To Go Boldly Forward.....
Edition: January 2002 - Vol 10 Number 01
Let's review this. The total territory is $1.2 million; it generates $400,000 GP ($1.2 x 30 percent or 0.3). The commission earned is $100,000 ($400K x 25 percent or 0.25). Divide the $100,000 in commission dollars and you are earning $50 per hour in commissions.
Now, think how much you want to earn per year. Let's assume you want to earn $130,000 a year. That means that you need to up your hourly commission rate to $65. How do you do it?
Before we move on, look back to the first section. If you add 15 minutes of unnecessary drive time, then you are using up what could be $12.01 in commissions. What does that add up to per year? You do the math.
Obviously in sales and commissions, there is no true hourly rate. Still, this gives you a rule of thumb, a benchmark by which you look at your time. Let's take Jones Doe Medical Group. They do $96,000 a year at 24 percent GP.
How often do you see them? How much time do you spend there? Is there extra commute time required?
If you are worth $50 per hour, how many hours should you spend there? If you simply multiply $50 x 50 weeks (1 hour a week), you get $2,500. A half hour a week is $1,250.
The next customer does $12,000 annually at 33 percent, for a gross profit of $4,000 and a commission of $1,000 per year. At an hour a week your commission time spent is still $2,500.
Again, this is not an absolute rule, but a rule of thumb, a way to see if your time spent is worth the commissions earned. I do not recommend ignoring customers! But think about your schedule and make those visits routine so you have the customer's trust. Base the amount of time you spend with customers on some sense of the revenue they generate.
Ahhh, the Rub
It sounds too simple, right? It is! If it were that simple, companies would not need sales professionals. But this is only a thumbnail review. What happens to the customer who is buying $1,000 a year, but whose potential is $12,000? Customers like that are why it is important to do more than one territory analysis. You need to look at what your customers are doing, tighten your travel as much as possible to allow more time for cold calls, visit potential customers who might grow, and sometimes drop customers from routine calls.
The great thing about sales is that it really is like running your own company. And just, as if when running a company, you need to satisfy different constituencies- your customers, yourself, and either your boss or stockholders. You are in charge of the game and you control the joystick. You need to take the steps that move you to the next level.
Where Does Your Money Grow?
Usually by the first of the year you have received a budget or quota from your employer. (Yes I know-- budgets are inherently unfair). But even without a budget, the top reps already have a plan on how they are going to increase sales. If a rep says he is going to increase sales 10 percent, that is not a plan; that is a number. The rep has to know the plan to get there. It generally has three major components:
- Growth in existing accounts (increased penetration).
- Equipment and new product sales.
- New customers.
Taking each of the above growth categories, let's create a form and see what you might do in planning for this year, and the years ahead. (See above.)
Will you reach all of the goals and plans? I hope so, but probably not. Still, your chances of success are greater if you are proactive. There will also be some of those lucky ones--the unexpected call from a non-customer who says they remember how many times you were there and tried to help and they are finally fed up with their current supplier. Then there is the customer who is going through a rep change from a competitor, and is suddenly open to listening to you, or the new doctor to whom someone refers you for a set-up.
The old 80/20 rule. Think about it. Eighty percent of sales come from 20 percent of reps too. If you work and plan, you can move up in that percentile. As the industry changes, it is more important than ever to take charge and make things happen.
-------- The one who makes the future is you.
About the Author....
Wayne Care recently joined Quality America, Inc. as Vice President of Sales and Marketing. Quality America, based in Asheville, NC, publishes OSHA Safety Manuals, an OSHA newsletter and an entertaining OSHA retraining video. All are available through distributors. Care has 30 years experience in the medical distribution field with McKesson Medical Group, Foster Medical Supply, Bischoff's Surgical Supply and American Hospital Supply.