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Get a grip on your cash flow

24/10/2011 By Mushroom Internet

Predict and plan: work out in detail when you can expect cash to come in and plan how you will spend it. It will help you to see where you can generate extra cash to fund new projects if you are growing, or even pay off old creditors if you are stressed.

While this applies whatever the size of business, it is particularly critical if you are a micro businesses or a small businesses with significant order-to-ship lead times, buying materials and selling products on credit terms, when you will have a significant working capital – cash – requirement to fund the work in process.

On this article we’ll show you how to put together a cash flow management workbook that will help you to manage your cash, month by month.

Start with your order book and prospect list

Starting with cash coming in, you’ll know your order book, but what about beyond that?

This is the hard bit – study your prospect list and write down when you can expect to get new orders from those clients. For this you have to really understand your clients’ intentions and buying behaviour.

Then,  for your current order book and your prospect list you document your cash inflow:

  • order dates;
  • shipment dates; and
  • client payment dates and amounts.

Suppliers and inventory

Do the same with the supplies, or the stock replenishment you will need to complete those orders – one of the major parts of your cash outflow:

  • supplier order dates;
  • goods in dates; and
  • supplier payment dates and amounts

VAT

At this stage you can then predict the two main elements of your VAT liability. This is particularly important if your are on the accrual system when your VAT is pinned to invoice dates rather than cash payments and receipts.

From your order book and your purchasing plan you have the tools to start to calculate the VAT reserve you will need at the end of each VAT quarter.

Staff costs

You should be able to predict these and add them to your spreadsheet, including PAYE and employer’s NI liability.

Overheads

These, you can obtain from your management accounts. If you don’t have monthly management accounts – and you should – you can use your bank and credit card statements, and your cash book.

The simplest way is to include monthly averages, making allowances for any known increases and decreases. You can then account for any VAT recoverable on overhead supplies.

Cash flow management workbook

So there we have it – your cash flow management workbook. From it you’ll be able to see:

  • what funds your have to pay off overdue creditors if your business is stressed;
  • what funds your have to fuel your growth;
  • which areas to tackle to improve your cash flow – for example see our article on creditors; and
  • what extra funds you will need to bring in to accelerate your growth.

Essential tools for well managed businesses!

Posted by Peter Johnson, Business Advisor with SGBA. If you would to talk to someone about your business, please call Peter on 07714 093406 or send him an email to peter.johnson@sgba.co.uk.

Filed Under: Finance Tagged With: business advisors, cash flow, customers, Overheads, profitability, sales management, SMALL BUSINESS, SME, staff costs, suppliers, Sustainability, Tax

Selling into export markets

10/10/2011 By Mushroom Internet

Occasionally you come a cross a business that reminds you of what it takes to be successful. Here was a export business that was selling process control instrumentation into a well defined global niche market.

Selling was done by a UK-based sales engineer who had intimate knowledge of his market place, and with a market-leading technology, the company had been able to price its products to make a handsome profit.

Support costs were low and the products were made entirely in the UK. What more could a government want – a tax-paying export-led business that created employment in the UK!

Many different ways of selling into export markets

However, for most businesses, growing an export business is not going to be quite that straightforward.

A product that someone wants; selling it to them; shipping it; getting paid; low aftercare costs; and making a profit –  in principle doing business overseas is the same as doing business at home, but it is certainly more complex, and it is the complexity that adds cost and increases business risk.

How you deal with overseas clients is key

But fundamentally it is how you access and deal with the overseas clients themselves that will determine the success or failure of your export venture, and that will depend on the territory, your product, its addressable market, your target sales volume, and the level of expertise required by sales personnel etc.

Export sales channels

Thus you will be faced with a number of options for each territory you decide to exploit. Here is a brief list of some of the alternatives:

  • e-commerce: mostly for low-value commodity sales supported by web-based marketing;
  • Telephone/fax/email: for sales of low-to-medium value commodities, services and configured products;
  • UK-based Sales executives: for items such as high-value engineering products, specialist niche products and software development contracts, sold through sales visits to clients’ premises;
  • Agents: commission-based lead generators and often sales representatives, usually for low-to medium volume, high-value goods into territories where the sales are significant;
  • Distributors / re-sellers: buy and re-sell your products, usually as part of a portfolio of related products into a specific market; and
  • Overseas offices: replacing distributors, agents or UK based sales executives, where setting up a local office either reduces the cost of selling into a territory and/or enables you to manage better important key accounts along with providing a base for installation and service personnel.

And as you grow your export business, you’ll probably end up with a mix of channels in different territories depending on local factors, whilst ensuring that each one is contributing to profit.

Posted by Peter Johnson, Business Advisor with SGBA. If you would to talk to someone about your business, or your export strategy, call Peter on 07714 093406 or email him at peter.johnson@sgba.co.uk.

