At the beginning of the year, 181 dealers were polled and asked, “How long equipment purchases from replenishment only would carry them through this year?”
In other words, if your customers only buy enough to replace that which definitely needs replacing and makes zero purchases to cover growth, where does that leave you?
The results indicated 68 percent thought “no growth” purchase activity would carry them no more than six months into 2011, leaving the balance of the year in jeopardy. The question is, “How do you feel about the rest of the year? Do you know what your customers are planning for the rest of the year? And how are you planning to deal with this situation if you find that Q3 and Q4 will produce fewer sales than expected?”
Chances are your 2011 budget accounted for a better year with certain expenses and payroll reinstated. Hopefully that budget is prepared on a monthly basis with the ability to make adjustments to any revenue or expense item that may need it. I would make some adjustments to that budget to:
• Reduce sales over the last six months of 2011.
• Expect an interest rate hike in the second half of 2011.
• Account for price increases in inventory as well as operating expenses.
• Account for fuel cost increases.
• Reverse some of those reinstated expenses.
• Then check cash flow and debt service to make sure you have 100 percent coverage.
Let’s hope sales hold on for the balance of the year and you don’t need to implement any changes to preserve cash flow. On the other hand, our economy and business scene is a little scary right now and deserves some extra attention to stay on the right track. If you do nothing else it will pay to have your sales personnel check their customer cap-ex budgets for the rest of the year and their “current” expectations of hitting that number.
While in the process of preparing for my annual dealer CFO Conference, the question came up asking if technology and social media activities help close equipment sales. Initially I thought the answer had to be “YES,” especially after watching all the IPad advertisements. I also thought using technology would cut cost in the sales department in terms of materials and manpower, no doubt about it! Consequently, I was quite surprised to find that some sales professionals who are very technology oriented thought just the opposite. Hmmm, time to do some research.
To check my premise that technology and social media activities help close equipment deals I attended a few equipment conventions and stopped at various software booths to learn what they have to say. I also stopped to chat with some sales support software suppliers to ask if they felt that these new communication ideas could reduce future business opportunities. What do you think they said?
Software providers believe their product makes the process of selling a piece of equipment more efficient and less costly. Support service providers believe what they do also makes the process easier to close. However, one support provider I respect over all the others emphatically stated that software and IPads et al do NOT help close sales. Why not? Because the data needed by customers to make a decision and the other thought processes customers go through require fact-to-face negotiations and discussion to get the job done.
To dive into this discussion further we plan to provide a panel consisting of software suppliers, support service companies, an IPad expert and experienced salesman with various levels of experience to see what they have to say on the subject.
I have also been receiving questions about departmental manager salaries and bonus plans, and also sales compensation plans.
Reviewing compensation plans is always interesting, and when I do I always make it a point to work backwards by reviewing what I expect each department to make in terms of contribution to company profits.
I start with overall gross margin required to meet bottom line expectations and then divide up those absolute margin dollars by department using departmental KPI’s. Once I get to what my overall departmental payroll cost must be to provide the contribution margin required I segregate my payroll costs into direct costs and management costs. At this point, if sales prices and costs are in order you have a pretty good idea what is available for the management piece of the puzzle, which may be adequate or it may not. If not, the department head has to analyze to find out why that is the case and offer up suggestions to change the end result.
I am a firm believer that you get what you pay for. If you want volume, pay for volume; and if you want profits, pay for profits. But in a lot of cases you want both and have to come up with a plan that requires a minimum profit before the profit side of the bonus kicks in. Like I said, comp plans are always interesting.
Stay on your toes folks and have current data available to help make decisions.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. You may contact him by e-mailing firstname.lastname@example.org.