Volume 146 NO.3 May/June
By David McMahon
Earning the right to sell more at higher prices is the most important way that the best retailers generate sustained profits and cash flow.
- “We can’t get that price!”“Nobody will buy it!”
- “Our customers like to negotiate!”
- “People shop us on the internet!”
- “Our competition has the same product and they’re undercutting us!”
Should I go on with the whining? Believe me when I say that I’ve heard every single excuse. It’s time to turn whines into Wins. My response to these excuses and the countless others I regularly hear from retailers is this: If you think that selling on price is your ultimate game, then you’re in the commodity business. And to survive in the commodity business, you either need to produce huge volume or provide minimal (and likely unexceptional) service to your customers.
If you truly believe in the products and services you’re offering to your customers, you don’t need to have low prices in order to sell. I’ve crisscrossed the globe working with retailers growing sales and margins simultaneously. I’ve witnessed firsthand that selling more at higher prices is the most important success factor for sustained high profits and cash flow. This article is about some right ways to achieve this. Henry Ford once said “whether you think you can, or think you can’t, you’re right” – and those words ring true for our purposes now: For those of you who think you can’t sell more volume at a higher price, and those who think you can; both are correct. Please read on with an open mind.
Customers want to buy what is right for their situation – that’s why they are looking in your store after all. They are not interested in being sold, and they will only accept the help they may or may not need from someone who has their best interests at heart. They can instantly see through salespeople, and quickly detect both need-to-sell and help-me-buy attitudes, right from the jump.
The salespeople who keep customer’s genuine interests at heart are the ones who are able to communicate effectively and offer the right solutions. They build authentic relationships that gives them the right to ask for the sale. These are the salespeople that customers want to buy from.
Salespeople must realize: It is never about them – it’s about the customer. The second a salesperson thinks of themselves when working with a customer, the purchase becomes less likely. Unfortunately, attitude is not trainable, it’s habitual. And modifying poor attitudes takes time, repetition of proper actions, constant monitoring and management. Hiring a person with an attitude of service plus the ability to converse, listen, make a proposal and then shut-up, trumps industry experience when weighing hire options and building your team.
The right selling attitude is the required first step in maximizing your top line and selling at the highest gross margin. You see, if a customer is serviced beyond their expectations, price becomes less of a factor in the buying decision. Time is valuable, and where a salesperson spends the right amount of time with a customer (not too little, not too much), extra value is created in that customer’s mind.
Right Number of Salespeople
Why were sales up? Why were sales down? You know the answers you often get if you ask these questions to salespeople. “Customer traffic was good” or “customer traffic was poor”, right? This could be true, however, these answers are often provided without the use of hard data, so really they are only guesses.
I’ve witnessed countless instances where customers went unserved long enough that they decided to leave. This doesn’t happen in your business, does it? You see, when all of your salespeople are working with customers or working with too many customers at once, other customers get lost to the point of almost becoming indivisible.
Imagine for a moment that you’re fishing on a boat with five other people. Suppose there are plenty of fish in the sea, and that you have the best fishing technique on the boat plus some irresistible bait. With five hooks in the water, how many fish could you possibly catch at any one time? Five, right? Now suppose the fish down there are all different sizes – some big, some average and some tiny. What size will the five fish be? Who knows? It will likely be a mix – whatever fish swims by the hook first. Now, what if, you had ten people fishing? Well, assuming there were still enough fish, you could likely get ten fish at any one time and double your catch. Finally, what if the number of people fishing just barely outnumbered the amount of fish in the water? You would maximize your catch. At the end of the day, the people who were best at fishing would eat the most, and those who had poor technique would go hungry. In any event, the boat would have a bigger catch with the proper number of people fishing.
The same thing is true for selling and properly servicing customers. To maximize sales volume, you must, must, must, know your traffic without a doubt, and then staff appropriately during peak times.
It is pretty easy to ballpark the sales volume that an operation can achieve. Here are two ways:
- Take the total goals of all the salespeople and subtract 5 to 10%.
- Multiply the number of salespeople a by an average, consistent performing team member’s sales (often around $40K-50K / month).
- The problem with retailer goals is either they are not ambitious enough, or they’re non-existent. A-players in life have big goals. They may not always meet them, but they get a lot farther along than those who target averages. Those people who don’t have any goals and lack a set plan are aimless and living off of luck. They often get the short end of the stick.
With respect to goal selling and hitting those goals, here are some practices that I believe in:
- Set individual sales and margin goals that are a stretch. (This is different than accounting budgeted goals).