Filed Under: Sales Tagged With: business advisors, BUSINESS DEVELOPMENT, export, growth, sales channels, sales management, Selling, SMALL BUSINESS, SME

What do you do when a customer makes a complaint?

21/09/2011 By Mushroom Internet

What will you do if your product or service fails to meet your client’s expectations and they make a complaint?

You certainly don’t put it in your desk drawer and hope it will go away – that’s a sure way to trash your reputation.

And don’t hide behind your Terms and Conditions. We’ve all experienced being given the brush off when we thought we had a legitimate complaint – it makes you think twice about using the same company again.

Actually, you get back to them promptly and talk to them about the issue: you promise to try to resolve it within a given time-frame, and try to keep that promise.

Your client might still be unhappy with what you supplied, but they’ll be happier with you and your company as they will know you have responded to their complaint and their issue is being addressed.

Put in a Complaints Handling System

And you should do this systematically for every complaint.

Faced with this, recently, a client asked me what was meant by a Complaints Handling System that conformed to the guidelines in ISO 10002 – the client was required to do this for their accreditation.

Now, these International Standards don’t normally tell you how to do it, but amazingly there is a really good explanation in that Standard* of a complaints handling process for a small business – essentially this:

  • Devise a system to log, track and resolve complaints;
  • Set target time-scales for contacting the client and for resolving their issues;
  • Tell the client what these time-scales are, and talk to them regularly about your progress;
  • Appoint someone to administer the system – making sure these commitments are met;
  • Decide which staff will be involved in dealing directly with your clients, and get them some training if necessary – they may have to deal with frustration, anger or confrontation over the phone;
  • Take it really seriously – carry out regular audits at director level to ensure things are being done on time;
  • Use your audits to drive continual improvement; and
  • Carry your staff with you and reward them for their performance in a difficult role.

This sounds like a lot of work

Not really. If you have a culture of client satisfaction and continual improvement, you are probably carrying out most of these steps anyway.

And remember, most growing, high-performing businesses are process-led, so if you want to be like that I guess you’ll have to start putting some processes in.

Posted by Peter Johnson, Business Advisor with SGBA. If you would to talk to someone about your business, including your complaints handling system, call Peter on 07714 093406 or email him at peter.johnson@sgba.co.uk.

*ISO 100002:2004(E) Appendix A.

 

Filed Under: Sales Tagged With: business advisors, complaints, customers, sales management, SMALL BUSINESS, SME, warranty

Collecting cancellation fees

24/08/2011 By Mushroom Internet

People don’t like paying cancellation fees even if they are aware of them when they book their appointment, to the extent that charging a fee often results in the client going elsewhere.

No easy remedies

Apart from asking for a non-refundable deposit, there are no easy remedies.

Charging a cancellation fee to their credit card leaves you open to the client disputing the charge and claiming a refund, the excuse being: they did not receive your service, they were not aware of your cancellation policy (even if you did tell them), and they did not authorize the charge.

Avoid cancellations in the first place

So, by far the best way of reducing lost revenue is to avoid the cancellations in the first place.

  • Send the client a reminder 24 hours before the appointment either by SMS, email or phone and get a confirmation of the appointment;
  • Ensure your staff are well trained to handle objections and secure the appointment;
  • Survey the clients to find out why they cancel and address the issues; and
  • If a client repeatedly cancels insist on payment up-front. If they don’t like that then don’t make the booking. Let them become the competition’s problem!

Finally, if you can afford it, you could offer a discount for up-front payment.  At least then you would have the cash even if your profit is reduced.

Posted by Peter Johnson, Business Advisor with SGBA. If you would like a free initial consultation to discuss your business, call Peter on 07714 093406 or email him at peter.johnson@sgba.co.uk.

We’d like to thank Arnold Toynbee of SolutionWise, Australia, www.solutionwise.com.au for permission to publish this material.

Filed Under: Finance Tagged With: business advisors, business consultancy, cash flow, customers, Negotiation, sales management, SMALL BUSINESS, SME

>How to manage Distributors

10/12/2010 By

>My previous article, “Distributors, Good Bad and Indifferent”, talked about distributors and the various options and routes to market. This article is aimed at those companies who have decided the Distributor route is right for their strategy. For ease of understanding, I will describe the ‘supplying company’ as the ‘Supplier’ during this article.

