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Sales Measurement Techniques

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The vast majority of retailers use ineffective sales tracking methods which instead of motivating, act as a subtle form of punishment.

As a consultant who visits more than 100 retail furniture stores each year, I am constantly stunned at the number of stores that either incorrectly use measurement or fail to use measurement at all in the management of their sales people. In this situation, sales management is not happening, and without sales measurement no store can:

  • Legitimately know or improve the performance level of their salespeople.
  • Develop performance goals.
  • Motivate individuals.
  • Determine training needs.
  • Separate the successful from the less successful.
  • Measure their own sales managers.

It may sound drastic, but that which is not measured cannot be improved!

I don't want to stop there, however, because many stores in this industry are in fact measuring their sales people in one way or another. Unfortunately, the vast majority of these retailers use ineffective methods. Many retailers judge sales performance based on individual sales volume. They track this figure over time and post the results in the lunch room. Most see this as a form of motivation. After hundreds of interviews with sales people, however, I can tell you that this, in their minds, is a subtle form of punishment.

The people who are at the top of the list typically get ostracized by the rest of the team because they're the top writers, even though they may not be the top sales people (they could have very low performance indicators yet greet so many people that they are able to write more business than other team members). The people at the bottom of the list feel less motivated because their poor performance is now public knowledge. The people in the middle believe that they are performing as well as can be expected... and are, therefore, not motivated to improve.

Measurement should never be used to inflict punishment, whether intentional or unknowingly. Instead, it should be used to motivate, to develop goals and to train. When effectively tied to results (i.e. performance goals, volume goals, or compensation goals) it will motivate your people to improve their own performance and encourage them to seek out additional training in areas where they're weak. When bundled with training, feedback, and goal setting, measurement can have an impressive impact on your bottom line, without increasing overhead or marketing expenses.

Throughout this article I will mention the position of Sales Manager, but that title could just as easily be replaced with owner, general manager, etc., whomever is in charge of managing the sales people. If your store is not large enough to have a sales manager, does that mean that you need not measure your sales people? Absolutely not. If your store is indeed that small, measurement is critical to achieve the growth you desire.

Now that you know the importance of this management tool, it's time to discuss methodology. When I refer to measurement, I am really talking about a four stage process. Each stage is important in its own right but useless when used individually without the other three. The steps are:

  • Data Collection of measurement figures.
  • Calculation of performance indicators.
  • Interpretation and Feedback of performance indicators to sales people.
  • Results.

DATA COLLECTION
In many stores, sales managers believe that because they are collecting data, they are doing a fine job of measurement. These individuals believe that measurement and data collection are the same thing. What they do not realize is that if they are spending their valuable time collecting the wrong sales figures, they are wasting their time.

So, what sales figures do you need to collect and how do you get them? Believe it or not, only five figures are necessary, two of which are optional. They should all be collected on a daily basis. Each measurement needs to be reported on an individual basis and then totaled to develop a store measure. The numbers you will need to collect are:

  • Sales volume written by sales person - gathered from your accounting system or by collecting tally sheet filled out by each individual salesperson.
  • Number of customers greeted by each salesperson (UPs) counted by the salespeople themselves and reported on a tally sheet by a receptionist who records UPs as they enter the store, or from the UPs sheet.
  • Number of customers who purchased something from each salesperson - gathered from the back office or from a salesperson tally sheet.
  • Number of upholstered items sold - from your accounting system or a tally sheet.

  • Number of upholstered items treated - from your accounting system or a tally sheet.

CALCULATION
Once the data has been collected, the next step is to calculate three performance indicators: closing rate by salesperson, average sale by salesperson and fabric protection close ratio by salesperson.

Close ratio is the proportion of customers a sales person greets (UPs) who purchase something from the store. It is calculated by dividing the number of customers who actually purchase something from a salesperson by the number of customers greeted by that salesperson.

Average sale is the average amount customers buy from a particular salesperson. It is calculated by dividing the sales volume written by a salesperson by the number of customers who actually purchase something from that salesperson.

In most stores both number of sales and total sales volume are tracked by the office. This means that average sale is based on information that is not typically subject to lapses in record keeping, errors, or deliberate manipulation. Average sale is, therefore, the most valid of all performance measures.

Finally fabric protection close ratio can be calculated by dividing the number of upholstered items treated by the number of upholstered items sold.

Numbers should be collected and entered into a computer on a daily basis. Manually, this can be a big job, but I've never met a retailer who did this that was not successful. Fortunately computers have done a great deal to simplify the process. A simple spreadsheet program can typically handle the calculations you need to make. Recently, however, several companies began offering software programs which greatly simplify the data entry, calculation, and feedback process.

