calculate the territory sales using the last two years' worth
of business. This means that the different commission levels
will change from year to year. As the product support sales
rep becomes more successful and generates more sales, the
targets move up. If the business slows down, the targets move
down. Of course, you'll have to make adjustments if there's
a major market change - a new project moves in or another
one shuts down - within a particular territory.
What do
you do about when the product support sales rep is out in
the territory and drives past a customer who is not on his
or her list? I would like the sales rep to stop and get some
information. Is the customer new to the area? Is this a short-term
job? After the sales rep gets the significant information
he should share it back at the office.
Let's
recap commissions. To set up adequate product support market
coverage and a market-share-driven sales territory, you need
to do the following:
Segment
your customers. (See the August 1998 issue of CED for more
detailed information on how to do this.)
- Select
the customers for product support territories.
- Create
a table of their purchases.
- Establish
the ratio of parts gross profit to service gross profit.
- Create
the different levels of commission rates to use across your
dealership.
- Set
up the territories.
- Set
up the commission plan.
There
you have it. Reasonably simple -- but a lot of details.
(I have
a computer spreadsheet program that you can use, for a modest
fee, to set up these territories. It would be a guideline
only. Contact me through my Web site at www.rjslee.com.).
When a
product support sales rep covers customers, sales to these
customers go up - whether the overall market is rising or
is declining. The increases have averaged more than 15% per
year. The reverse is also true. Customers for whom there is
no product support coverage buy less from a dealership. This
fact of life leads to our next challenge: making sure that
the product support sales rep is in fact covering the customer.
CALL
REPORTING: USE IT OR LOSE SALES
Most sales reps - and this will include those who sell product
support - view call reporting as a babysitting function: 'They're
trying to track my work. It's not a motivator.'
But with
contact management systems like Goldmine or ACT, call reporting
is more an aid for the sales rep than anything else. These
tools enable the disciplined sales rep to use the computer
to track calls and plan future calls. The dealership doesn't
need to get involved except to make sure that the sales rep
is using the software.
Computers
are becoming an integral part of the sales process. In the
early days, many dealerships provided their sales reps with
laptop computers. Then they gave sales reps no-interest loans
to buy their own machines. Nowadays, many dealerships require
that a sales rep own a laptop as a prerequisite for the job.
Usually
the dealership provides the software the sales rep uses. The
database of customer purchases, machine population, calls
and such is the property of the dealership. Most laptops can
dial into the dealership's computer and get prices and availability
for parts, look up work orders for service and update machine
population systems, making the product support sales rep a
veritable fountain of information right at the customer site.
CARE
AND FEEDING OF THE PSSR
Now that your dealership has defined product support sales
territories, where do you find the people to service these
territories?
I recommend
that you tap field service employees who display an aptitude
for sales, who interact easily and naturally with customers
on site. This is a natural progression for field service technicians
- but only if they have a sales personality.
I realize
that it's very difficult for a dealership to replace senior
field service technicians and that the dealership will lose
a certain amount of revenue by putting the technician on the
road selling product support. Try not to look at it this way.
The product support sales rep is one of your dealership's
most valuable assets (though I appreciate that's not yet a
commonly shared view).
And where
do you find a product support sales manager? This position
has evolved along the same lines as the product support sales
rep position. First the parts manager managed the product
support selling function, then the combined parts and service
management position managed it. Now, finally, many dealerships
have a specifically assigned individual who manages the product
support sales force.
Managing
sales reps - of any ilk - is not the easiest job in the world.
The sales rep has a fragile ego. Yes, I know, they have thick
skins, but they work at a job where they're turned down 75%
or more of the time. Wouldn't you become somewhat fragile?
So think carefully about the role the product support sales
manager needs to play with PSSRs:
- They
need support and encouragement.
- They
need technical support on specific parts products, repairs
and programs.
- They
need training in sales techniques.
- They
need training on company methods and systems.
- They
are the eyes and ears into the marketplace and need coordination.
The product
support sales manager occupies a very critical position within
your dealership. He is the liaison between parts and service
on marketing. He works with parts and service issues on behalf
of the customer. He is directly responsible for the market
coverage in parts and service. He is directly involved with
market share for parts and service. He gets involved in profitability.
So hire well. Don't just promote your parts manager because
he's familiar with parts. He also has to have a sales mentality.
THE
ART OF MANAGING SALES REPS
To manage a sales force it is necessary to maintain comprehensive
information files: customer profiles, machine population,
competitive profiles, sales territory goals, products and
services features and benefits, and much more.
On top
of this the product support sales manager should spend time
travelling with each of the PSSRs on a regular basis. This
travel is to monitor the sales techniques and methods that
the sales reps use and to stay in close contact with the customers.
We will
delve into more of the management function in the next installment
and describe some of the programs the PSSR can - and should
- be selling.
Each product
support sales rep should have a sales manual containing all
of the competitive parts families, their features and benefits,
a list of the services your dealership offers, the advantages
provided and details about every program available. Do you
have such a manual? What do you provide to the product support
salesperson to help in the sales process? Anything?
Table
1
|
Territory
One
|
| Customer
Name |
Parts
Sales |
Parts
GP |
Service
Sales |
Service
GP |
| ABC
Construction |
$12,000 |
$4,000 |
$5,000 |
$3,400 |
| Barry's
Trenching |
$575 |
$167 |
$15,750 |
$12,000 |
| Contractor's
Inc. |
$7,245 |
$3,217 |
0 |
0 |
| Detroit
Unlimited |
$3,700 |
$1,200 |
$6,825 |
$4,100 |
Table
2
| Parts
Sales |
Commission
Rate |
Service
Sales |
Commission
Rate |
| 0%-80% |
0% |
0%-85% |
0% |
| 80%-100% |
.25% |
85%-105% |
1.0% |
| 100%-120% |
.50% |
105%-125% |
2.0% |
| 120%-140% |
1.00% |
125%-145% |
3.0% |
| 140%
+ |
1.25% |
145%+ |
4.0% |
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