I have previously explained how important up front research, due diligence and general strategy is when selecting a partner to be your Distributor. Indeed the word ‘partner’ is deliberately chosen, as the relationship must be considered one of joint responsibility. The day a Supplier describes a Distributor as a ‘Customer’ is a sad one, as the motives for selling to them will be misguided.
A Supplier will never have control over its Distributor, and it should not try to do so. However with thoughtful and planned management, the Supplier can influence significantly the thinking and strategy of the Distributor.
A shared vision is important, but often the root cause of misunderstanding if the vision is interpretted differently by each party.
So how do we go about singing from the same sheet?
First, the companies must have a similar ethic to developing business. For example they must both dedicate effort to external sales, they must both spend money on marketing, they both must have a culture of entrepreneurial flair. Hopefully much of this has been ‘ironed out’ in the due diligence process, and it cannot be stressed too much how important the prior research and due diligence is. The ‘chemistry’ must be right! Clearly a ‘can do’ Supplier wants to work with a ‘can do’ Distributor, therefore the culture within the Distributor business will either make or break the relationship.
Second, the Supplier must be able to ‘sew seeds’ in the Distributors mind, that enables the Distributor to develop ideas in line with the Suppliers thinking. Therefore the Suppliers ideas become the Distributors ideas. That way (hopefully) all buy into the sales plan. The sales ‘plan’ must be written with inputs from both parties, with agreed actions. It must be realistic, with some ambition built in, no different from any sales plan. Both the Distributor and the Supplier must commit to the actions agreed. The Supplier must maintain a level of responsibility, commitment and support to ensure this works for all, as it is in the interest of both parties. Fairly obvious, but all actions must be apportioned to an individual, and given a time for completion or action. The plan must be dynamic, easily updated, and reviewed by both parties regularly.
The Supplier must take the responsibilty to train the Distributors team in its products, and must not forget the latest product development updates. Market and Product bulletins will be a key part of the relationship. Make sure that this is communicated in a way that all Distributors can benefit from.
Now all of this is all very good, but what about the new Sales Director, that has inherited Distributors from the Boss or his predecessor. And to make matters worse, several of them are not really performing. How do we deal with this?
First, check the contractual arrangements for the Distributor in question, their terms of engagement (if these exist), and also understand any terms of severance (should this be necessary). Talk to your Boss, check that any drastic action you may have in the back of your mind is not going to drop you into the ‘muck’, as you are just about to axe his all time buddy!
Second, it is imperative that a meeting takes place with both Manufacturer and ‘Poor Performing Distributor’ around the table. At that meeting both sides must state their aspirations for the business. Invariably the Suppliers aspirations will be more ambitious than those of the Distributor. The skill now is to bridge the gap between what the two parties aspire to. What does the Supplier need to do to help the Distributor perform better, and by when? What does the Distributor need to do to make more sales, again by when? What do both parties need to do to resolve the issues? Again, planting seeds is important, so that the Distributor develops ideas along the lines of the Suppliers thinking. A specific action plan needs to be put together to meet the immediate objectives, with a longer term ongoing plan to sustain the higher levels of business, once growth has been achieved.
Formalising a reporting structure is a key strategy. Careful consideration regarding a format is important. Too complex and the Distributor will procrastinate, or even worse, ignore. It needs to be easy for the Distributor to deal with. It needs to be in a format that allows the Supplier to benchmark each Distributor.
The frequency of reporting is also a consideration. For high volume fast moving products, perhaps a Monthly report is needed. With longer sales process items (eg Capital Equipment) a quarterly report may suffice.
Expect some resistance to formalised reporting. The Distributor may need to be coerced, even incentivised. Explain that reporting from all Distributors will allow a better flow of success stories and cross referalls, hence greater business opportunity. And for those who stubbornly refuse to report, and are not performing well, now is a chance (contract allowing) to sever business relationships.
There will always be an element of ‘Us and Them’. And of course the Supplier must respect the fact that the Distributor has other priorities too, as they are likely to represent other suppliers. However, getting the Distributors together once every 12-18 months for a conference, training and inteliegence sharing event is likely to pay dividends for the Supplier. It will engender a sense of worth and belonging for the Distributor.
“All this is all very well, but my Company has 25 Distributors, they are baswed anywhere from New Zealand to Alaska, Singapore to Brazil. How can I reasonably be expected to do all this?” A very reasonable question. First, a network of this size will need more than one person to manage it. Second, it is important that you take the time (albeit sometimes infrequently) to visit all Distributors. For those far away, it can be prudent to engage the services of a specialist Sales consultancy local to the Distributor, who can monitor the Distributor with 6 or 12 weekly progress meetings, and instill good sales practice at the same time. An independent Sales consultant will understand the Suppliers objectives, the local culture and trading conditions, and provide an unbiassed assessment of the progress and challenges.
It is interesting to talk to Supplying companies who believe the Distributor route has failed them. It is always the Distributors fault, or is it? Perhaps a recognition of joint responsibility may have yielded an all together different outcome. And perhaps now, on reading this, the realisation of this responsibility is becoming apparent.
Some Suppliers have recently stated to me that “We believe we can do an equally good job in the territory without giving away all that profit.” I cannot argue with this view one way or another as there are many options to doing business. Of course each come with a cost associated to them. Careful consideration of overheads, employment, local laws etc are vitally important.
The underlying message is that you need to work with your Distributors to gain the rewards. Both time and money must be invested. Mutual respect and spirit of cooperation are key.
Happy partnerships, and hopefully happy Sales!
Good Luck
Ian Thomas FInstIB
Hampshire, England
T: 0870 787 7590
e: ian.thomas@sgba.co.uk.