Data entry generally takes about 10 to 20 minutes a day, depending on the size of your sales staff. Once the numbers are input, make your calculations for each individual then for the entire sales team for the same period. To gain any real insight from performance measurement it must occur regularly, and it has to be tracked over time. Never take a look at one specific reading and automatically assume that an individual is performing in one way or another.

When you evaluate performance indicators look at the trend from period to period. I suggest that retailers track performance from month to month. Then, as you look at the data ask yourself, is the close ratio or average sale increasing, flat or decreasing? By looking at longer time periods you average out the random variation that all salespeople experience from one sale to the next and from day to day.

INTERPRETATION & FEEDBACK
Although they are critical to the success of measurement, the first two steps are only the groundwork. The value of this measurement truly comes out in this stage. At this point, it is important to remember that to get the most out of this process, you have to use the numbers you've calculated in a way the salespeople will understand and appreciate.

One of the biggest mistakes sales managers make is to use measurements to beat up salespeople. If they are used at all, the figures are typically discussed in a brief 15 minute meeting with the salesperson which occurs monthly or less frequently. The sales manager indicates that the individual's average sale is up or their closing rate is down and asks what the salesperson thinks could be done to improve. The manager nods his or her head until the salesperson walks back out on the floor. If this is the way measurements are being used in your store, you're better off not using them at all. It encourages salespeople to cheat on their reporting, it becomes a de-motivator, and it increases the rift between sales manager and his or her staff.

Interpretation and feedback should occur on a one-on-one basis, however, the sales manager should help each salesperson determine what they can do to improve their performance. Furthermore, an individual's performance should be compared to the team's performance (i.e. store average sale and store close ratio), not to other individuals.

When performance is compared to the team, you will invariably find that some salespeople consistently sell more than others and have higher performance indicators. If an individual's indicators are consistently below the team's average in any area, this indicates poor performance. This is true because everyone on the team sees the same customers, sells the same merchandise at the same prices and uses the same store support services over time.

Salespeople do not control prices, merchandise, advertising and so on. Yet they often see changing these areas as the only way to improve their own performance. Salespeople influence what happens between themselves and the customer. This is where you and they should focus to improve sales results. Close ratio and average sale tell you who are your best performers. Comparing an individual to the team tells you whether that individual is a winner or a poor performer and how much improvement is possible in your store.

If you measure average sale by salesperson and you know the average sale for the store, you can make a simple calculation which indicates what your lower performing people are costing you in overall business due to the fact that they're not performing as well as higher performers. All you have to do is calculate what your sales volume would be if all of the people below the average sold the average. Effective measurement and management over the next several months could then have all of your people at that volume, and generate that much more revenue for your store.

Perhaps the most valuable use for measurement, however, is for training purposes. If salespeople know what their measurements are, they know where they need improvement. When they understand what impact improvement will have on their overall sales volume or compensation (next section), they will not only accept training when it is offered, but seek additional assistance outside of training classes.

RESULTS
Your store's goal has to be to sell more furniture to people that buy (increase store average sale) and to sell to more of the people who walk through your front door (increase store close ratio). If that happens, revenues will grow without increasing traffic, advertising, promotions, etc. But, in order to achieve this growth, your salespeople have to be connected with these organizational goals. They need goals for average sale, and close ratio which reflect these broader store goals. More importantly, they need to understand how these goals tie back to their own sales volume and/or compensation goals. If they are able to envision an end result which they can relate directly to their performance (i.e. more commission income by increasing average sale), they will be internally motivated to reach their performance indicator goals.

CONCLUSION
Measurement is critical in sales management because it offers insight into areas which sales people and sales managers alike may otherwise overlook. If your sales manager is not measuring his or her staff, sales management is not happening. If, however, you want growth, profit, and prosperity, measurement is a key starting point. Remember, when salespeople see the measurements being used to assist them in achieving their goals, they will not view measurement as punishment.


Ted Shepherd is the founder and CEO of Shepherd Management Group. The company specializes in changing the selling culture of furniture stores from merchandise-driven to customer-driven using an intensive hands-on process of consulting, training, and mentoring. For more information on the topics in this article contact tshepherd@furninfo.com.

 

Furniture World is the oldest, continuously published trade publication in the United States. It is published for the benefit of furniture retail executives. Print circulation of 20,000 is directed primarily to furniture retailers in the US and Canada.  In 1970, the magazine established and endowed the Bernice Bienenstock Furniture Library (www.furniturelibrary.com) in High Point, NC, now a public foundation containing more than 5,000 books on furniture and design dating from 1620. For more information contact editor@furninfo.com.