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The North Star of Retail: Average Sale

Furniture World Magazine
Volume 149 NO.3 May/June


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How one retailer grew sales volume by creating a strategy and a company-wide laser-focus based on average sale improvement.

 

The number of customer interactions, the conversion rate of those interactions and average sale size are the three components of the “Sales Equation”. It’s the most important sales metric for home furnishings retailers.

Wouldn't it be awesome if furniture retailers could simultaneously improve all three components without adding additional marketing or salary expenses? A massive windfall would result from generating more traffic, converting more customers to sales, and getting bigger sales.

The problem with improving all three at the same time is that the more things you ask your people to improve upon, the less important each one of those things becomes to them. Put another way, if everything is equally important, than nothing is important. This makes significant improvement less likely.

Instead, it is better to focus on one item at a time, making it a guiding light not dissimilar to the North Star. Before modern navigation systems, mariners used Polaris, the north star, as a guide. That is exactly what focusing on one thing is intended to do, get you to your desired destination faster. Don’t get distracted by chasing all the other “stars” in the sky.

I recently visited a furniture retailer we will call XYZ Furniture operating six separate storefronts. Customer traffic seemed pretty decent in most of the locations, and less so in others. When asked how the management team knew this, their answer was not so clear. It was obvious that the store needed to install more precise systems to measure traffic. But even so, they seemed to have a pretty good feel for the numbers.

The challenge for this retailer was to develop a strategy to grow sales volume. My suggestion was to make Average Sale their “North Star” metric. To execute this strategy, the following four actions were considered.

  • Focus on the improvement of just the “North Star” metric.
  • Set goals.
  • Execute actions.
  • Reward team and individual performance, and provide support for poor performers.
The current average sale for the company was $1500, with two stores above average, one average, and two below average.

Coincidently, these actions would have been similar had the chosen "North Star" metric been traffic or conversion improvement instead of average sale.

  1. Focus on one “North Star” Metric:

    XYZ Furniture had been keeping a scorecard list of 10 different weighted metrics combined to rank store and salesperson performance. It was useful, but its complexity made it hard to keep track of all the calculations and the various strategies for improving each metric while, at the same time, keeping customers happy. Buried in amongst all the stats was the most important measurable and controllable metric: Average Sale. It was decided that the store would keep their existing scorecard for management purposes, but not share it with frontline employees. The idea was to focus salesperson attention on the Average Sale metric to improve total sales volume.

    The management team agreed to focus on improving Average Sale for at least six months. This was important, since both time and attention to the "North Star" metric was required, without distraction, to fuel significant improvement.

  2. Set Goals:

    The next step was to pin down the expected average sale target. The current average sale for the company was $1500, with two stores above average, one average, and two below average. The top 20 percent of other similar stores nationwide was between $1600 and $1800. With this information, it was clear that XYZ Furniture had the ability to do better. Individual salespeople at XYZ were performing at top levels already, so parts of their team obviously had some great skills. Based on this thinking, the new minimum standard set for the company was $1700. All stores and employees would be expected to work toward growing their average ticket size while preserving margins.

    If customer traffic and close rate remained the same, this $200 improvement from $1500 to $1700 average sale would result in millions of extra sales dollars.

  3. Execute Actions:

    Now that the strategic initiative, commitment and goals were set, the “meat” of the plan, execution, was outlined. Below is a summary of the actions XYZ Furniture decided to execute.


    Score in the Forefront

    To keep the focus on the “North Star”, metric reports would now feature bold and large, average sale numbers against goal for the entire company, for each store, and by each salesperson. Reports would also feature in a smaller font, traffic, close rate and margin numbers. Then, total sales, again would be listed in bold. This would be done every day for month-to-date. XYZ would report all the above metrics for the previous 120 days, every day!


    Staffing Numbers

    One might question how the proper number of salespeople could affect the average sale calculation. After all, people are not part of the equation, Average Sales = Sales Volume / Number of Tickets. There is, however, a hidden element. Some salespeople need to spend more time with customers than others to deliver the highest sales ticket. If they feel rushed, average sale will suffer. So, every business must determine how many salespeople are needed to handle average customer traffic. In this instance, the business felt that one salesperson for every 140 customers per month was optimal. Additional people were hired to reach this staffing level for each store.


    Refine and Simplify

    A selling system defines a set of actions salespeople must go through to best serve their customers. These systems are typically segmented into major steps such as: Greeting, Understanding, Solving, Finalizing, and Followup. Every home furnishing business must define the sales steps that work best for their particular business model. Weak systems produce weak results. Complex and cumbersome systems are hard to follow. Systems that are not revisited, practiced and updated, become stale and eventually ineffective. For all these reasons, retailer XYZ found it necessary to redefine their systems in concise, easy to follow steps for each of their four major product categories; furniture, mattresses, appliances and electronics. Tactics were included to improve average sale.