- Have sales team members set their own goals based on desired income. Encourage them to think big. Tell them there is no penalty for not hitting their goals.
- Avoid incentivizing people for hitting their goals. Instead, incentivize people and teams for being top performers or improving themselves.
- Define a subset of selling metrics that are constantly tracked. Ensure that salespeople understand how their goals can be achieved by affecting their metrics. Examples of metrics could include KPI’s such as: revenue / selling opportunity, average sale, and gross margin.
- Train around improving these metrics. Overall sales volume growth and margins will follow.
Right Selling System
A selling system is a necessary documented tool that acts as guide to direct the salesperson along the road of serving the customer the right way. When speaking of a selling system, I specifically use the words: necessary, documented, tool, and guide.
A selling system is necessary because without one, the team operates in a sort of chaos – sometimes controlled chaos, sometimes uncontrolled. The selling system outlines the best practices with the different parts of the sale, and puts the team in the desired direction. I define the 5 parts of the selling system as:
5. Following up
Defining your system underneath these parts is critical. It helps people to act the right way more often, improves the game of average team performers, and gets new hires up-to-speed more quickly.
A selling system is documented, because otherwise, nothing told or said will be retained and organized day-in-and-day-out. A documented system can be reviewed, posted, updated easily and used consistently. Repetition and practice of the right techniques is the way to mastery.
I’m also a believer in keeping the system as brief as possible (under 5 pages for sure). Too much detail is overwhelming. It must also be simple to read, well-written, and based in reality. By-in is critical, so for this reason, I suggest obtaining input from team members for its creation and ongoing maintenance.
The documentation helps the salesperson with common complaints such as, “Is that the best you can do for me?” Or “Is there any discount?” Or “I’m spending 20 Grand with you, shouldn’t I get a discount?” I can list twenty more, and I’m sure you can too. Your system helps your team remember that they could respond with comments such as: “I agreed with you!” (Always agree), and “We are 110% committed to servicing your needs, now and into the future” or “Our price reflects our value and unwavering commitment to you. Do you agree that you will absolutely love your new room with these options?” (Nod, smile, and shut up). Don’t say more than necessary and close when the buying signal presents itself. Asking for a discount is just a buying signal.
A selling system is a tool and a guide because it is not the law. Any salesperson should be able to go off script when the situation with the customer dictates it. For example, suppose the selling system says that in the initial conversation stage the preferred welcome is: “Welcome to XYZ Furniture and Design. (Pause for thank you). Which room are you looking at today?” In this particular situation, however, the salesperson notices that the customer is wearing a finishers t-shirt from a local triathlon that they themselves also ran in – go off-script! You have something in common. Make a friend and you will have a customer for life.
Require salespeople to thoroughly know, practice, be tested on and implement your selling system. Also, allow them to adapt it to fulfill the requirements and requests of customers or situations, provided desired conclusions are reached.
A customized selling system is a must-have for selling more at higher prices. If your customers love your selling system, you have a good one.
Right Management / Leadership / Training
Training is continually practicing the selling system, which means repeatedly going over the techniques to improve selling metrics. Consistently observe and provide feedback of in-the-field performance. The operative words here are continual and repeat.
I’ve witnessed managers too many times sitting in offices with their heads buried in computers doing so-called management work. Sales management is not office work. Sales management is not support work. Salespeople are in the business of managing customers, which means they need to be working with customers in one way or another for most of their time. Sales managers are in the business of managing salespeople, which means they need to be working with salespeople in one way or another for most of their time. Make sense? One of best sales managers I have encountered said to me “Dave, I don’t have an office. My office is the floor!” Not by coincidence, his company sales have increased over 40% in 3 years. Margins were up 12%.
Managing By The Numbers?
I’m not exactly a huge fan of that saying. You gauge performance by the numbers at scheduled intervals. That is not managing, that is evaluating. Managing is an interactive activity, not an after-the-fact exercise. You should manage by observation, provide feedback and leadership to improve the metrics gauged.
Leadership and Management are not the same. A good leader sets the course and tone of the business for the team to follow with purpose. A manager ensures that team members are doing the right things day in day out.
In the field, I see mostly ongoing product training and very little selling systems training. In my opinion, this needs to be reversed. To maximize sales and margins, Leadership, Management and Training are all critical.
Give me 20 random companies, I’ll show 20 different compensation plans. I often have the question in my mind, “Why is this so difficult”? You pay the best people the most money, because they’re team players who perform the way you want them to perform, right?
