A Review of Distribution Sales Management and Sales Management Effectiveness – White Paper

From the desk of Robert P. Currie 

Currie Management Consultants, Inc. has conducted a number of projects regarding unit sales development of independently owned distribution. Some of those projects were commissioned by manufacturers and some by dealers through our Best Practices Groups (Twenty Groups). Most of this work is on-going as its principal focus is Sales Manager Development. We believe the issue of Sales Management effectiveness is becoming a significant barrier to total operational effectiveness. Since the 2008, 2009 recession, businesses rebounded; sales and profits kept improving and business owners generated good returns. Much of that return focused on Service and improving performance there. Generally, dealers have successfully matured Service–it has been the star of the recovery.

As business moves forward into 2020 and beyond, the new star will likely be Sales.

That is, if Sales is restructured to meet the market needs and, most critically, the staffing needs of a new generation of sales professionals. A new vision of Sales is beginning to emerge. In this document, we will discuss aspects of this new vision that impact Sales operational excellence.

The industries covered in these projects are principally three: construction equipment, forklift trucks and agriculture equipment; however, we also worked with other industries such as: industrial compressors, power generation, commercial tires, heavy trucks, lawn and garden equipment and more. While most of the data presented here is derived from the three principal industries, all industries generally followed the same patterns.

Sales Rep Performance Review

One of the first tasks in working with the Sales Managers was to get a grasp of the talent they managed; how that talent segmented, and how it performed. We asked one manufacturer and the participating dealers for data about their sales reps’ performances. (We have this data from 2006 to 2017, updated regularly.) We asked for the contributions made by the reps in the following categories: total revenue generated, total gross profit generated, mix between new, used and associated product, number of new units sold, number of used units sold, number of accounts covered and sold, compensation and years of sales experience. What we discovered was very similar to what you would find with studies done by trade associations such as AED, MHEDA and NAEDA.

‘A’ Sales Reps

For example, with one set of dealers, we collected the data and sorted the figures in descending order based on gross profit contribution. Then we drew a line at the top 40% of gross profit generated. We called these the ‘A’ sales reps. In this specific industry, of the 265 reps in the study less than 12% of them (or 31 in total) were generating the top 40% of the gross profit. These ‘A’ reps had the highest margin percentage of all the groups (A, B, C, D) and were making the least amount of compensation (W-2 wages) as a percentage of gross profit generated (thus, the most cost efficient). While this group averaged almost 19 years of sales experience, 7 of these reps (23%) had less than 5 years selling experience. Those with less than 5 years experience arrived at the all-star level in a rather quick period of time.

One of the more interesting aspects of the ‘A’ reps in this study was that almost 50% of their gross profit contribution came from associated or complimentary products. Also, these sales results are for products only and do NOT include parts, service or short-term rental margins.

We also discovered that of the 350 accounts the sales reps were assigned, on average, they were only selling about 35 of them in a given year. (A big impact on sales coverage.)

More critical, the manufacturer here had no clear expectation of sales rep performance; and, more importantly for recruiting, there is no psychological or behavioral profile that can assist in recruiting new, potential, high performing reps. The new reps that achieved the “A” level quickly should be profiled as part of on-going recruiting.

‘B’ Sales Reps

This level of sales reps, the ‘B’ sales reps, we segmented generated the next 30% of gross profit. They represented another 53 sales reps out of 265 (or 20%). They had a slightly lower margin percentage, and their margin dollar contribution was about half of the ‘A’ reps.

Compensation differences also surfaced. While the ‘A’ reps were paid (total W-2) approximately 39% of the gross profit, the ‘B’ reps were paid 47% of the gross profit they generated. (Something we did not want to tell the ‘A’ reps). Thus, the ‘B’ reps were financially less efficient.

