How many sales dollars do you loose every time your least effective salesperson is UP versus your highest earner? Joe Capillo of Shepherd Management Group explains how you can use a performance index to measure sales performance, motivate salespeople and improve sales per UP.
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Use a performance index to track your return per salesperson.
Accountability for performance is an old concept that has taken on new meaning in today's retail furniture stores. Retailers rarely hold salespeople accountable in ways that can be easily translated to bottom-line performance. Most furniture retailers accept wide variances in the performance of their salespeople, considering that to be the natural state of affairs and thinking that they have no effective options for managing that variance so as to improve individual or overall store performance. These retailers believe that in order for sales to increase, they are responsible for bringing more traffic to the store.
Most store owners and managers measure the performance of salespeople in terms of sales volume, either written or delivered. This is misguided because in no way is volume a measure of effectiveness, which is the really important thing to measure when dealing with people issues such as personal selling. It is far more important to measure how a person achieved sales volume than it is to measure only how much sales volume was achieved.
The "Performance Index" is the single most important measure of effectiveness a store can track. It is a simple calculation: total written sales volume divided by the total number of customers seen (Ups) for the period being studied. In other words, it is revenue per Up. This measurement tells an owner exactly how many dollars he can ring up on the cash register every time a customer walks through the door. It does not matter whether the customer is eventually sold or not, performance index takes into account the two most important factors in the personal selling equation, close ratio and average sale, and shows the combined effect of their result. It is a true effectiveness index.
When calculated by individual salesperson, it is common to find a 40% to 50% variance between the top and the bottom producers. This means that if the top performer returns $450 in sales revenue per Up, the low performer might return as little as $270. This is a huge problem because, in almost every store I've ever encountered, management strives to provide both these people with equal opportunities. In this case, it costs the store $180 per Up assigned to the lowest performer compared with those that go to the top writer. If the weaker performer sees an average of 100 customers per month, the annual cost to the business is $216,000. The cost to the company for low accountability and performance variation would be staggering if we compared the best performance index against the rest of the staff.
In no other area of the business would this kind of investment strategy be tolerated without strong action being taken to correct it. If the GMROI for an item, group or line falls below acceptable standards, action is taken to replace the low performing products. Many dealers track GMROI as if it were the most important factor in their lives. And it is certainly very important, but no similar intensity is given to the issues surrounding the performance of people. Performance index is the GMROI for salespeople, showing how much revenue is generated per customer asset. It is a number that every furniture retailer should know as part of his financial reporting package.
The problem is one of accountability. Salespeople and sales managers need to be held accountable for the revenue per customer (traffic) and for narrowing the gap between the highest and lowest performance. If the gap is now 40%, which is typical, with a high of $450 as my example showed, then the goal might be to have the lowest performance be not less than $380, a 15% variance. A major cause of the accountability problem is that too many retailers don't even count the traffic that comes into their stores and would have no way of determining a performance-index baseline. Merely putting a counter at the door won't help because it is necessary to know the number of customer opportunities for each salesperson in order to determine the variance in performance and then to take action to fix it.
The causes go deeper still. Retailers who don't count traffic and record the number of Ups taken by each salesperson don't think of customers as assets, and if the owner doesn't think of them this way, no one else in the company will either. I think owners should look at the problem this way: If a salesperson stole $180 from the cash register, the person would be fired and, possibly, prosecuted. Yet, most owners allow "theft" in the form of low skills and low revenue per customer to become part of the company culture. No one is held accountable. Easily the biggest amount of "theft" in furniture stores happens because consumers who come in to the store – people who should buy and could buy - don't buy. They go by-by instead.
This is, of course, not intentional theft in the classic sense, but is due, rather, to low skills coupled with no accountability. To solve this problem it is necessary to face the accountability issue first. It is the responsibility of salespeople to be customer-asset managers. They, and only they, interact with every customer. Managers don't, owners don't, but salespeople do. This means that salespeople are also responsible for returning to the company the highest possible revenue for each customer asset they are assigned. They are responsible for sharpening their skills to the highest possible level and constantly applying those skills to every customer asset they greet.