    Product Presentations

    There are many reasons why salespeople achieve a range of average sale and close rates, however, the best salespeople tend not to get off topic or distracted. They have deep product knowledge and have “go to” items proven to effectively solve shoppers' furnishings challenges. This approach is common in mattress sales with either a test bed or bed mapping system. Top salespeople cut through the clutter, maintain focus, begin, and then go through the selection process more effectively. With this in mind, certain of XYZ Furniture's SKUs were designated “test items”. For example, salespeople were instructed to direct shoppers looking to purchase a sectional to a specific sectional ("test item") that had been well reviewed and that everyone on the team knew how to impeccably present. From there confidence was built.


    Monthly Payment Customers

    Industry-wide, furnishings customers who use third party financing produce significantly higher average tickets. Overall, the higher the percentage of customer financing, the more merchandise will be sold. Yes, there is a cost, however, I would argue that any financing terms except maybe for over 48 months, are worth the cost. Ask yourself, Would you rather have a $3000 sale at 45 percent realized margin or a $1000 sale at 50 percent realized margin, or maybe no sale at all? The answer is obvious. If you are still concerned about the cost of giving up margin, consider having a higher regular price that includes long-term financing and a discount available to customers who pay with their credit card.

    In this case, XYZ Furniture decided to focus on increasing the percent of total sales financed. They required their salespeople to ask customers this simple question, “Our customers generally choose to buy in two ways, either with low monthly payments, or by getting points from using their credit card. What is your preference?” If the customer shows interest in making monthly payments, the salesperson gets them approved immediately so their budget can be determined prior to merchandise selection.


    Focus on Protection Sales

    furnishings getting soiled or damaged due to entertaining, pets, kids, etc. XYZ Furniture company was pretty good with protection sales, however, they were pricing it too low compared to other retailers. Once their pricing was re-aligned – presto – higher average ticket and higher sales! A whole separate toolbox to increase protection volume will be presented in a future article. For now, just know this. It can add six percent or more to total furniture and bedding volume for retailers that do a good job of communicating its value.


    Accessories BOGO

    There are two types of home furnishings stores, those that sell a lot of accessories, rugs, lighting, and those that hardly sell any. If you decide you want to be in the game, there are two primary strategies. The first is to have your designer accessorize displays in the customer's home after the merchandise is delivered. The second is to be really heavy in the category selection-wise, in the showroom, and treat your accessory merchandising and selling strategy similar to your bigger ticket items. I really don’t expect all furniture stores to be great at selling accessories. However, just about any retailer that has weak accessory sales can profit from a "Qualified BOGO" strategy. It works by telling shoppers, during the course of the furniture selection process, that today with the purchase of any "set" they will qualify for half-off all accessories, lighting and rugs. And, if they are interested in doing the whole room, they should consider accessories in the process of choosing their room package. This tactic, requires building proper margin into the regular prices.


    More Return Customers

    Return customers, lifetime customers, your loyal followers, all produce higher average sales and greater lifetime value. You get these golden customers by providing a top-of-the-line shopping experience, product value, and post-sale follow up and service. It therefore makes sense to implement a formal follow-up system to continuously grow the number of loyal followers, right? This topic warrants an article in itself, but here I’ll mention briefly the points of follow-up that this company committed to doing:

    • Thank customers for the visit before they exit the store.
    • Thank them for their purchase and any next steps such as delivery within one day of their purchase.
    • Send a vendor acknowledgment.
    • Perform delivery scheduling.
    • Send a post-delivery thank you and collect survey information.
    • Make a one-year after purchase follow-up call.
  4. Rewards and Support:

    Another of my clients came up with a fun tactic to promote protection sales. They awarded a big WWE-type Champion Wrestling Belt to top performers.

    So, at XYZ Furniture it was decided to add a twist, applying that same tactic to promote average sale focus and growth. The company purchased a champion wrestling-type belt online. Then, every month the store sales team with the highest average sale was recognized. The team member with the highest average sale was photographed holding the trophy surrounded by the rest the team. The picture was sent to the other stores, building healthy competition and fun.

    An extra pay for performance bonus for average sale was added to reward the top three salespeople in the entire company, provided their volume and margin goals were also met.

    XYZ Furniture also changed the way their up system worked. Instead of running a rotation based on when a salesperson showed up to work, the company re-ordered its up system based on the prior 120 day average sale ranking for those with above-goal volume. The top hitter gets to bat first, and this honor is top-of-mind for everyone else on the team, every day. They become hyper-aware.

    Finally, there will always be people who under-perform. And sometimes, those under-performers are top salespeople. When these folks hit a rough patch, a huge amount of earning potential is lost. For this reason, XYZ Furniture started a “Saturday School” program. Anyone that produced lower than standard performance month-to-date, had to show up 30 minutes early on Saturdays to practice role playing techniques that would lead to a higher average tickets.

    On the subject of rewards and consequences, it is important to keep things fun, tied to income and serious. It's counterproductive to just hand over dollars to your best performers, and threaten low performing team members. Embrace a fun team approach to skill development and encourage people who can thrive within that type of atmosphere.


Conclusion

In summary, with improving average sale or whatever metric you decide to improve, make it your focus, make your strategy, be specific about actions, reward and make it fun. You will have a much better chance of moving the needle on your overall sales volume than if you tried to improve everything at the same time.

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.

Read other articles by David McMahon