The things we teach our new salespeople often have nothing to do with what it takes to be successful. Joe Capillo looks at the most basic equation that includes the variables of UPs, average sale and close ratio.
View all articles by Joe Capillo
If your new salespeople don’t know the selling success equation, then they don’t know what it takes to be successful!
For the past several issues I’ve dealt with the matter of salesperson compensation, and how disconnected salespeople and managers are from the reality of why things are the way they are. Everywhere I go, the issue of recruiting “good, qualified people” is a high priority item on the minds of managers and owners, and I won’t minimize their problem by saying that good, qualified people are not found, they’re made. Well, I guess I just did.
Most owners and managers expect that the people they hire are supposed to bring with them all the many things they need to know to be successful. We just have to hire the kind of people who can deal well with other people, in a consultative way, teach them about our products, and all will be well.
The problem is that the things we teach are not always the things they need to know to be successful. How many of you, for example, begin your training with a discussion of how to make money in your store? If the selling success equation is Sales = UPs x Close Ratio x Average Sale, then aren’t those the things that salespeople need to know about? If so, what’s an UP? What are the things a salesperson has to know to maintain a high close ratio? And what is “high”? What are the things that a salesperson has to know to have a high average sale? And what is high?
Here’s the main issue: Close ratio and average sale must be relative to UPs in order to have meaning. A large number of customer opportunities (UPs) with a relatively low close ratio, and average sale can produce as much commissionable revenue as a low number of UPs with high close rates and high average sale. But, what’s a high number of UPs? Well, how many customer opportunities can a salesperson serve in the number of hours they work per month? 40 hour weeks mean that most salespeople will work about 168 hours in a typical month (4.2 weeks). How long does it take to properly serve a customer in our business? Well, it depends on your type of store, but if we say that 30 minutes is about right, then, if a salesperson has a steady flow of customers for every hour she works, she can wait on 336 customers per month.
But we know that that’s not how it works in the real world. More than half of most stores’ customer traffic comes in on Saturdays and Sundays. If logic follows, half of the 336 customers, or 168, would come in on weekends, and given that weekend hours are usually the shortest of the week for furniture retailers averaging around 16 hours, our salesperson would have to handle 10.5 customers per hour on weekends to make the math work.
Our experience with dozens of stores that are monitored electronically for traffic and salesperson activity shows that the number 130 shows up more than any other number as the number of UPs handled by effective salespeople in independent furniture stores. Big box, high traffic stores are a different story, but if we know that the number will vary between 100 and 130 UPs in 168 average hours, then our job as managers is to help our salespeople achieve their income goals given 130 (or some other number) as the “territory” they have to mine. So if a salesperson has an annual income goal of $50,000, we have to show them how to get it out of 1560 customer opportunities per year.
If your commission rate is 5%, a salesperson needs to produce $1 million in commissionable sales from 1560 UPs per year to earn $50,000. This means that the RPU (Revenue Per UP, or Performance Index) has to be $641. RPU is a function of UPs (given), close rate and average sale. If the salesperson’s close ratio is what the NHFA Operations Report tells us is the average for all stores, 30% ( which it is not), then there will be 468 sales written. If you divide $1,000,000 by 468, you’ll see that the average sale will have to be $2,136.
Now, if this salesperson works for you, you will need to have a plan for her to make $50,000. But first you will need to know your numbers – your metrics. Of course, most stores don’t know their numbers, so in most cases it all comes down to the usual furniture store style of management: wishful thinking.
If you do have all the metrics to develop this equation for your salesperson, you now have the responsibility – that’s right – the responsibility to provide training, support and tools to help her do her job. You have the responsibility to teach, she has the responsibility to learn, and apply the things you teach. Your manager has the responsibility to make it all “happen” for all your salespeople every day, one customer at a time.
Then, there’s one more important thing you have to do. Monitor the number of UPs each person gets to ensure that the first element in the equation is maintained at the planned level. If it isn’t, as when traffic declines for, say, economic reasons (like gas prices or high heating costs, or natural disasters, or competitive disasters), then there needs to be a plan to raise close ratio and average sale to compensate, or income will decline – hers and yours.
Well, what are the things you can do to increase close ratio and average sale? My point is that if you have a selling strategy – a system that concentrates on these things (which are so critical to your success) you have a chance of tweaking them, managing them for greater compliance to the system, and seeking ways to provide higher levels of service to all customers. Then you can get the most out of every UP. If you have no system, and your results are dependent on the personal skills, innate intelligence, and internal motivations of individual salespeople, it’s very hard to manage strategically.
If you want to be in control of your business, attract and retain “good people”, you must have a sales system that will allow you to engage in proactive sales management. It will help you get through rough times, and capitalize on good times, and, in time, we just might have some young people looking to us for careers instead of just interim jobs on their way to something better.
Joe Capillo is a 41 year career veteran, experienced in managing and consulting with furniture retail operations. He is also a contributing editor for Furniture World Magazine. 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.
View all articles by Joe Capillo