Filed Under: Sales Tagged With: distributors, export, growth, International, profitability, Profits, sales, sales management, sales performance, SALES STRATEGY

>How to manage Distributors

10/12/2010 By Mushroom Internet

>My previous article, “Distributors, Good Bad and Indifferent”, talked about distributors and the various options and routes to market. This article is aimed at those companies who have decided the Distributor route is right for their strategy. For ease of understanding, I will describe the ‘supplying company’ as the ‘Supplier’ during this article.

I have previously explained how important up front research, due diligence and general strategy is when selecting a partner to be your Distributor. Indeed the word ‘partner’ is deliberately chosen, as the relationship must be considered one of joint responsibility. The day a Supplier describes a Distributor as a ‘Customer’ is a sad one, as the motives for selling to them will be misguided.
A Supplier will never have control over its Distributor, and it should not try to do so. However with thoughtful and planned management, the Supplier can influence significantly the thinking and strategy of the Distributor.
A shared vision is important, but often the root cause of misunderstanding if the vision is interpretted differently by each party.
So how do we go about singing from the same sheet?
First, the companies must have a similar ethic to developing business. For example they must both dedicate effort to external sales, they must both spend money on marketing, they both must have a culture of entrepreneurial flair. Hopefully much of this has been ‘ironed out’ in the due diligence process, and it cannot be stressed too much how important the prior research and due diligence is. The ‘chemistry’ must be right! Clearly a ‘can do’ Supplier wants to work with a ‘can do’ Distributor, therefore the culture within the Distributor business will either make or break the relationship.
Second, the Supplier must be able to ‘sew seeds’ in the Distributors mind, that enables the Distributor to develop ideas in line with the Suppliers thinking. Therefore the Suppliers ideas become the Distributors ideas. That way (hopefully) all buy into the sales plan. The sales ‘plan’ must be written with inputs from both parties, with agreed actions. It must be realistic, with some ambition built in, no different from any sales plan. Both the Distributor and the Supplier must commit to the actions agreed. The Supplier must maintain a level of responsibility, commitment and support to ensure this works for all, as it is in the interest of both parties. Fairly obvious, but all actions must be apportioned to an individual, and given a time for completion or action. The plan must be dynamic, easily updated, and reviewed by both parties regularly.
The Supplier must take the responsibilty to train the Distributors team in its products, and must not forget the latest product development updates. Market and Product bulletins will be a key part of the relationship. Make sure that this is communicated in a way that all Distributors can benefit from.
Now all of this is all very good, but what about the new Sales Director, that has inherited Distributors from the Boss or his predecessor. And to make matters worse, several of them are not really performing. How do we deal with this?
First, check the contractual arrangements for the Distributor in question, their terms of engagement (if these exist), and also understand any terms of severance (should this be necessary). Talk to your Boss, check that any drastic action you may have in the back of your mind is not going to drop you into the ‘muck’, as you are just about to axe his all time buddy!
Second, it is imperative that a meeting takes place with both Manufacturer and ‘Poor Performing Distributor’ around the table. At that meeting both sides must state their aspirations for the business. Invariably the Suppliers aspirations will be more ambitious than those of the Distributor. The skill now is to bridge the gap between what the two parties aspire to. What does the Supplier need to do to help the Distributor perform better, and by when? What does the Distributor need to do to make more sales, again by when? What do both parties need to do to resolve the issues? Again, planting seeds is important, so that the Distributor develops ideas along the lines of the Suppliers thinking. A specific action plan needs to be put together to meet the immediate objectives, with a longer term ongoing plan to sustain the higher levels of business, once growth has been achieved.
Formalising a reporting structure is a key strategy. Careful consideration regarding a format is important. Too complex and the Distributor will procrastinate, or even worse, ignore. It needs to be easy for the Distributor to deal with. It needs to be in a format that allows the Supplier to benchmark each Distributor.
The frequency of reporting is also a consideration. For high volume fast moving products, perhaps a Monthly report is needed. With longer sales process items (eg Capital Equipment) a quarterly report may suffice.
Expect some resistance to formalised reporting. The Distributor may need to be coerced, even incentivised. Explain that reporting from all Distributors will allow a better flow of success stories and cross referalls, hence greater business opportunity. And for those who stubbornly refuse to report, and are not performing well, now is a chance (contract allowing) to sever business relationships.
There will always be an element of ‘Us and Them’. And of course the Supplier must respect the fact that the Distributor has other priorities too, as they are likely to represent other suppliers. However, getting the Distributors together once every 12-18 months for a conference, training and inteliegence sharing event is likely to pay dividends for the Supplier. It will engender a sense of worth and belonging for the Distributor.
“All this is all very well, but my Company has 25 Distributors, they are baswed anywhere from New Zealand to Alaska, Singapore to Brazil. How can I reasonably be expected to do all this?” A very reasonable question. First, a network of this size will need more than one person to manage it. Second, it is important that you take the time (albeit sometimes infrequently) to visit all Distributors. For those far away, it can be prudent to engage the services of a specialist Sales consultancy local to the Distributor, who can monitor the Distributor with 6 or 12 weekly progress meetings, and instill good sales practice at the same time. An independent Sales consultant will understand the Suppliers objectives, the local culture and trading conditions, and provide an unbiassed assessment of the progress and challenges.
It is interesting to talk to Supplying companies who believe the Distributor route has failed them. It is always the Distributors fault, or is it? Perhaps a recognition of joint responsibility may have yielded an all together different outcome. And perhaps now, on reading this, the realisation of this responsibility is becoming apparent.
Some Suppliers have recently stated to me that “We believe we can do an equally good job in the territory without giving away all that profit.” I cannot argue with this view one way or another as there are many options to doing business. Of course each come with a cost associated to them. Careful consideration of overheads, employment, local laws etc are vitally important.
The underlying message is that you need to work with your Distributors to gain the rewards. Both time and money must be invested. Mutual respect and spirit of cooperation are key.
Happy partnerships, and hopefully happy Sales!
Good Luck
Ian Thomas FInstIB
Hampshire, England
T: 0870 787 7590
e: ian.thomas@sgba.co.uk.