The ‘B’ reps averaged 14 years of sales experience, but similar to the ‘A’ reps, 9 of the 53 reps (17%) had less than 5 years of selling. They too had a similar ratio of accounts assigned and accounts sold (330 and 43). The ‘B’ reps were a little less focused on associated products but still 40% of the margin contribution came from complimentary lines.

‘C’ Sales Reps

This level of sales reps, called the ‘C’ sales reps, we examined generated the next 20% of gross profit. They represented another 65 reps out of 265 (or 24.5%). To recap, 90% of the total gross profit reviewed in this study was generated by 56% of the sales reps (A, B, C reps). The ‘C’ reps had a margin percentage a full two points below the ‘A’ and ‘B’ reps and their margin dollar contribution was half that of the ‘B’ reps. So, the trend is ‘B’ reps are half as good as ‘A’ reps and ‘C’ reps are half as good as ‘B’ reps. As for compensation, the ‘C’ reps were receiving in wages approximately 62% of the gross profit they generated. Once you get to this ‘C’ level of sales performance, and the associated costs, you are already venturing well beyond the target financial expectations of a well-run sales department.

While the ‘C’ reps averaged 14 years of selling experience, the troubling part was, of the 65 reps in this category, 20 of them had more than 10 years in sales. A third of these sales reps have been around for more than a decade and are barely at the minimum gross profit expectation of this industry. The ‘C’ reps were generating only 30% of their gross profit from complimentary products. One interesting aspect is that they were assigned approximately 335 accounts and sold to only 35 of them. This account coverage result looks just like the ‘A’ and ‘B’ reps, so clearly there are issues regarding the quality of the accounts they are choosing to cover.

‘D’ Sales Reps

Now we arrive at the level of performance that gave the Sales Managers the most trouble confronting.  The final 10% of gross profit generated in this study was produced by 44% of the sales reps (116 of 265), who averaged close to 8 years of experience. It was very clear that 40% of the sales force had to be replaced with higher performing people.

The biggest area of concern that needed to be addressed was that 44% of the sales reps were being compensated with approximately 130% of the gross profit they generated. The financial repercussions of keeping these weak performers on board were tremendous. Interestingly enough, the ‘D’ reps were being assigned 340 accounts on average and selling to 26 of them. These are numbers just slightly below the other categories of sales reps.

Management Factors

Two additional factors are critically important in understanding the high number of ‘D’ sales reps; and those factors go directly to Sales Manager behavior. First, when we segmented the sales reps we also ask if each rep has a specific goal or quota. The results showed that more than 75% of the ‘A’ reps had a specific quota (in many cases lower than we would establish), but, less than 25% of the ‘D’ reps had specific quotas. Second, when we examined (tested) the coaching skills of the Sales Managers, the results showed that their lowest skill set was in confronting reps about performance.

Taken together this leads to a conclusion that Sales Managers need significantly more focus on setting, communicating and managing specific results.

Other Industries

The above data is not unique to that industry. Two other similar industries had comparable data. For example, in an approximate 400 sales rep sample the breakout was: ‘A’ – 18% of sales reps bring in 40% of gross profit, ‘B’ – 22% of sales reps bring in 30% of gross profit, ‘C’ – 25% of sales reps bring in 20% of gross profit, and ‘D’ – 35% of sales reps bring in 10% of gross profit. For a different industry with a sample of approximately 200 sales reps that sample breakout was: ‘A’ – 16% of sales reps bring in 40% of gross profit, ‘B’ – 24% of sales reps bring in 30% of gross profit, ‘C’ – 25% of sales reps bring in 20% of gross profit, and ‘D’ – 35% of sales reps bring in 10% of gross profit.

Action Items

For manufacturers, these conclusions are critical.

First, emphasis must be placed on growing distribution coverage based on the number of productive sales reps (here we mean ‘A’, ‘B’, ‘C’). For example, assume a manufacturer has approximately 600 sales reps in all dealers. From our work we have a high confidence factor that only 60% of them are effective (40% ‘D’ reps). That yields 360 effective reps. Further, assume the average productive rep sells about 50 new units per year. That gives the manufacturer a total of 18,000 new units booked/sold.  In a new market of 180,000 units, that yields the manufacturer a market share of 10%.

