Chapter 5
(I)
AN INDEX OF NET-PROFIT CONCERNS..and..
(II)
ANSWERS TO THEM
INTRODUCTION TO 39+ CONCERNS
Old beliefs
instantly dismiss the idea that a customer with ̶
Big Sales, GM$s and a decent GM% ̶ can be a big loser. Gut-reactions scream
out:
·
Sales Reps with GM$-based, incentive pay will panic
(and bolt to competitors).
·
Every extra dollar of GM helps with fixed overhead
costs; don’t drive any away.
·
Losing any customer will shift more of the same
total, fixed-costs to fewer remaining accounts. More accounts will then be
losers. Repeat into a downward spiral.
·
Everyone in the company and the channel will think
we are crazy.
Good answers
to these real concerns (and others) await you in Part II. If you poke traditional (math and fact free) beliefs, then
expect a broadside of inter-related objections to fight for the status quo.
Can you
answer the 39+ concerns below with unshakable confidence in the upside
possibilities revealed by LIPA Management? If YES, then you can get enough
stakeholders (reps too!) through their Conceive-Believe-Achieve
(CBA) process to execute on wealth pie-expansion plays. Some diehards will
defend the old beliefs to their necessary departure. You can’t let a vocal minority
hold back progress for all other stakeholders and threaten the future of the
company.
The
concerns are organized in a chronological, building-block order. The objections
will emerge in a different order. Most people will jump right to # 17 (the CTS
model is untrustworthy) and 18 (Reps will rebel). The other most popular
argument will be: the fixed-cost-all-GM$s-are-good (#s 1-4 in the index). The
rest of the building blocks will emerge in defense of the status quo. Be
prepared!
Some
concerns below will seem dated to folks in channels that have already flipped
to supply-chain selling solutions (drug, hospital supply, OEM components/ingredients,
MRO integrated supply, etc.) Many channels still have sales reps pushing
products for prices within the context of a traditional, time-and-territory,
call-schedule regime.
Skim
through the concerns to find the ones relevant to you. If you don’t find
your specific concerns on the list or sufficiently helpful answers in the
Discussion Notes, email the shortfalls in. We’ll add your input to this
Index/Answers project.
This list
does not have to be a secret tool for just Change Champions. Ask important,
vocal doubters to go through the list to check off the points that concern them
the most. All of these concerns will: calm emotions; hook rational thinking;
and broaden conversations and curiosities about additional, hidden opportunities.
As you
experiment with this Concerns Index, remember a key objective: convince
everyone that the status quo is not a sustainable, winning-strategy in a
changing world. If they want to fight LIPA Management innovations, then ask
them to come up with another True-New solution to growing the pie for all
stakeholders. Otherwise, let the net-profit journey begin, one, small, fearless
step at a time. Courage and enthusiasm come after traction is achieved.
PART I: THE INDEX OF CONCERNS
(Operational-Cost,
Financial Assumptions)
1.
In
the moment, all of our costs are (or seem to be) fixed.
2. If we drive away a dollar of customer margin, it will
come 100% out of the bottom line, because all of our people will still be here
getting paid the same to do less. And, our supplier rebates will be less too:
another year-end hit to the bottom line.
3. For incremental new business, we have
fulfillment-capacity slack. We can take more orders without burning overtime.
Any incremental margin dollars will mostly “flow-through” to the bottom line.
4. Every dollar of margin from any type of customer is,
therefore, good.
(How, then, Do We Best Get More
Customer GM$s? Assumptions:)
5. All customers contribute incremental sales and GM$ that
flow through to profits (see #3 above)
6. Small Customers often
(statistics-free) grow into big ones: acorns grow into oak trees! Be
profit- tough with a Minnow today, and they will hold a grudge when they get
bigger and we want them back. Our competitors, who welcome our alienated Minnows
today, will invest in them and reap growing rewards in the future.
7. Tell big customers with many small-orders to change?
They’ll get angry and leave. (Hits: #s 2-4)
8. Drive big or small customer GM$s to a competitor, then
they will benefit from #s 2-4 at our loss.
9. There is no way that I want to give any competitor one
GM$ of extra business. Why give them more opportunities ̶
profit, hope, and bragging rights ̶ to our common
suppliers. (“Territorialism”: it is mine
and, as importantly, it is not yours. If you want it, than so do I, so you
can’t have it.)
(Don’t’ Mess With Reps On Commission)
10. You get more accounts, sales and GM$ by hiring more
reps (“more feet on the street”)
a.