Filed Under: Sales Tagged With: distributors, export, growth, International, profitability, Profits, sales, sales management, sales performance, SALES STRATEGY

>Distributors, Good, Bad and Indifferent.

10/12/2010 By

>

Many Companies operate through distributors and stockists. There can be many reasons why a Company chooses this route to market.
Some Suppliers do not have the ability to serve the wide and varied market place, and it makes sense for third parties (Distributors) to offer their products. In others it is used as a strategy to secure business in overseas markets, or places/market sectors that are remote from the Supplier. The down side is that a significant profit margin is given away, to allow the Distributor to operate profitably.
So, how do Distributors come about?
Many have been past friends, or friends of friends! Others have come as a result of an Exhibition meeting, answering an advert, or some simple research. A few have been placed by seeking Commercial Attaché services provided by the Government.
What is a Distributor? Ideally, it is a company operating in a sector that is key to the Suppliers target market (or one of the key markets). They will have a vested interest in selling proactively (i.e. not a passive sale), keep stock, and will not sell any competitive products. In many instances, they will sell complimentary products. Their territory will be defined geographically and/or by market sector. The Supplier will have little control over the distributor, but with good management, can exert quite a lot of influence over them.
And for a Supplier considering whether Distributors are for them, what are the pitfalls, and what are the alternatives?
The main pitfall is that the Distributor is a separate legal entity, and will always be the deciding factor over the success or failure of the sales potential.
Alternatives can be a stockist, an agent, a joint venture, an acquisition, a subsidiary, a franchise or a license agreement. Each will need proper legal preparations and up front due diligence. And cross border arrangements will need consideration of the legalities in both the Suppliers country, as well as the target country.
A stockist is a fairly static and passive partner. They may also stock competitive products alongside yours, and have no real vested interest in making yours successful.
An agent will work on your behalf, and take a cut of profits. However, the supplier will have little control over how he/she operates, and cannot dictate the priorities or strategy.
A joint venture is where two ‘complimentary’ businesses join force, add capital and time to a ‘ new entity’ with its own identity and direction. Here the supplier will have an element of strategic influence, normally commensurate with the share holding of the entity. Drawbacks here are that this can be costly, and good management will be needed to avoid the partnership becoming hostile as the business grows.
An acquisition is where the supplier has bought an existing business in order to further their own aim. This can be a quick route to establishing a ‘subsidiary’ company, and the supplier will now have full control. Drawback is that this is likely to be the most costly scenario, but can be highly lucrative.
A franchise can be applicable, particularly where the business model, or delivery model can be easily replicated across many areas and demographic divides. The drawback is that many of these fail due to the lack of commercial nous of the franchisor, franchisee, or both.
A licensing agreement can be lucrative, where the manufacturing rights can be granted to a partner company against an original fee and an ongoing royalty against sales. Drawback is that you may lose the close control over quality, unless the partner applies diligence to their processes equal or better than you apply in your own activity.
All of the above need time, effort and resource applied to make them work well, and provide profits. Therefore the strategy needs to be precise.
Frequently distributorships are not well thought through. Often due diligence and ‘ the foundations’ are not treated with the respect they should be, which is important before any agreements are made. A good set of ‘foundations’ will include setting the ‘ground rules and expectations’ of both parties, both short, medium and long term.
For example:
What business does the Supplier expect the Distributor to secure within 12 months, 3 years and 5 years?
How will the Distributor achieve this?
What does the Distributor need to do to make this happen? (Employ more people, create new cost centre, attend exhibitions)
What does the Supplier have to do to support the Distributor? (training, collateral, sales visits etc)
What stock commitments should the distributor make?
An agreed plan of action (by whom, by when etc)
What preferential terms should the Supplier make available to ensure the distributor is incentivised and is profitable?
An agreed statement of expectation from both sides.
A formalised means of reporting and communication from both sides.
An adoption of the Suppliers minimum Quality procedures and requirements.
Performance targets & clauses.
Get out clauses and exit routes.
An understanding of the financial commitments that each will input.
….. And so on!
If a potential Distributor does not take these discussions seriously, then it is likely that the future will be full of misunderstandings and under achievement. A marriage made in hell.
How does one go about finding a good Distributor?
First, decide what you want:-
” our products are sold to Biotech companies and the Nuclear Sector” Therefore, in any geographical territory, there may be a distributor for each sector.
“how big should the company be that distributes our products?” (A very LARGE player may in some cases be eliminated from all possible business, so a lower tier supplier may prove better).
“are they already selling complimentary products?”
“will the Distributor be expected to employ dedicated staff to look after our product?”
“how do we want to grow Geographically?”
Once you have decided upon what the Distributor should be, or look like, the Supplier can then concentrate on researching the market/territory for potential Distributors. However, this can be very expensive and time consuming. Without local knowledge there can be many cost and time consuming ‘blind alleys’ Consultants in the territory with specialist and local knowledge can provide great value for money in the search, selection, due diligence, introduction and negotiation of new Distributorships. Suppliers are often blinkered by their own limitations and perceptions. A consultant will approach the discipline without these constraints, creatively and professionally, and can ensure that the foundations are sound before a deal is done.
Once a deal is done, and business starts to role, Distributor management skills become key for the Supplier in order to exert positive influence. The Supplier must always remember that the team at the Distributor are not the Suppliers employees. They must be treated with respect and an appreciate that the Suppliers objectives may have been ‘watered down’ by the time they have reached the Distributors sales team. Often, if the Distributor is a long way from the Supplier, the local Consultant (as used in the search and selection process) can become a good independent ‘go between’ to ensure that all ongoing Distributor commitments and targets are met. This will further reduce the Suppliers cost and time commitment.
Monthly updates from both sides will ‘lubricate’ the relationship, with a formal update from both sides (ideally no less than quarterly) being essential. Nowadays many web enabled systems can allow real time reporting with multi access, and ensure information transfer without delay.
Key points to ongoing support include:-
Regular communication
Sharing of experiences
Two way support
Realistic commitments and targets
There is much more to managing Distributors, and I will explore this further in my next article.
Ian Thomas FInstIB
Hampshire, England
T: 0870 787 7590
e: ian.thomas@sgba.co.uk.
Ian Thomas provides a consultancy and Sales training business aimed at maximizing market and sales potential for the SME sector, both in the UK and overseas markets. Ian Thomas is fully accredited by, and a fellow of the Institute for Independent Business International (http://www.iib.org.ws)