If distribution keeps the total reps at 600 but increases effectiveness to 85%, then you have 510 effective reps; further, at a performance of 50 new units, the manufacturer would yield 25,500 new units, for a share of 14%. The long-term goal (3 to 5 years) could be 800 reps, at a 90% effectiveness, at 50 new units per year, for a total of 36,000 new units. In an annual market of 180,000, that yields a 20% market share. These are achievable goals if you focus on Sales Manager development.

Second, more profiling of the ‘A’ and ‘B’ sales reps is needed – particularly the ‘A’ and ‘B’ reps with less than 5 years experience. If we can uncover a success profile, it will greatly assist in replacing weak performers with stronger ones. We suggest surveying all dealers regarding their current use of sales skill assessments, capture this information and then correlate it to current sales effectiveness. The next step would be to have every Dealer salesperson take the same assessment and find the correlations between the assessment and individual sales performance. If, in fact, there is no psychological or experiential profile that is strongly correlated, then, the process is more random. Thus, we would recommend hiring acceptable new reps; on-board them effectively, but, wash out weak performers early. Perfecting success correlations can drive quick results.

Financial Performance

Getting our hands around the performance of the ‘D’ sales reps and their drain on the financial performance of the sales department was the first step in the profit improvement process. We stayed on the Sales Managers and asked for cure plans on all the ‘D’ reps, during face-to-face meetings, as well as conference calls that took place between meetings. The results of addressing the poor performers were very beneficial in terms of both market share and financial improvement.

To further dimension financial results, let’s look at a specific case history. Of the companies that were involved in one sales management development project, half of the Sales Managers were participants for the entire period. We have not included the quarter that joined the process after the first or second session took place, or the quarter that were replaced as a result of this process. Looking at the performance of these companies over a three-year period showed significant improvements in several categories.

 Specific Results

 The half of dealers that were participants with the same manager(s) for the entire process had an average revenue improvement of slightly less than 20% per year, and improved their margin percentage by roughly 0.5% (11% to 11.5%). In other words, a typical dealer with $50,000,000 in equipment sales saw a revenue increase over the three years to $80,000,000, and a gross profit increase from $5,500,000 to $9.200,000. In addition, the average monthly gross profit per sales rep improved over $7,000 per month, or $84,000 annually.

Most important, by ridding themselves of the poor performers these dealers went from losing 1% of the revenue generated by equipment sales to producing a profit of 1.5%. All together this was a turnaround of roughly $1,500,000 of profit for each company that participated; with 30 companies this totaled $45,000,000 over three years combined.

Critical Behaviors of Sales Managers

 The majority of our work with the Sales Managers in all these projects centered on the critical management behaviors of the participants. Many management topics were presented and utilized including: Myers-Briggs (MBTI), Situational Leadership, Coaching, Assertive Communication and the like. All these topics are critical to developing the manager’s tool bag so that each manager can deal effectively with specific situations.

However, the single biggest correlating factor for successful sales departments in all of the studies we’ve conducted in over 45 years of distribution consulting is time spent by the sales manager working and coaching the sales reps.

There are two elements to this process; first is the telephone call every night with each rep about their day, and second, working with reps in the field.

The quickest impact we could make with any group was to insist that the Sales Managers get in the field a minimum of 3-4 days per week. Too often, in today’s distribution companies, we see the managers locked behind a desk, handling negotiations with the manufacturer on pricing, preparing quotes or offers for sales reps, checking all paperwork for accuracy, reviewing all programs in pricing and lease rates, and the like. The administrative process has made Sales Managers more passive. They are Managers of Sales not Sales Managers. They are Sales Monitors not Sales Managers.

They are Sales Monitors not Sales Managers.