Why downsize your sales force,
even if some are calling mostly on Minnows?
11. If reps are on commission at X% of sales or Y% of GM$s,
then they are ̶ on average ̶ profitable.
a.
Aren’t they? What are our unspoken
assumptions? Are they net-profit true?
b.
Being on commission is certainly
more net-profitable or less of a loss than a salary/draw which is a bigger
percent of the GM$s than the commission check. But, profit growth won’t come
from: minimizing losses and hiring more unprofitable reps to get more
unprofitable accounts.
12. If reps get commissions on small/net-profit-losing accounts,
we’re still profitable on their territory if they are on commission.
a.
The good and bad accounts average out.
b.
Some Minnows won’t like less free
services and higher prices. They will leave. All GM$s contribute to overhead
and extra rebate dollars at year end. (See #11; and #1-4)
c.
We don’t have enough big accounts
to support all of our reps: why not have them cultivate the acorns that will
grow into oak trees?
13. If reps are on salary, then they will slack off if you
don’t watch them. A commission plan makes them call on their customers on a
regular basis. If they slack off on regular calls, then the regular competitors
will start gaining share in those accounts.
14. We’re lean and mean around here. We eat what we kill.
Sales reps are independent agents and masters of their territories. They sink
or swim with how hard and smart they work. To mess with their accounts shows
disrespect for their abilities. It has always been that way; don’t mess with Mother
Nature.
15. We pay reps a salary plus a bonus based on GM$s in some
way (variation on #11)
16. We can’t use an incentive based on “net profit growth”
because we don’t know what the CTS is for every customer to then compute the
net-profit for every customer. Our competitors don’t know this information
either, we presume, so it’s a fair fight. (Why use automatic weapons when we
both are fighting fair with bows and arrows?)
17. Any
CTS-allocation model can be proven to be imprecise (or at least second-guessed)
as far as the true, exact CTS and Net Profit for a given customer. “If it isn’t perfectly precise, then it’s no good,
because the sales force won’t trust it. They will assume that they will get
less income and some may switch to competitors. This will slam sales volume
concerns #-ed: 1-4. ”
a.
Big unspoken questions:
a. Is the
current, financial-reporting-based model perfect?
b. Is everyone
in happy, trusting agreement as to what a perfect GM$ and GM% number for
compensation is?
c. If not, What is the real, root cause of rep mistrust
about even the existing comp plan?)
b.
The Devil the Reps know is better than the one they don’t. Reps do, after all,
understand the current game-terms of: sales, GM$s, GM%. They are adept at
coping with the four-way (Rep, House, Customer and Suppliers’-special-pricing),
zero-sum game over PRICE and GM%.
a. The terms – “CTS, Net-Before-Compensation (NBC) and Net
Profit” - are radically new and rest upon a can’t-be-perfect CTS model.
b. The
combination of the historical mistrust over real GM$s combined with the initial
incomprehensibility of a Net-Profit world will push every reps’ income
panic-button.
c. The bigger the initial, comprehension gap, the bigger
the fear of losing income.
18. Steal good reps from competitors instead, if possible.
(If your firm isn’t a Service Secretariat, will you only be able to steal
mediocre competitors’ mediocre, net-unprofitable reps with obsolete value-added
skills?)
19. Rep relationships with the customer are, after all, what
the customer values most.
(Higher GM% Means Higher Net
Profits)
20. We can get more margin dollars per order by sneaking up margins.
a.
This works best when we get
general, supplier price-increases and then add a bit more on price increases to
our customers.
b.
This pass-through-plus technique
works especially well on “blind items” that customers don’t normally price-shop.
21. Anything with higher GM% ̶ items, orders, accounts, territories ̶ is better than
lower GM%. We have a sliding scale
commission plan that pays more of the GM$s IF the GM% is higher. (Is it possible that a high GM%
territory is due to a preponderance of small orders out of the warehouse to
small customers for which the total CTS is still greater than the GM$s for a
loss?)
22. The LIPA-Management, item, profit-ranking report
suggests that some ̶ highly picked, small dollar-line-item SKUs ̶ are unprofitable. But, some of these items are
from suppliers for which the entire line has the best TURN x EARN product and GMROI ratio. Everyone knows from 30
years of industry financial studies and management that: if these financial metrics are high, this is good. No questions asked.
23. In customer-profitability rankings, small, house accounts have the highest GM%.
But, even without sales comp costs in their CTS, many of them are losers. We
thought “House” and/or “Counter Business” was profitable and desirable. This net-unprofitable math offends our
higher-GM%-business-is-always-best beliefs and constant management/marketing exhortations.