Filed Under: Sales Tagged With: distributors, export, growth, International, profitability, Profits, sales, sales management, sales performance, SALES STRATEGY

>Distributors, Good, Bad and Indifferent.

10/12/2010 By Mushroom Internet

>

Many Companies operate through distributors and stockists. There can be many reasons why a Company chooses this route to market.
Some Suppliers do not have the ability to serve the wide and varied market place, and it makes sense for third parties (Distributors) to offer their products. In others it is used as a strategy to secure business in overseas markets, or places/market sectors that are remote from the Supplier. The down side is that a significant profit margin is given away, to allow the Distributor to operate profitably.
So, how do Distributors come about?
Many have been past friends, or friends of friends! Others have come as a result of an Exhibition meeting, answering an advert, or some simple research. A few have been placed by seeking Commercial Attaché services provided by the Government.
What is a Distributor? Ideally, it is a company operating in a sector that is key to the Suppliers target market (or one of the key markets). They will have a vested interest in selling proactively (i.e. not a passive sale), keep stock, and will not sell any competitive products. In many instances, they will sell complimentary products. Their territory will be defined geographically and/or by market sector. The Supplier will have little control over the distributor, but with good management, can exert quite a lot of influence over them.
And for a Supplier considering whether Distributors are for them, what are the pitfalls, and what are the alternatives?
The main pitfall is that the Distributor is a separate legal entity, and will always be the deciding factor over the success or failure of the sales potential.
Alternatives can be a stockist, an agent, a joint venture, an acquisition, a subsidiary, a franchise or a license agreement. Each will need proper legal preparations and up front due diligence. And cross border arrangements will need consideration of the legalities in both the Suppliers country, as well as the target country.
A stockist is a fairly static and passive partner. They may also stock competitive products alongside yours, and have no real vested interest in making yours successful.
An agent will work on your behalf, and take a cut of profits. However, the supplier will have little control over how he/she operates, and cannot dictate the priorities or strategy.
A joint venture is where two ‘complimentary’ businesses join force, add capital and time to a ‘ new entity’ with its own identity and direction. Here the supplier will have an element of strategic influence, normally commensurate with the share holding of the entity. Drawbacks here are that this can be costly, and good management will be needed to avoid the partnership becoming hostile as the business grows.
An acquisition is where the supplier has bought an existing business in order to further their own aim. This can be a quick route to establishing a ‘subsidiary’ company, and the supplier will now have full control. Drawback is that this is likely to be the most costly scenario, but can be highly lucrative.
A franchise can be applicable, particularly where the business model, or delivery model can be easily replicated across many areas and demographic divides. The drawback is that many of these fail due to the lack of commercial nous of the franchisor, franchisee, or both.
A licensing agreement can be lucrative, where the manufacturing rights can be granted to a partner company against an original fee and an ongoing royalty against sales. Drawback is that you may lose the close control over quality, unless the partner applies diligence to their processes equal or better than you apply in your own activity.
All of the above need time, effort and resource applied to make them work well, and provide profits. Therefore the strategy needs to be precise.
Frequently distributorships are not well thought through. Often due diligence and ‘ the foundations’ are not treated with the respect they should be, which is important before any agreements are made. A good set of ‘foundations’ will include setting the ‘ground rules and expectations’ of both parties, both short, medium and long term.
For example:
What business does the Supplier expect the Distributor to secure within 12 months, 3 years and 5 years?
How will the Distributor achieve this?