Simply by getting the Sales Managers in the field 3-4 days a week, there was immediate impact. They were able to see the ‘D’ reps’ lack of talent that we discussed earlier. This helped drive them to do something about it (train or replace). It also helped create an awareness that many of the sales reps who were underperforming were not calling on the right accounts. Too often the ‘C’ and ‘D’ reps were calling on C and D accounts simply because they were given a lead that may or may not develop into a sale. Even the ‘A’ and ‘B’ reps could be significantly improved. Often these better performing reps were comfortable calling on their current large customers and were hesitant or reluctant (resistant?) to develop conquest A or B accounts. So, we now had to get the Managers to focus their sales reps on: identifying accounts, segmenting accounts, prioritizing accounts, and covering accounts with the appropriate number of calls; for both existing accounts as well as conquest accounts.

As an aside, we have a number of anecdotal case studies where the Sales Manager and a senior sales rep finally did make calls on target conquest accounts. While conventional wisdom says that the development of conquest “A” accounts can take years, we have found many instances where we caught the prospect in the buying phase, and were able (through luck or skill) to do a deal immediately. It’s the conjunction of opportunity and effort.

Once these accounts were identified by the Sales Managers (with help from the sales reps and other departments in the business–parts, service, rental, etc.), the next step in the process was to help the sales reps in their account development strategy and call planning. What were the reps going to discuss when making calls on these accounts?  What was the entry strategy for conquest accounts that have not done business with us before? What was the qualifying process being used to determine viability of accounts? Even more basic, what does this account do (industry/profession/vocation)?

The evening call with each rep was also a process suggestion that meet with significant resistance. First was the obvious objection about time. However, good time management requires you to make time for the most critical process. Is daily coaching of sales reps the most critical process for a sales manager, or, is it something else? We view the sales management process as similar to a position coach in sports. The position coach works closely (and constantly) with specific players to improve their performance. Even in the middle of a game, the position coach tries to improve a player, or players’, execution. The position coaches do not excuse themselves during the game to review game films, invent new strategies, do television interviews; rather, they work the players by coaching specific actions or reminding them about the game plan and holding them accountable for executing the game plan. This nightly coaching call is critical to sales team performance, and is critical to and welcomed by new, young reps. To recap the critical management behaviors for the Sales Managers from our recent projects, they are:

    1. Field Time: 3 to 4 days per week
    2. Daily Sales Rep Activity Review: number of calls, quality of calls, accounts covered
    3. Account Identification: existing and conquest
    4. Account Planning: strategy and call objectives
    5. Coaching all reps to the game plan

While there are many other behaviors critical to the success of a Sales Manager, these were the top 5 that we correlated.

Also, some sales managers felt time pressures because they had excessive span of control problems. A sales manager with 10 or 12 sales reps to manage will have severe time pressures. Managing 10 senior, developed sales reps is certainly easier than managing 10 rookies. However, where is it written that sales managers must be the sole influencer with the sales force? Some dealers have moved to sales teams where call planning, daily coaching and other supervisory tasks are handled by the senior member of the team. For the senior player, this is like a “tryout” to see if there are any future candidates for a full sales manager role.

The point here is that the sales team needs coaching and development; how that gets accomplished can vary from business to business. The key is that it must get done in a highly professional way.

Market Share Results

Through addressing the performance of the ‘D’ reps in one project, the Sales Managers were better able to focus sales management time on ‘A’ and ‘B’ reps, the better performers.  Here, the market-share position of the companies in this project improved by 1.3%, on average, in a one-year period. We use the traditional market share measurement of units sold divided by size of market. The participation rate (deals in on) of the dealers involved improved by approximately 10%. We define participation as number of units quoted where a transaction actually occurred, divided by size of market. While the close rate of the reps went down 2.5%, we were okay with this because they were in on more deals.  We define close rate as number of units sold divided by number of units quoted. Often close rates decline slightly as you cover more conquest accounts.