So, what do you want salespeople to do? Simple question. Simple answer. If anyone disagrees with me here, please send me an email – we can debate it. You want salespeople to:
- Service the customer to the highest level.
- Continually improve on selling more.
- Continually improve the margin they sell at.
- Demonstrate leadership to the sales team and set a positive example.
If this is what you want, build your commission structure totally around this, by:
- Establishing individual sales commission rates that are variable with delivered gross margin.
- Establishing individual pay for performance bumps based on written sales dollar thresholds at gross margin percentage standards.
- Establishing team written volume. bonuses that are split up between salespeople by percent of gross margin dollars achieved
Right Product Merchandising
A supportive product merchandising strategy is necessary for sales people to sell more at higher prices. Having more of the right product on display, at the right price, time and in the right fashion, assists both customers and salespeople with making favorable transactions.
The right product is determined by what is selling. Achieving a higher percentage of the showroom devoted to best-sellers will lead to higher sales. I have written extensively in the past on strategies on how to do this by constantly reviewing your merchandise lineup. Understand which products are top sellers, decent sellers and non-sellers, and then take action. Good sellers should always be displayed and kept in appropriate quantities for the projected rate of sale and lead time. Non-sellers should be put into a mark-down routine to remove them from your line-up.
Furthermore, keeping a better mix of best sellers as opposed to “Dogs” allows you to try new merchandise more often. It keeps the floor fresh and increases the odds of finding new top sellers.
Pricing of the best sellers and new merchandise should be set to maximize margins. If you can’t get margin here, you will never get it. From my experience, standard pricing levels should be set at least 5 gross margin percentage points higher than where you wish to end up on your P&L if you have a lean inventory. For select items and groups, the standard pricing ceiling should be tested. Pricing for margin is a game of detail. Price point is what matters with detailed pricing. On a piece-by-piece or group-by-group basis, inch up the price-point to where it makes sense in the big picture lineup. With regard to markdown items, take a step approach where increasingly severe discounts and/or spiffs are applied. Use a 3-5 period down-step approach to achieve higher margins and faster turns.
The fashion in which you display your merchandise, prices and product information will either add to sales and margin or detract from it. Answer these questions about the products on your floor:
- Is all our available merchandise on display?
- Do the vignette settings look clean with the appropriate pieces in each room setting?
- Is there a variety of options?
- Is it easy for the customer and salesperson to work the floor?
- Is all the information available quickly to make a buying decision?
- Can we price special order and custom jobs quickly?
- Is their package pricing with individual options shown?
- Is there info or proper POP on design, accident insurance, and delivery?
In all this, functioning IT systems allow for information to be known at a moment’s notice so that quick actions can be taken. Those inventory managers who are the best at the merchandising game will typically get 5-10 margin percentage points ahead of their peers.
Follow-up is actually the fifth part of an exceptional selling system. I’ll conclude this article with this important element in greater detail. It helps pave the way to sell more at higher prices into the future. Here are two important facts:
- Return customers produce higher revenue per opportunity and greater margin.
- Return customers cost less marketing dollars per customers to bring back.
This is true simply because customers return only if they enjoyed their experience with you. Now, because they enjoyed their experience, they are a warm audience. They know you, they like you, and they appreciate what you provided for them. They trust you, and price is secondary to you having helped them find the right solution for their situation. Return customers tend to buy more often, are OK with ordering, and are open to more complete room solutions. They will tell their friends and family about you.
Prior happy customers that you keep in contact with will think of you when they are in the market for what you offer before your competition. This is a primary purpose of the follow-up – the cheapest form of marketing. There are several follow-up points that can help you get repeat customers back more often. Here is a short list:
- Email or text a ‘thank you’ with e-receipt (for purchases) within five minutes of leaving the store.
- Personal written sales thank-you note and/or a call.
- Special order status update.
- Delivery scheduling.
- Personal after delivery thank you note.
- Six month anniversary of purchase communication.
- Next purchase.
- Private sale invites prior to any events.
- Top customer routine follow-up
Those salespeople who work their prior customer lists the right way become known and develop a following for themselves and your business. They get more be-backs and thus have less need to live-on-the-door. They will be able to sell more and get decent margins in less time. They are professionals.
Taking the right actions with your business will give you the right to sell more at higher prices. You will maximize your revenue per customer served, and, you will do it by providing what really sets you apart – A truly better customer experience.
David McMahon is a Certified Management Accountant and Consultant with PROFITconsulting, a Division of PROFITsystems. Questions about this article, or to request a similar analysis on your financial statements contact him at Davidm@furninfo.com or call 8oo-888-5565.
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