What does the Distributor need to do to make this happen? (Employ more people, create new cost centre, attend exhibitions)
What does the Supplier have to do to support the Distributor? (training, collateral, sales visits etc)
What stock commitments should the distributor make?
An agreed plan of action (by whom, by when etc)
What preferential terms should the Supplier make available to ensure the distributor is incentivised and is profitable?
An agreed statement of expectation from both sides.
A formalised means of reporting and communication from both sides.
An adoption of the Suppliers minimum Quality procedures and requirements.
Performance targets & clauses.
Get out clauses and exit routes.
An understanding of the financial commitments that each will input.
….. And so on!
If a potential Distributor does not take these discussions seriously, then it is likely that the future will be full of misunderstandings and under achievement. A marriage made in hell.
How does one go about finding a good Distributor?
First, decide what you want:-
” our products are sold to Biotech companies and the Nuclear Sector” Therefore, in any geographical territory, there may be a distributor for each sector.
“how big should the company be that distributes our products?” (A very LARGE player may in some cases be eliminated from all possible business, so a lower tier supplier may prove better).
“are they already selling complimentary products?”
“will the Distributor be expected to employ dedicated staff to look after our product?”
“how do we want to grow Geographically?”
Once you have decided upon what the Distributor should be, or look like, the Supplier can then concentrate on researching the market/territory for potential Distributors. However, this can be very expensive and time consuming. Without local knowledge there can be many cost and time consuming ‘blind alleys’ Consultants in the territory with specialist and local knowledge can provide great value for money in the search, selection, due diligence, introduction and negotiation of new Distributorships. Suppliers are often blinkered by their own limitations and perceptions. A consultant will approach the discipline without these constraints, creatively and professionally, and can ensure that the foundations are sound before a deal is done.
Once a deal is done, and business starts to role, Distributor management skills become key for the Supplier in order to exert positive influence. The Supplier must always remember that the team at the Distributor are not the Suppliers employees. They must be treated with respect and an appreciate that the Suppliers objectives may have been ‘watered down’ by the time they have reached the Distributors sales team. Often, if the Distributor is a long way from the Supplier, the local Consultant (as used in the search and selection process) can become a good independent ‘go between’ to ensure that all ongoing Distributor commitments and targets are met. This will further reduce the Suppliers cost and time commitment.
Monthly updates from both sides will ‘lubricate’ the relationship, with a formal update from both sides (ideally no less than quarterly) being essential. Nowadays many web enabled systems can allow real time reporting with multi access, and ensure information transfer without delay.
Key points to ongoing support include:-
Regular communication
Sharing of experiences
Two way support
Realistic commitments and targets
There is much more to managing Distributors, and I will explore this further in my next article.
Ian Thomas FInstIB
Hampshire, England
T: 0870 787 7590
e: ian.thomas@sgba.co.uk.
Ian Thomas provides a consultancy and Sales training business aimed at maximizing market and sales potential for the SME sector, both in the UK and overseas markets. Ian Thomas is fully accredited by, and a fellow of the Institute for Independent Business International (http://www.iib.org.ws)

Filed Under: Sales Tagged With: distributors, export, growth, International, profitability, Profits, sales, sales management, sales performance, SALES STRATEGY

The Seven Deadly Sins of Sales

14/07/2010 By Mushroom Internet

All companies need to increase sales and improve their performance on a continuing basis if they are to survive. Most companies lose between 10-20% of their customers per year due to bankruptcies, mergers and simply because the customer stops buying. Studies show that 66% of companies consider that sales and marketing are the key issues for their business right now. But they are less likely to do something about it than cutting costs.

