A simple way to ward off sales declines and profit from traffic increases
Sales declines are usually caused by problems that surfaced months earlier with weakness in key activities such as recruiting and training. Generally, if these issues had been addressed when they first began, the downward trend could have been avoided altogether. Unfortunately, many owners allow themselves to become disconnected from the key sales performance indicators that can forecast these trends. When they do try to connect, most look only at sales numbers and neglect other factors that affect volume. Sadly, the very person who is responsible for making sure that the store reaches its sales goals (the sales manager) is often also disconnected.
When owners and sales managers do finally meet, it is often when things look bleak. That's the wrong time to meet! Even though sales may be healthy today, owners and managers must meet EVERY month. These sessions help to ensure that the manager is performing activities that will not only help the store achieve its goals today, but in the months to come as well. It is at this time that you will notice trends or issues that, three months from now, will be reflected in your P&L. By recognizing the issues early, you have an opportunity to change the future - an opportunity to avoid costly problems and capitalize on lucrative opportunities.
Owners should go into these meetings prepared with a planned agenda that includes the following:
SALES PEOPLE IN INTENSIVE CARE
- Review the action plan for sales people who are in intensive care.
- Review sales staffing needs and recruiting to develop a hiring plan for the next 3 months.
- Review sales performance of the month and quarter-to-date and forecast whether the store will meet its sales goals.
- Develop an action plan for ensuring the store meets its sales goals.
A sales person is put in "intensive care" when his or her volume for the previous month drops below the store's minimum acceptable standards (typically between $25,000 and $30,000). This means that the sales manager will work with that individual more intensively... usually meeting one-on-one every week to conduct individualized training instead of once a month to discuss goals and concerns.
Sales people should also be put in intensive care if their numbers drop below the minimum acceptable standards (MAS) two months in a row. If they're below the MAS for three consecutive months or if they've been in intensive care any six months inside a year, they're generally subject to dismissal.
It is important that the owner understands exactly what the sales manager is doing to help these failing sales people get back on track. All too often, individuals are verbally told that they're in intensive care but don't receive the attention and training they need to get out, because the sales manager is too distracted. Some managers will do nothing more than put a sales person in intensive at the beginning of the month and let the individual know where he or she stands at the end of the month. Without regular one-on-one training/feedback meetings, however, the manager is clearly neglecting a very important responsibility - working with staff members who most need their help.
Owners need to discuss the specific plans their sales managers have for the people in intensive care. Managers should outline exactly what they are going to do with these people and what their goals are. If the plan isn't reasonable or realistic, owners need to help them develop a solution that is. In the long run it's in everyone's interest - it can be far more expensive to hire a new person than to improve the performance of someone in intensive care.REVIEW STAFFING, RECRUITING, HIRING PLAN
Because recruiting is such a critical part of our industry, owners must know that their sales managers have the right number of people on their floors. This begins with the company's staffing formula. I've discussed the staffing formula in a previous article but I will briefly review the process here as it relates to recruiting and hiring. First, a store must decide:
- How many customer opportunities each sales person should receive in a month.
- What the right level of service is for customers.
Monthly customer opportunities generally range from 80 people in a high end design oriented store (where sales people conduct house calls) to 150 or even 200 customers in stores with many low ticket items (typically lower end furniture stores).
Over time, customer opportunities increase as traffic increases. To recognize this trend and know when to make the appropriate staffing adjustments, each month the sales manager should review store traffic patterns for the previous 90 days. If monthly traffic regularly exceeds the number of customers each sales person should receive, new sales people should be hired in order to maintain your store's service level. For example, if an owner determines that sales people should work with approximately 80 customers a month, and the trend shows that they are averaging 100 a month, enough new sales people should be hired to bring the average back down to 80.
Effective staffing helps stores avoid falling into the trap where the traffic increases 10% - 15% but revenue increases by only 3% - 5%. This usually happens when the store is understaffed. As a result, sales people have the tendency to gravitate to the customers who are more likely to buy. Instead, traffic surges can and should lift the entire store to a new volume level. Sales managers need to be held accountable. This ensures that they are in touch with traffic, the trends in traffic, and the staffing required to properly service that traffic. The objective is to effectively convert these sudden increases in traffic into long term growth trends.
The manager should always maintain enough people in the store to handle traffic as it moves to the next level. Without effective staffing, these spikes are not capitalized upon, and they simply disappear when the increase drops back to it's normal level.
Assuming that traffic is trending up, the next step is to develop a recruiting plan for the next three months. This is when the sales manager and owner decide how many people should be on the floor and the number that need to be hired. Owners are constantly saying that they're under staffed and that their sales manager is "looking for new people," but they're hard to find. I always respond by asking when the manager expects these people are going to be on board. Rarely does an owner force his or her manger to commit to a specific date. This inevitably lengthens the process and the store continues, often for months, in an understaffed situation. Because recruiting can often be so difficult, many sales managers will even avoid firing poor performers because they'd rather deal with them, than the prospect of hiring and training new people.
It is the owner's responsibility to ensure that neither situation occurs. This is accomplished by discussing hiring plans at this meeting every month. The owner must have specific dates indicating when hiring situations will be resolved. The owner should also know exactly what the manager plans to do to resolve the situation. A dealer once told me that he didn't make his volume goal for the month (for the store). He went on to say that it wasn't his sales manager's fault because he was two people short. The fact of the matter is that being two people short IS the sales managers fault and the owner should have held his manager accountable long before he ended up in this situation!REVIEW PERFORMANCE
When reviewing sales performance, owners should look at all of the criteria that make up sales: traffic, closing rate, and average sale. These figures should be reviewed on a month-to-date and quarter-to-date basis. The sales manager should outline his or her forecasts for the remainder of the month and quarter. Other sources of income should also be discussed (e.g. fabric protection closing rate or appliance and electronic warranty closing rates).
In addition to those items, if the store is design oriented and sales people conduct house calls, you should also discuss (by month and quarter) the items listed in Figure 1.
Depending on where you are in the quarter, you should examine the following information to gain additional insight: If you are meeting during the first month of the quarter, always review the actual figures for the last quarter; If you're in the second month, discuss both projections and actual numbers for the current quarter; If you're in the third month of the quarter, review forecasts for the upcoming quarter. It sounds like a lot of work and it is, but this activity is enormously helpful in identifying both negative trends and positive opportunities. It's worth the effort.
DEVELOP AN ACTION PLANCONCLUSION
Once all these items have been discussed, it is important for the owner and the sales manager to develop an action plan to ensure that the store will continue to meet its forecasted sales goals. This includes hiring the right number of people, improving the training of existing people, working more closely with people who are in intensive care, and anything else that may be deemed necessary. You may also need to execute an emergency event to recover traffic that was forecast but has not materialized in the current month or quarter because of a weak advertising program. Many owners blame their sales manager for poor sales performance that was in fact the result of poor advertising. Without the proper information, you just can't tell. Finally, the meeting should always end by setting the date for the next meeting, the next month.
This process is key to keeping the owner well connected with the sales manager and all of the factors that determine sales volume. If these meetings are conducted on schedule as recommended, the owner will understand how well the sales manager has performed and be able to identify ways to improve that performance. The importance of this process, however, goes beyond the sales manager and your sales people. This is an effective and important way to ensure that your customers are being handled properly. And all it takes is a few hours a month. After all, every department in your store exists to support sales. That includes you!
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 firstname.lastname@example.org.