CED: Your research indicates that AED members aren't as sophisticated in their sales practices as other industries. Why is that?
Marks: The short version is that people are as sophisticated as they need to be. AED members have done things a certain way for a long time, and it's worked. With product support and rentals now playing an increasingly larger role in the profit picture, things are becoming more complex. AED members are just now looking into specialized sales forces for product support and rentals. Yet, that concept has worked in other industries for years.The Sales Compensation Report showed that the top performing companies are using call budgets, call plans and other customer-relation-management tools. But, unfortunately, distributors won't start using these tools until they need them.
CED: The report showed that reps for the top performing companies had 25 percent more accounts but made 22 percent fewer sales calls. Explain.
Marks: The smart companies are using fewer reps to cover larger territories. That's huge right there, because it gives them a cost advantage. In addition, the reps for the top performing companies are a little more sophisticated in their techniques and use of sales tools. That's all part of strategic sales management and rewarding people for what you want them to do, namely establish long-term customer relationships, rather than just bagging the next big deal. The old sales mentality is similar to a trapper who makes the rounds every day checking his traps. That's the sales rep who makes a routine call to his client Herbie because it's 3:30 p.m. on Thursday. The smart guy has a way of discerning that magical moment when the customer is finally giving up on his old piece of machinery and is ready to buy a new one. So his call is much more focused.
CED: You're the manager of a $28 million heavy equipment dealership. How are you going to structure your sales force and compensation policies?
Marks: The first thing I'm going to do is figure out what business I'm in. That sounds obvious, but with new equipment, used equipment, rentals and product support as larger slices of the revenue pie, the issue is a little more complicated than it used to be. So the first job of the sales manager is determining exactly what is his competitive position. He needs to look at each segment of the business and ask, what is the cost to grow this? What is the share? What margin can I expect?
In this industry you are arraying your resources just as a general deploys his forces in the field. You want to array your resources in the areas with the greatest opportunities for growth. And the Sales Comp suggests that's what AED members aren't doing today. The absolutely compelling data from the new study says the traditional equipment guy needs to put more resources into parts, service and rentals. So if I'm the manager of that $28 million dealership, I'm going to take a bunch of my salespeople and transfer them to the areas where I can get the most growth.
CED: Would you have fewer reps but more support staff to service them?
Marks: There's very strong evidence indicating that formula works in other industries. It's the same model dealers use in their service shops so that very senior technicians aren't spending their time standing in line waiting to get a couple of filters. There's a runner who does that. But this formula only works if the combined cost of all those support staff and the sales reps is a lower percentage of gross margin. You can't just keep burning up more gross margin.
CED: In the commentary section of the sales comp you say service, not rentals, will fundamentally change the construction equipment industry. Please explain.
Marks: In any industry, the power gravitates toward the customer. In this industry, the customer is in the labor business. The equipment is just a force multiplier so he can bid jobs for less money. Unlike distributors, customers are not emotionally involved with the machinery. All they want is the utility. From the contractor's perspective, there's really nothing good that can happen with equipment. It either works or he has expensive problems. And these guys spend a lot of time hoping they don't have problems. Because of their manufacturer relationships, distributors are all wrapped up in product stuff-brands and features and benefits and axle sizes and all the rest of it. Everyone is sort of in a state of denial about this, but the truth is that the customer doesn't really care. He just wants the stuff to work.
CED: Sales managers in our industry say they're so caught up in the day-to-day battles that go with running a dealership that they don't have time to sit down and think about better ways to do things. What's your advice?
Marks: It's never going to be easy, but people need to develop that discipline. They need to make time to read background materials. In my company, every one of our people attends two seminars every year. I realize it's easy for me to say that because I'm in the consulting business, but this is still a great practice to develop. By the way, it isn't true that industry-specific information is hard to find. AED and The AED Foundation are producing a lot of written material as well as seminars and other products geared specifically for sales, rental and product support managers in equipment distributorships. That's great, because it means AED members don't have to read stuff about pharmaceutical distribution and then figure out how those strategies translate over to the equipment business.
