Stop Giving Away the Shop
What is nearly every sales manager's biggest headache? Getting her sales reps to hold margin.
Consider this scenario. A potential customer comes into Wellwood Cabinet's retail location, looking for someone to do a home remodeling project. The sales rep and the prospect talk, the sales rep and the designer work with the prospect to set some basic parameters on the project, the sales rep gives the prospect a range of estimates for budget purposes, and the prospect says ...
"Wow, that's $5,000 more than BigName Remodelers!"
What's the sales rep's natural tendency? Why, to cut the price to meet competition, and thereby not achieve Acme's target gross margin for this type of project.
What's wrong with this approach? The sales rep has allowed himself to get drawn into a price conversation, instead of guiding the customer toward a value conversation.
The Brooks Group has a white paper devoted to this topic titled "How to Sell Against Lower Priced Competition — 5 Ways to Beat Price-Cutting Competitors." Here are the key takeaways listed in that white paper:
- Allow price to be your competitive advantage—a higher price can make a statement about credibility.
- Provide a high quality solution by first determining a prospect’s requirements and needs.
- Quality customer service can make or break a sale.
- Delivery is absolutely the one thing you must be competitive on if you want to sell at a higher price than your competitor.
- Successful salespeople must be intellectually curious and always looking for new ways to bring more value to the customer.
This month's case study features a project where the sales manager did not know margins for project quotes prior to acceptance by the customer. At this point, a below-standard margin — whether due to incorrect calculations or costs, or due to the sales rep wanting to make a sale — could not be corrected, because the company is now on the hook.
While the project in this case study was actually undertaken to improve processes and technologies used in a division poised for rapid growth, it turns out the processes and technologies were not sufficient to protect margin. Because efficiencies AND margins improved once the solution was rolled out — and set the stage to improve the customer's experience and thus achieve the first 4 bullet points from the white paper — this project addressed several headaches of the sales manager all at once.
If you're having headaches like these, please contact me — we might just be the pain reliever you need.
Todd L. Herman
Improving Margin and Standardizing Processes Through A Web-Based Quoting Application
Our client is the retail arm of its parent company, and uses the parent's products - along with those from other vendors - in performing new construction and remodeling projects. Our client's line of business has been identified as a key part of overall corporate growth, and the parent was willing to invest in achieving the division's growth.
As executives looked at how the division's five branches were doing key tasks, it became evident that processes and technology were not standard among the branches. Each type of customer had a range of acceptable profit margins, yet the pricing complexity and the need to quickly prepare and send quotes frequently resulted in pricing mistakes or margin deviations being found only after the quote was accepted. Not only was this leading to inefficiencies, it was contributing to inconsistent customer experiences and project margins - and growth would only magnify these issues.
We were engaged to analyze the processes and technologies in use among the branches, then work with branch managers to agree upon a "best of breed" combination of process and technology that all branches would eventually use.
During our analysis, we found that quotes were being prepared using Excel and other applications, and some assumptions being used were incorrect. Product prices were housed in seven different sources—while some sources were more accurate than others, we found inaccurate prices in all seven sources. Incorrect assumptions and inaccurate prices caused margins to be below standard amounts.
The branch managers and our staff worked together to define a new web-based application that would drive all steps in the quoting process - from initial encounter to design, to quote, to accepted project, and finally to order entry. We worked with a staff member of the client's Information Systems group, and jointly designed, developed, tested, and deployed this application.
Subsequent phases are already being designed, covering logistics, project implementation, and customer feedback.
The main screen in the application brings together all key items needed to design a kitchen.
Importing the parts from the 20-20 design application helps ensure accurate quoting.
Items can be added, edited, or deleted, to fit the changing needs of the kitchen project.
Item Types are used to accumulate and evaluate costs, prices, and margin.
The Quote button allows the user to generate a PDF propsal in a specific quote format.
Company, job, and customer information are automatically copied and formatted.
Parts, specifications and the cabinet style diagram come from the 20-20 import.
The price, down payment, and terms all conform to company-specified ranges.
Results and Benefits …
By eliminating common causes of pricing errors, and requiring executive approval for margins below standard, quotes are now being developed consistently, and most projects now adhere to standard margins. Indeed, since being deployed about 5 months ago, our client's VP of Sales and Marketing has seen consistent increases in this division's overall margins.
While performing this work, we identified other opportunities for improvement, which will be addressed in later phases of the project.
Analyzing processes and technologies in use uncovered opportunities for improvement, laying the foundation for a custom web-based application already beginning to pay for itself.
For Further Information …
To discuss how this type of project could be applied to the issues facing your business, call us at 336.297.4200 to schedule a no-obligation consultation, or visit our web site: www.toddherman.com