Simple Sales Strategy

Listen to the customer. Understanding consumer needs and perceptions is the key to good strategic customer planning. Good companies will use both simple (point of service response cards) and sophisticated (customer focus groups) methods to find ways to improve their products and services in ways that are desired by customers.

Assess the competition’s market position, plans and strength. Competition has increased so much that achieving continuous improvement and exceeding customers’ expectations no longer assures faster-than-market growth in profits. It is the underlying strategy that will lead to sustainable competitive advantage. Accelerated profitable growth requires strategic cross-selling of the company’s transportation services (that the customer perceives are needed).

Stress Account Retention. Concentrate on how to be a preferred vendor and more profitable. As the relationship matures into the retention phase, the account becomes very profitable if it is retained. Sales and service costs drop because the customer and vendor know how to work with one another. If the account is lost, the profit stream stops. If the account was a fairly new one, the acquisition cost might not even be recovered. Customer satisfaction leads to customer retention, which provides the opportunity for account dominance or primacy. The long-term primary supplier typically gets higher realized prices. This may not be much as a percentage of sales, but it goes right to the bottom line. The preferred vendor also tends to have the ability to take a richer product mix with higher profit margins.

The salesperson plays a critical profit-generation role either in negotiating individually or in providing the information upon which headquarters-level executives make pricing decisions. In either case, diagnostic, consultative sales techniques are necessary to determine the customer’s needs. Pricing decisions are often clouded by customer threats and competitive activity.

The sales force, more than any other function, is responsible for profit-generation. If it falls down by choosing the wrong accounts, makes promises that can’t be kept, poorly manages the accounts or neglects its customer liaison role, the profit machine falls apart.

Productive salespeople often make the difference between company success and failure.

Pat Ryan’s “Optimal Mark-up on Cost Tariff” Synopsis

The price per mile to use as a base for a transportation tariff can be determined using an optimal mark-up on cost formula. This method not only considers all relevant costs, but takes into consideration the effect of price sensitivity of demand for a company’s services (the competitive factor). The resulting price per mile is not static, but is adjusted to be competitive, while seeking to achieve the average (mean) optimal mark-up on cost.

The equation for computing the profit-maximizing price based upon cost and the firm’s own price-elasticity of demand is:
___1__
P= MC (1 + 1/єp)

The relevant costs to be included in the calculation of this Marginal Cost figure (MC) are the differential costs per mile. These costs include all variable costs (but not all fixed costs) when a trucking company is not operating at full capacity. However, if a company is expanding beyond its capacity, all costs must eventually be included in the equation, as increasing capacity requires increasing fixed costs. All costs are differential in the long run.

When using the optimal mark-up on cost formula, knowledge of the own price elasticity of demand (єp) is the only estimate made in this formula. This estimate is needed for a firm to maximize profits. Own price elasticity of demand indicates what effect pricing changes will have on the firm’s revenues, based upon the amount of business that may be lost to competitors due to a price increase.

A shortcoming of some mileage-based tariffs is that the per-mile price produced by the formula is static and causes long-haul destinations to be uncompetitively priced (high) and short-haul lanes to be priced too cheaply. However, if the base rate per pound/miles is adjusted downward by some percentage from the optimal price as mileage increases from the average length of haul and upward by some percentage as mileage decreases from the average length of haul, a profitable tariff that is also competitive in the marketplace can be produced. Other adjustments should be made for metropolitan areas versus rural areas. In any case, the average rate per mile that customers pay must equal the optimum mark-up on cost rate.

From the optimal price per mile determined by the formula (applied to the average shipment weight and freight class), one would then extrapolate to all other possible weights and freight classes, by modifying the optimal price per mile, based (in part) upon the distance the shipment must travel. In order to extrapolate completely, to the other freight classes and weights, one would also need access to the National Motor Freight Classification Committee's relative freight class values.

This model for a tariff will retain both profitability and price competitiveness to all points, if it is created carefully. The resulting pricing structure will represent an LTL trucking company's own, unique class pricing system (based on their own costs & relative competitiveness), with rates that both provide enough revenue and are competitive in the marketplace.

Improving Logistics Improves Your Business

Improving logistics is vitally important, if a company wants to stay profitable in today’s economy. Today, it is more important than ever that a company produce a great product and deliver it at the lowest possible cost. Many companies fail to recognize the impact of logistics improvements on revenue growth, operating expenses and capital utilization. Concentrating on logistics can improve growth and increase market share. The role of logistics in driving growth and market share is increasingly understood and accepted.

