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Price Discipline: Emphasize Full Cost Of Sales To Hone Salesforce Performance

by Len Rashkin
Posted On: 10/24/2012

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TAGS: office coffee service, office coffee sales, OCS education, OCS customer service, customer relations, coffee education, coffee business, Len Rashkin, office refreshments, office coffee service, OCS sales training, vending, vending machine

The No. 1 argument that continually takes place between salespeople and sales management is caused by management's desire for higher gross profits and the sales reps' wish for the ability to reduce prices to meet the competition.

Basically, most employees think that the owners are making a fortune, and that they have many perks that others in the company do not have. You and I know that we are the last to get paid, and there have been many economic dips over the years that have really hurt our companies -- and us, directly.

The office refreshment industry is unique among sales organizations in that it generally provides coffee equipment free to the location, as long as our customers promise to purchase our products to use with this equipment. So we make a substantial investment before we see any profits, which may not happen for many months or even into the first year.

Gross profits in our industry should be in the range of 45%-55% for the average corporate client, to be competitive and profitable. If you are selling to a reseller, such as a convenience store or deli, you most likely will be looking at a GP of around 30%, but your volume of coffee sales per brewer should be substantially higher in order to recoup your investment in equipment and, again, make a fair profit.

Many of us have heard over the years from our salespeople, "You have already paid for the equipment several times over." What the sales staff does not realize is that the cost of the equipment is just a small part of doing business in the marketplace; it is not just the equipment and paying their salaries. Even before one new account is sold by a new salesperson, the cost of training has been very high, if performed properly. The learning curve for an inexperienced sales recruit can take up to a year to instill a thorough understanding of how to sell OCS products and services. And let's not forget all of those costs associated with hiring new salespeople who just did not make the team after several months, and had to be let go.

Review what each salesperson accumulates in monthly expenses: the costs incurred in travel reimbursement, which includes auto expenses (mileage, tolls, parking tickets, etc.). And the company use of cellphones; the entertainment expenses; gifts to clients for the holidays; cookies and doughnuts brought in for demos and goodwill; and so on and on.

The following points should be covered with your sales team so that they can appreciate what you are up against as an owner or manager. Adequate profitability will enable the company to grow faster, with the most current innovations in new equipment, thus keeping your company more competitive; and that's what a well-equipped sales team needs. Higher markups usually give the salespeople higher commissions and benefits, as well.

When looking at the argument summarized above, that "your equipment has been paid for ...," it is imperative that you also consider the cost of maintaining a service department with numerous parts, cleaning chemicals and a capable inside and outside repair staff. Point out the company's investment in service vehicles and the costs of operating those trucks: gas and oil, servicing and repairs, onboard communications, insurance, garaging, traffic and parking tickets, and all the other expenses of running a fleet. The service department installs the equipment the salespeople sell, which includes expenses such as tools, copper or plastic tubing, valves and fittings.

On the equipment side, point out the cost of replacing lost or stolen brewers and staying competitive by upgrading brewers to the latest "state-of-the art" single-cup brewers and espresso-based specialty drinks delivery systems.

The indirect costs to your company, encompassing all sales as well as everything else, also are abundant. They include the building: rental or mortgage expenses, utilities, insurance, exterminating, janitorial services, maintenance, etc. They also include the expense for delivery drivers and trucking, as well as those service department vehicle costs. And you have to add in telephone, fax, Internet access and radio dispatch equipment. Then there are departments for bookkeeping and collections, human resources, and marketing and inside sales, including one for telemarketing. You can't overlook the order department and telephone customer service -- and, last but not least, owners and management.

I am sure that you can find other expenses that support your sales efforts. It is imperative that your sales force be aware of all of the support the company gives them, to sell each new client and to maintain each of these accounts throughout the years.

A good exercise at your next sales meeting could be to have each salesperson write down their estimates of the cost of getting one new account. Ask them to include their salaries and benefits packages, auto expenses, equipment installed, installation and delivery costs, backup support by the marketing, sales and service departments and anything else they can think of. You can rest assured that once you cover all of the costs associated with running your company, your sales team will be much more aware of getting higher gross profits.

In 2004, at the National Beverage & Products Association convention in Atlantic City, I led a roundtable discussion on sales. The question was asked of all the participants, "What does it cost your company to land just one new account?" The answer, eight years ago, was $1,700, if new equipment was installed.

I would like to hear from you; please let me know what you think the cost of selling one new account is in today's marketplace. You can call me at (516) 241-4883 or email me at

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.