The role of sales management takes on a different aspect when viewed this way. It should be seen as a coach's job, like the coach for a track team. The salesperson is the performer and the coach is there to provide support, to develop goals and provide training, to observe and give feedback on performance and to help the performer achieve his or her personal goals. All of this has to be done in the framework of customer service, helping customers achieve their goals, with the objective being the highest possible return to the salesperson and to the company.
Measuring salespeople's performance based on revenue per Up puts effectiveness right where it should be. A salesperson cannot raise his or her performance index per se, but must look to the factors that lead to improvement. Close ratio and average sale are the factors that fall into the realm of consequences of behavior. The things you do affect the outcomes you get. Unfortunately, this is a foreign concept to many people in the age of victimization, entitlements and no accountability. Too many salespeople attribute their lack of success or improvement to things outside themselves: not enough traffic; not enough inventory; not enough promotion; owners who don't know how or what to buy; other salespeople who take all the "good" Ups; customers who don't really want anything; and on and on.
That's the beauty of dealing with a range of performance. The top performers work under all of the same conditions as the low performers, thereby rendering their excuses meaningless. It all comes down to skills, motivation and commitment. You can't train motivation and commitment, you have to hire it, but you can develop skills through training and coaching. Coupled with goals and constant feedback, these issues define the role of sales management.
In the end, it all comes down to the commitment of the owner to attaining the highest return from all of the company's assets, starting with customers - where everything we do starts. Your customers have, locked in their need and desire for beautiful homes, all of the sales revenue your company needs. All the customers who have already shopped your store had these needs and this revenue with them when they came in. Some salespeople were pretty good at unlocking those needs while others were pretty poor at it, but the facts are that the revenue was already there and, because of this variance in skill level, you missed out on it.
Current intelligence tells us that there is still hope for recovery. Up to 40% of those people never made the purchase they were considering. Maybe you can get them back in your store. But this time, hold your people accountable for the results.
Case study: giving salespeople "the news" This Michigan retailer pursues traffic counts tenaciously.
Traffic is tough to track, but it's something that Doug Todd considers essential to the effective management of his business. The owner of The Furniture Showplace, a full-line mid-priced store in Grand Rapids, Mich., Todd started tracking traffic after he bought the StoreTeam sales-management system from the Shepherd Management Group in 1995.
He keeps an Up sheet, and each member of his sales staff is expected to keep a log, with invoice numbers, as well. Although Todd occasionally encounters resistance, he has made it clear that this is management information that he considers vital, and as a result, his staff cooperates.
"We're not flawless, but we decided it was important and felt we had to keep after it," Todd says. "A lot of stores our size get tired of
tracking it down because sometimes salespeople are afraid that they're going to look bad, but you can't give up."
While the self-preservation instinct might lead salespeople to doctor their Ups total, Todd compares his traffic totals against his invoices and the Up logs to make sure his numbers are good. "If Joe's seeing half as many people as everybody else and the sales aren't following then something's wrong," he says.
Todd, who has eight salespeople in his 20,000-square-foot store, is looking for trends. "You need to know what your close ratio is," he says. "For example, this month were going to have a hard time beating our sales volume from last year. But we've had poor traffic. And since And using the close ratio with average-ticket
information, Todd has access to critical management information that helps him measure the effectiveness of each member of his staff. "It gives you the groundwork for understanding whether they're into it or not," he says.
By themselves, the numbers are excellent motivators, helping each salesperson understand what they need to do if they want to meet their goals. "When you present this information, you've got look at yourself as reporting the news," Todd says. "The news speaks for itself. And if the news is bad, ask them what happened. You'll help them come to their own conclusions as to what needs to be done."
we're coming close to our goal, we must have done a pretty good job of focusing on what we had."
Joe Capillo is a furniture industry veteran with 35 years combined experience as a retail consultant and retail industry executive. He is a contributing editor to FURNITURE WORLD and a frequent speaker at industry functions. See all of Joe’s articles on the furninfo.com website.
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