The increasing pressure on outside sales productivity

by Scott Benfield

The pressure on outside salespeople to become more productive in mature distribution markets is increasing at an alarming rate. The decline of the manufacturing customer base, alternative methods of solicitation, and customer demands for lower costs add up to significant changes for outside salespeople.

Consider the following research and its implications:
• Durable goods wholesalers only nominally increased sales-per-employee between 1992 and 20021.
• When given a choice of a 4 percent price decrease (the average cost-of-sales for outside salespeople in distribution) or the services of an outside seller, 70 percent of industrial buyers chose the price decrease2.
• Recent research about the effect on distributors of the movement of U.S. manufacturing overseas found that 21 percent said they were cutting back on the number of outside sellers3.

Research specific to distribution points to tremendous pressure on selling costs in industrial distribution channels. Should wholesalers in other vertical markets (such as residential housing) feel too secure, the consolidation of builders and end-users is guaranteed to put cost pressure on their traditional supply chain. Fewer outside salespeople will be required to demonstrably improve their return on direct costs.

The multi-million dollar question is, “What will wholesalers do to answer the cost pressure, and who will bear the risk of the unpopular but necessary decision making?”

Increasing the productivity of the outside sales force includes redesigning the sales model, arranging call plans to accounts with recent incremental sales, balancing the compensation plan, making territory management more of a science and less of an art, and realizing the branch manager is no longer superman.

Redeploying outside salespeople
Benfield Consulting chronicled seven models of outside sales deployment.4 While common in industrial services and industrial manufacturing, these models seem lost on distributors. The vast majority of distributor salespeople serve geographic markets calling on any number of customers. We call this method of sales allocation the “splat” strategy, an onomatopoeia for throwing sellers (splat) in a geographic territory.

The “splat” strategy has serious shortcomings, including:
• Salespeople sell to any number of customers, many of which are unprofitable or can’t afford to see a seller.
• Salespeople paid on gross margin dollars tend to horde small accounts that usually stay small and cost more to serve than they generate in margin.
• Geographic deployment pins the efforts of the salesperson on decreasing time between calls. In other words, there is no specialization for customer needs, product needs or sales cycle dynamics.

The research on changing sales models shows a 2x to 3x improvement factor over other traditional changes of account balancing or territory boundary changes. The new models of sales allocation are segment, functional, enterprise, consultative, hybrid and transactional. Each model requires a specific application, pay structure and skill set. To drastically improve productivity, a new model must replace the simplistic geographic territory. Balancing account loads and changing boundaries are common in distribution sales management but are running out of steam. Their impact on increased productivity is of little advantage, as most sales managers know how to accomplish these goals.

The fallacy of large customers and frequent calls
Outside salespeople spend the most time at larger accounts as a rule of thumb. Even when account growth slows or becomes flat, many outside salespeople justify the frequency of calls as defensive selling.

Larger customers may not always value the frequency of sales calls. Our research clearly points to the demand by the larger, more sophisticated customers in the direction of total purchasing cost savings. Survey estimates for industrial markets consistently show an overcapacity in sellers of 30 percent to 40 percent. Larger customers show an increasing interest in documented supply chain costs. And, they are increasingly willing to cut call frequency to reduce supplier costs. Often, the best sales strategy is decreased sales cost and documenting the supply chain savings.

Outside salespeople will be forced to develop call frequencies around customers that give incremental sales because of increased sales attention. They will arrange call plans around a recent history of increased sales, not necessarily customer size. The process is quite dynamic and not as static and predictable as the classic A, B, C account size call plan. Rearranging the call plan for incremental selling requires analysis and review.

Balancing the compensation plan
Distributors are fanatics when it comes to compensation changes to influence sales behavior. It is not unusual to see sales managers “bribing” outside sellers to accomplish any number of sales goals. However, most compensation in distribution, however, is unbalanced. Because distributors reward on margin dollars, the seller’s attention goes toward increasing margin dollars. They pay little to no attention to the expense of servicing the account, maintaining the margin percent (as opposed to price cutting), and working on long-term account building efforts.

Balancing refers to offsetting measures in the compensation plan to guard against the destructive behavior of one-number compensation systems. Consider the unbalanced examples of rewarding only on activity profits and the probable outcome of low market share, or rewarding top-line sales (which encourages price cutting) and low pre-tax profits.

Margin dollars should be balanced with margin percentage goals in a matrix payout. Or, reward sales managers on margin dollars, pre-tax profits, and tangible objectives. Gross margin dollar goals are one measure and unbalanced by definition.

Finally, sales managers should understand that compensation rewards not only results but behaviors and tasks that achieve results. Too often, compensation plans reward people for obtaining results without defining, training and evaluating the learned ability and processes to achieve results. 

The outcome is what we call hitting the sales plan by any means. Any means includes destructive activities such as price-cutting or giving away services to consummate the sale. A certain portion of the compensation should be given for completing behaviors and tasks pertinent to reaching planned results.

Training salespeople as territory managers
Outside salespeople must be trained in the finer aspects of territory management. Most salespeople are trained in product knowledge but untrained in managing the job. As the product portfolio matures, product knowledge becomes less of a factor in maintaining customer loyalty. Research in customer satisfaction measurement finds product knowledge in the lower half of service attributes that drive satisfaction.

Territory management skills include advanced training in pricing; restructuring the call plan around recent growth (not just account size); developing and using product gap analyses; zero-based inventory analysis; sales promotion planning; and services selling. Benfield Consulting offers seminars in advanced territory management and covers 30 separate competencies in managing the territory outside of increasing product knowledge. When asked what methods they have of increasing their productivity, most distribution salespeople offer a handful of ways to accomplish the task.

A common example is in the area of pricing, where most salespeople spend time matching price on velocity items. There are seven distinct skills and measurements in pricing competency. If your salespeople insist on controlling price, you should insist on demonstrated competency and sufficient time spent in analyzing and maximizing gain through territory price management. It makes little sense to add value and not capture it in pricing by letting salespeople “gunsling” price. The shareholders and behind-the-scenes workers and their families ultimately depend on profits gathered through competent pricing management.

Most distribution markets sorely need training and analytical support to drive better territory management. Sales managers and tenured salespeople should refresh their understanding of new tools to aid in improving productivity or they may find themselves on the bubble of cost reduction.

The branch manager is no longer a superman
Wholesaling executives should lean harder on sales management and outside salespeople and less on the branch manager as the sales leader. The complexity of the job can make branch management impossible. Many wholesalers still expect the branch manager to be inventory guru, human resource leader, sales manager, pricing manager and logistics expert.

The complexity of this knowledge, especially in larger wholesalers or larger branches, is beyond the mastery of one person. The old idea of branch manager as Superman is outdated. Unless the company is willing to staff and train experts for these bodies of knowledge, increasing expectations and pressure on branch managers to perform will result in failure and turnover. The branch manager is not superhuman; demanding expert performance in all functional areas is naïve and impossible.

Good financial health requires sales productivity. The research and profit dynamics of the last decade pinpoint significant change, education and measurement in helping doing more, consistently, with smaller outside sales forces. The effects of moving manufacturing overseas, consolidation in wholesaling ranks, consolidation of end-users, complexity of knowledge and the ongoing cost squeeze of distribution channels demands better planning and work in sales and territory management.

1 See the “Quest for Productivity,”  ProgressiveDistributor.com

2 See “Valuing the Outside Sales Effort,” ProgressiveDistributor.com

3 Benfield Consulting and Pfingsten Research, Due Fall of 2003.

4 “Facing the Forces of Change,” Outlook 2003, Chapter 6, N.AW. Publications

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