From a manufacturer point of view, sales management effectiveness is the secret sauce that drive performance and results. Field staff for a manufacturer must be effective sales managers–but sales managers with no authority. So, all their influence comes from their interpersonal skills–persuasion, instruction, coaching, directing, leading and the like. Have they read the latest and greatest books on sales effectiveness, do they know all the latest data on cost of ownership, do they communicate this information to sales reps in a mentoring way? The point here is, a dealer’s sales team is their sales team too. They don’t have authority, but they have influence.

As an anecdotal point, we worked with one manufacturer where we got consensus on an action item around the idea that sales reps don’t call on dealer principals; rather, they work with sales reps (and sales managers) calling on existing and conquest “A” and “B” accounts. This change produced significant new behaviors in sales reps and sales managers brought about through the influence of the manufacturer’s field staff. Significant sales increases occurred because of this change in sales reps’ and sales managers’ behaviors.

Market Analysis

In one project the client was particularly concerned with covering some new, high-growth and high-profit markets. With this group of sales managers, we reviewed the top industries to which the manufacturer sold product. We asked the manufacturer to provide the top 10 SIC Codes in descending order. We then took these 10 SIC Codes and had the sales managers’ grade these industries based on several criteria. We broke the managers into smaller groups and had them answer several questions about the average customer in these 10 industries. The questions centered on the following:

    • Does the customer desire a long-term buying relationship?
    • Does the customer make stand alone purchases or do they make purchases as part of a larger buying decision?
    • Does the customer desire a single-source provider?
    • Does the customer make purchase decisions based solely on price?
    • What is the customer’s experience with the product?
    • Is the customer focused on long-term needs or simply on immediate needs?
    • Is technology a major consideration for the customers and their needs?
    • How easy/hard is it for the customer to swap suppliers?
    • Is installation of the product into the customer’s application easy or hard?
    • Does the customer require a lot of customization to the product?
    • Has the customer had satisfactory or unsatisfactory experiences with other suppliers?

While there were several other questions that were asked, these were the major ones highlighted in the survey. We put a point system to the answers and ranked the 10 SIC Codes in descending order.

What we discovered is that the sales by the manufacturer (and in turn the dealers) was opposite of how the Managers felt about these different industries. In other words, even though SIC Code XXX was ranked first in manufacturer sales, the managers felt it was number 9 or 10 in ease of doing business.  It was as if the Managers and the manufacturer were on different pages when it came to which industries and customers should be the focus.

While there is still much research and review to go in this area of our work with the managers, it was telling that they felt there were no programs or target marketing toward customers and industries that wanted to purchase product based on long-term commitment and relationship. They felt the top 3-4 industries where products were sold were price buyers only, many of them on a national account basis. The bottom 2-3 industries in the top 10 list were the stronger potential growth opportunities according to the managers. The critical point here is the disconnect.

Summary

Our Sales Management project work with both manufacturing and distribution clients over the years has shown that by getting back to Sales Management basics there can be immediate financial and market share gains in a relatively short (6-18 months) period.  Getting the Sales Managers focused was the central tactic. We are keeping them focused on specific but integrated tasks such as: the level of talent of the sales reps, replacing weak performers, recruiting new reps with the success profile, planning effective coverage and coaching for success. This is driving Sales Managers to concentrate on the activities of the sales reps, to allocate the sales activities between existing and conquest accounts, and to drive the quality of message through pre-call planning and field coaching.

Our implementation process for Sales Management projects is generally Best Practices Groups that meet three times per year, supplemented by monthly conference calls. For quicker results we often work directly with individual dealers and Sales Managers to effect more rapid changes. The work with individual dealers requires a lot of communication and support, because the time period is tight and results are expected quickly. This tension can actually help the process, or, can terminate the weak manager.

Our mission in these projects is very focused. We are in the process of converting from administrative managers of sales, to effective, field-focused Sales Managers.