Industry Analysts : Your Reps are Starving

[Anonymous]

Industry Analysts : Your Reps are Starving

By Lou Slawetsky, CEO Industry Analysts, Inc.
The sky is falling!  The sky is falling … again.
Dealer interviews are really getting depressing.  We conduct thousands of them each year.  Some of you feel we interview the same dealer (you) thousands of times.  Not true.

In any event, I leave these interviews scratching my head. I continue to hear the same problems.  Profits are down because (among other things):

• I’m forced to compete with my primary vendor in more than 30% of my customer interactions.  This has a significantly negative impact on my margins.
• Vendor competition aside, my margins are lower.  My cost of goods sold is increasing beyond my ability to pass those costs on to my customers.
• Page volumes are down.  Our research indicates a decline in copier volume of more than 10% per year (would this be more than 50% over the life of a five year lease?).  Some of this is caused by a migration of copies to printers.  But, taken as a whole, all page volume (copying and printing) is down more than 2% per year.  Since each page represents a slice of your profitable service and supply revenues, a 2% annual decline is not the best news you could hear.

My MPS contracts are killing me.  Color costs are driven up by increased coverage.  Even with an escalator clause, I can’t raise prices quickly enough the make myself “whole” by the end of the contract.

• A4 products now account for more than 20% of our hardware placements.  At the moment, margins are holding, but revenue per sale is declining at an alarming rate.

Well, I’ve had enough. How about you?  In all the conversations I’ve had with you, I rarely hear a change in strategy.  “We’ll just keep doing the same thing we’ve always done.  It’s worked before.  It’ll work again.”  According to my good friend, Albert Einstein (we called him “Al” in remedial math class), that’s just insane.  He defined insanity as “doing the same thing over and over again and expecting different results.

Change is clearly indicated.  But, where to start?  Who can we pin this on?  Vendor?  Service department? Administration? Software providers?

How about this one?  Your sales reps are starving!!

 

I’ll pause for a moment while the collective “Whats?” die down.  How could that be? I pay them a generous 40% of gross margin – the same as always.  I give them a car allowance.  I pay a portion of their cell phone cost.  It’s worked before.  It’ll work again.

No, it won’t. Consider the following. (Spoiler Alert:  there’s math).  Based upon data published in our most recent benchmark “Imaging Systems Dealer Strategies” report, the average sales rep generates $9,864 revenue per unit sold.  This results in a gross margin per unit of $3,510.  In a typical compensation plan, where the sales rep earns 40% of the gross margin, your reps earn $1,404 per unit. They sell an average of 3.4 units per month, earning an average of $57,283 per year.

Now, here’s the catch.  Our research shows that A4 products will account for more than 25% of unit placements this year.  A3 product producing 40 PPM retail for $6,100.  An A4 product At least the same speed can be purchased for $1,995.  That’s a revenue decline of 32% per unit.

Without getting lost in even more math, sales rep income drops by almost 20%.  They’ll have to sell 20% more units just to be even!  Think they can do that every month?  You might.  They don’t. That’s the point at which the volume produced in your demo room spikes because of all the résumés being run.

Is there a solution? Of course there is.  Why would I raise these problems if they couldn’t be solved?  Although much has changed around us, one thing remains the same.  You make little or nothing on hardware placements.  But you make a ton on each page printed or copied. In fact, some would say you lose money on just hardware placements.  So, why do we continue to comp our reps on an activity that loses money?  Why not encourage them to generate incremental page volume.  In other words, Pay them to do the thing that (gasp) makes you money.

I know, conversion to a page based comp plan means you’ll have to know how many pages each rep generates. And you accounting systems will have to change to comp sales reps on a timely basis.  But the potential payoff is huge.

I’ve often said that it’s far more profitable for you to increase volume on existing hardware than to sell new hardware to generate the same volume.  So why not direct your sales reps to do just that?  Sales reps are coin operated.  They’ll do exactly what you pay them to do.  So why not pay them do the things that increase you profits and, consequently, their earnings.

I recently saw an article by Steve Spencer (recruiter) where he discussed the changes in our industry.  He concluded by stating, “I think it is time for the Office Equipment Dealer to decide what business he is in—before others decide if he is in business at all!”

Are you in the hardware or page business?  I think the answer is obvious.

[Author]

November 8, 2012 at 6:55 AM