One of the most common causes of discontent between an operation's management and its salespeople is gross profits. Management wants the sales reps to sell high; but the sales staff, which wants to make more sales, believes that lower prices help them win more customers.
Office coffee service is one of the few industries that requires an investment in equipment that is given to customers for free. We have to maintain that equipment by servicing and cleaning it throughout the life cycle of the client contract. There are times when we have to upgrade it, installing a more expensive brewer and then finding a home for the old one. All this is very costly -- and most sales representatives do not know the cost of this investment, nor other costs required to keep the business running.
In 2004, at the National Beverage & Products Association convention in Atlantic City, NJ, participants in a roundtable discussion concluded that the cost of acquiring one new account, with all of the company's expenses considered, was approximately $1,700. (This number was for the East Coast, and would differ in other parts of the country.)
I am sure that you have heard your salespeople say, "We have already paid for the equipment over the years, so we can sell for less by placing the used equipment."
Gross profits in our great industry should be in the high 40% to low 50% range, on average. I have always preached that by selling value, instead of price, you can get a higher gross profit for your goods and services. So, what can management do to get their point across to the salespeople? (Selling value will be covered in a future article.)
The following areas should be covered with your sales team, so that they will understand and appreciate what the company is up against in gaining a new account. Explain to your team that higher profits will enable the company to grow faster by enabling the purchase of the latest state-of-the-art equipment, and this will keep the whole company more competitive. A salesperson who is more competitive will land more accounts; and the higher the gross sales, the more compensation the salesperson will make.
Now, show your salesforce the following costs of getting one new account:
• Weekly payroll (salary, commissions, bonuses, health insurance, sick days, etc., FICA, taxes, pension contributions). Apply this to all employees' salaries.
• Auto and travel expenses.
• Entertainment, gifts, demo products to clients, ticket to events, etc.
• Cost of equipment (bowls, airpots, thermal servers, cabinets, etc.).
• Cost of installing equipment (plumbing, fittings, installer's salary, vehicle, gas, insurance, parking, tickets, etc.).
• Cost of leasing or otherwise paying for company facilities (rent, mortgage, utilities, heating/air conditioning, insurance, exterminating, janitorial services, etc.).
• Delivery and service personnel, delivery vans (all related costs of vehicle).
• Telephone landline, facsimile, cellphone service, radio dispatch, GPS systems, etc.
• Bookkeeping and collection department personnel.
• Write-offs for bad debts.
• Marketing and sales support (sales manager, inside telephone customer service, secretaries, etc.).
• Warehousing and shipping department.
• Inventory to support sales and parts inventory to support equipment.
• Management compensation (yes, they get paid also).
• Profits for the company (funds to support company growth).
Now let's take a look at the salesperson's hiring, training and selling cycle and get further insight into what it costs a company to take on this person.
An ad is placed by the sales manager on the Internet and in the local newspaper (expense) for a salesperson, and the quest is on to find the right person for the position. After a week of filtering through all of the applicants, job interviews are set for the following week. Then, after 15 interviews, a candidate is hired.
The training period encompasses two full weeks inside, and then a week in the field with the sales manager and the top company sales rep (expense of paying sales rep for three weeks before any sales are made).
Assuming that the new salesperson is ready to go out selling on his or her own, a cellphone is provided (expense). The first week, the rep brings in one new account and the second week, two new accounts are landed. During the third week, another two accounts are won.
Now, let's take a look at each of these four accounts a year later.
The first client has a high gross profit and is ordering coffee, water and a host of allied products.
The second customer has a mid-40% GP, which means the payback on lent equipment will take an additional two months to amortize.
The third account has three automatic brewers and wants additional equipment, including cabinets and thermal dispensers in their boardrooms without any cost to them. They are ordering a multitude of allied products, along with their coffee. They pay their bills in 45 days, due to the fact that they are growing rapidly and have a slow cashflow as they expand.
The fourth company has 90 employees and needed two single-cup brewers, four water coolers and an icemaker. They are paying within 30 days.
Six months later, the first, second and fourth accounts are doing fine and paying their bills, but the third account is nowhere to be found. It over expanded, and went out of business. All the equipment disappeared, and more than $2,000 in bad debt had to be written off. The total write-off with equipment totaled more than $3,300.
The bottom line is that most salespeople are dedicated, but do not have the understanding of what it takes to operate and fund a successful business. Show them this article, and they will have a greater appreciation of you and your company, and they will see what it takes in dollars to sell a few good accounts.
Please let me know what your experiences have been with your salespeople. I can be reached at (516) 241-4883 or by email at OCSconsultant@aol.com.
LEN RASHKIN is a pioneer in office coffee service. He founded Coffee Sip in 1968 and after 22 years merged it with Dell Coffee, of which he became president in 1991. Sales at Dell topped $7 million dollars. Rashkin is also a founder and officer of Eastern Coffee Service Association and National Beverage Products Association. His industry honors include NCSA’s (now NAMA) Silver Service Award and NBPA’s Lifetime Achievement Award; he was inducted into NBPA’s Hall of Fame in 1996. His marketing excellence earned him NBPA’s Crystal Bean Award and three NCSA Java Awards. He is a frequent speaker at national and local trade conferences, consults on OCS sales and marketing and has is the author of two OCS training programs.