(Pleasing and Motivating
Supplier Assumptions)
24. Reps can sell more GM$ per account if we have more
supplier lines and items to sell to customers. You can’t sell out of an empty wagon.
25. Suppliers give maximum support (and rebates!) to those distributors
who grow sales the fastest. (See # 25 & #27)
26. If we drove away any customers/volume while trying to
transform their unprofitably-high CTS, exclusive suppliers (if we had any)
would be upset and threaten to pull the line. Non-exclusive ones would shift
their discretionary help and deals to those competitors who are picking up our
alienated customers and growing sales volume for the common suppliers.
27. The best execution of product rollouts and promotions
is vital to growth, because all of our competitors have access to the same
lines and promotions. The early bird gets more worms.
28. The more we grow with target suppliers the better are
our growth rebate dollars.
a.
Are the rebate dollars added back
into the GM$s – CTS = Net Profit equation for products in the supplier line to
see if the line is truly net-profitable every month?
b.
Or, are “rebates” a math-free,
hopeful net-profit benefit?
29. We try not
to count rebates as everyday GM$ that is commissionable or price cuts that
should be passed on to the customers.
(Our Reps Can’t/Won’t Change.
We Still Have an Independent-Agent Tradition.
See #17-19)
30. When our reps call on an account, they have to have something worthwhile to show or tell.
31. Trying to get Reps to sell supply-chain-math, win-win
solutions will require new skills and a different customer, time-allocation
system. (They can’t, won’t do it and will
leave instead: #17)
32. When we look at a customer profitability ranking report
and see big, “good” customers at the bottom for which reps are earning big
commissions, we have to ask is the CTS model perfect and trustworthy? No! And,
No!
33. If we can prove that we can never know the exact, true,
net-profit or loss of an account, isn’t that a good enough argument to go back
to the status quo.
34. Customer profitability ranking reports disrupt the
logic of our universe and shake or break every one of these 39+ bricks.
35. Do we have some losing customers and items? Sure, but
you have to take the good with the bad.
a.
All of our competitors do.
b.
Our suppliers and customers expect
it.
c.
On balance, it has always worked.
It is the way things are done in this channel.
(EXECUTIVE EGO CONCERNS)
36. I don’t want to believe that I’ve been paying
incentives to my reps to go get unprofitable business.
37. Supply-chain-math raises all kinds of “new” questions
for which I don’t have ready answers.
a.
I want everyone to think that this
company is led by someone who has ready, right answers due to lots of hard work
over many years. I don’t want to be as clueless as everyone else in a new
world.
b.
I don’t want to go from being the
resident expert to the first among continual learners in a new paradigm.
c.
Some customers and supplier folks
might even laugh at some of these New Paradigm ideas.
38. In successful, case studies of LIPA Management, they
mentioned going “open book”. This is
just against our religion. What are my specific ego concerns about OBM?
a.
I want everyone to think that the
company is bigger and more profitable than it is.
b.
My beliefs are the biggest reason
that the company isn’t bigger and more profitable.
c.
If we went OBM, then there would
be “new questions” for which, again, I don’t have ready answers for (I need to
be the expert).
d.
And, historically, I didn’t have
any innovative profit-growth ideas other than keep fine-tuning what we know and
deluding ourselves that we are doing it harder.
a. Are my reps trying harder or aging in place?
a.
Is the average age of the sales
force past their peak energy and economic needs zone of 30 to 45?
b.
Can young, talented reps get
access to the best accounts to sell them service-value-chain solutions?
b. Is our fine-tuning guided by financial management
conclusions which are zero-sum solutions like: cut total employment costs and
try to work them harder. How motivating are zero-sum,
negotiation tactics to all other stakeholders?
39. Our track record at trying any big changes beyond
find-tuning the past is not great. I’d feel vulnerable if I went to the mat for
this Big, True-New and it fizzled like past ambitious plans.
a.
It’s always easier to stall off
True New ideas with statements like: “We know what you are talking about. We
could do it, but we choose not to, because…
a. We are already doing well enough.
b. We have too many other cooler things we are working
on.”
b.
Who is going to guarantee me that
LIPA Management is going to implement itself for sure?
c.
Who is going to take care of my
honest implementation concerns?
40. (Send in more pushback stumpers that you may
encounter!)
Chapter 5, Part II: Discussion Of The Concerns
Chapter 5, Specific Answers To The 39+ Concerns