Here are the 7 deadly sins – mistakes that many companies make in trying to improve their performance.

  • “Get out and do more sales calls.”
    This is the normal reaction of most sales managers. When their teams are not performing well they will require redoubling of efforts in either sales visits or telephone calls. But doing more of the same thing will necessarily get more of the same result: below target performance. A review of their target customers, messages and better understanding of benefits is more likely to achieve results required. They need to work smarter not harder.
  • Discounting.
    Discounting is an invidious way to get more sales. And most times it will not work. Yet many sales people will resort to this as a way of closing and trying to increase sales. It is easy for the lazy sales person and it is frequently a panic measure bought about by the first deadly sin. If you have not correctly positioned your product no amount of discounting your product or service will persuade your customer that it is even better value for money more likely they will think it is too CHEAP and therefore not good value for money. In surveys of B2B selling price normally comes in at 4 or 5 in the list of buying criteria.
  • Do not train you sales staff – ever!
    The average number of days spent training sales people in the
    UKis 1 day per year! In the US it is more like 2 days per month. And the results show. To become top performers sales teams need to be trained on technique, process and the benefits of the products again and again. Many companies consider the training budget to be a cost but they should look at it as an investment.
  • Don’t target customers.
    Allow your sales people to do what they like, go where they like, to get orders. The result will be an increasing number of low value customers that will not contribute significantly to your bottom line. Your costs will increase as sales people will travel anywhere to get orders no matter what the value of those orders and your competitors will grab the biggest and best customers.
  • Don’t set your targets for your sales team
    By not setting targets your sales team will not know what is expected of them, not know which customers to target and the sales manager will find it difficult to motivate them to a better performance. Sales people who are not comfortable with targets are just that comfortable. They stay within their comfort zone and do not rock the boat. Generously, you could say they are order takes not professional sales people.
  • Don’t bother with all that ‘fluffy bunny’ motivation stuff!
    Selling is a tough occupation and motivation needs to be a regular part of the sales manager’s activities. Identifying what the right sort of motivation is for each of the sales team and then working on that will help turn average sales people into stars. But start with your own attitude. Attitudes are contagious –is yours worth catching?
  • Never, ever, ask for the order.
    More than 70% of sales people do NOT ask for the order! They may well qualify the prospect right, identify the benefits for that particular customer, do a fine presentation, answer all the objections but then do not complete the sale. Often fear of rejection is at the root of this issue. But by not asking for some form of commitment they are leaving the door open for the client to say “I’ll think about it.”

Filed Under: Sales Tagged With: sales, sales management, sales performance

>Metrics in Sales management

19/02/2010 By Mushroom Internet

>How do you measure your sales personnel’s performance? The majority of sales managers will answer that question by saying that they look at the results (i.e. orders) either on their own or against arbitrary targets. Some may even monitor billings or sales as after all orders do get cancelled or the size of the order gets reduced.
However these performances have occurred as a result of efforts applied anything up to 6 months earlier. So what then is the answer?

One way to look at the performance of sales personnel particularly those on the road is to establish a series of metrics that give the manager a good idea of what and how they are doing BEFORE the results come in. Typically a sales manager on seeing below target results will exhort his teams to ‘get out there and redouble your efforts’ as if doing more of the same thing will improve results.

Typically metrics for sales people involve three main areas:
• The quality of what they are doing.
This comes down to their skill levels and understanding of what is expected of them. Have the team been adequately trained and are they putting into practice regularly what they have been taught?
• The efforts they put in.
This is the more traditional measurement of the number of sales visits they make but should also include areas such as numbers of telephone calls, emails, and mailshots and many more.
• Who their customers and prospects are.
Measurement of the types of prospects and customers is essential so that considerable effort is not expended on the low profitability customers or those whose long term potential to the company is small. Segmenting by size of company and potential and then providing targets for sales staff will help achieve these goals.

Other metrics to consider are the number of new customers required each period to achieve goals (consideration of average size and average order come in here.) We have already indicated that the profitability of each customer and the potential for each prospect is also a metric that can be used.

Are the team selling the right mix of products or services in order to meet the goals of the company? Some may be more profitable than others or more difficult to obtain stretching lead times which in turn may result in a poorer performance.

By setting a series of goals and devising a range of metrics or KPIs the future performance of a sales person can be accurately predicted. This feed forward approach will allow the manager to make corrections before the rot sets in and declining sales results appear 6 months or more down the line.

Filed Under: Sales Tagged With: KPIs, profitability, sales management, sales performance

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