Operating Cost Reduction has been the most common area of focus and the area of greatest measurable logistics value for most companies. It has been the primary driver of TMS and WMS implementations and other logistics technology. The most common sources of value relative to cost reduction are:
1) Transportation expenditures
2) Administrative costs
3) Distribution and Fulfillment labor costs
4) Total network expense
5) Inventory carrying costs

Working Capital Reduction is also an important benefit that your business can derive from improved logistics. Improving logistics can have a significant impact on both financial performance and shareholder value. Working capital reduction should be of prime interest to all corporations, as it has a direct link to shareholder value. Logistics can affect working capital in many ways:
1) Increased inventory turns
2) Reducing receivables through improved order accuracy and information completeness.
3) Reducing safety stocks and network inventory levels
4) Improved cycle times, which increase inventory turns and accelerate the cash-to-cash
cycle.
Supply chain and logistics excellence is increasingly defined by process velocity. Delivery speed, or the ability to reduce the time between order taking and customer delivery to as close to zero as possible, is one of the key goals sought by today’s organizations.

Return on Assets (profit divided by fixed asset value), is one of the primary metrics targeted for improvement as a result of supply chain management initiatives. Improved logistics directly improves a company’s Return on Assets. Better distribution efficiency and throughput can reduce requirements for capital for physical facilities and equipment (lowering the asset base), while simultaneously increasing the profit from distribution center operations. In this way, both the numerator and denominator of the ROA ratio are positively impacted.

In addition, attempting to measure the ROI of the intangible benefits of logistics services indicates a need for new metrics that measure more than just the cost and savings of the investment. These new measures should focus on such things as how improvements will speed up business processes, improve communications, increase customer satisfaction and assist in decision-making and quality control. These factors reflect performance improvements and what is important to customers, not simply short-term profit.

Improving your logistics strategy (combined with operational excellence) will provide measurable benefits for your company, as well as for your partners and customers.

Rules to live by:

Be kind to others.
Faults will turn to good if you try to improve.
Discouragement serves no purpose. It is self-pity.
Boldness has genius and power in it (Goethe).
You create your circumstances out of your thought and actions.
Change is constant.
Cool heads prevail.
Do what you know to be right.
Play is as important for adults as it is for children.
Exercise, because life is better with good health.

Sales Process Improvement

Developing standardized sales processes and reinforcing best practices will increase pipeline visibility, sales execution, and overall performance, leading to more predictable and sustainable revenue growth. At an organizational level, structure and process are necessary to implement a successful growth strategy and replicate success.

You can improve sales performance at the middle of the bell-shaped performance curve by documenting, replicating and teaching the best practices of the sales people that represent the top 20% of the performance curve. Research shows that top performers develop a method for success and execute a repeatable process, often subconsciously. One approach is to take what’s often a subconscious process and make it conscious, repeatable and replicable.

Many salespeople do not follow a defined sales process.
Many salespeople sell products (features and functions), not solutions (value and return on investment), to prospective customers.
Many sales managers do not leverage available sales processes and tools to manage their teams.
Sales people will accept processes, methodologies, tools and behaviors that make their jobs easier and/or make them more money. In addition, what their managers reinforce in weekly sales conference calls sends a powerful message about what the process standards are for the sales organization.

Key sales process objectives include:
Standardized sales stage definitions (from suspect to close). These stage definitions categorize all prospects and opportunities in the same way.
Standardized pipeline management and sales cycle progression
Best practice sales methods and activities, which help to achieve the sales stage milestones and progress through the sales process.
Clearly defined roles and responsibilities for executing best practice activities and the process
Alignment of sales tools, methods and systems necessary to support the activities at each stage
Improved forecast accuracy by defining the guidelines based on not only where the sales person is in the sales cycle, but also how they are positioned versus the competition
Clear and prioritized performance metrics that can be coached and reinforced by the sales management process

Performance Metrics
Most business people are familiar with the ideas of leading and lagging metrics. The former can often help to predict the latter. Key performance indicators (KPIs) usually fall into the leading category. For example, many companies find that the number of prospects on their master prospect list is one of the best predictors of how they will perform 90-days out.
You should measure KPI’s such as churn, opportunity by account/sales stage, win rate, revenue growth, margin (revenue-costs), etc.

In terms of the leading indicators, the following should be measured, monitored, and managed:
Leading Indicator Description
Opportunities in the Pipeline (#, $, %)
The total number of opportunities in the pipeline has predictive qualities to hitting sales targets.

Opportunities per Stage (#, %) Once clear and unambiguous stages are in place, one can monitor the number of opportunities per stage, and the different probabilities of closing associated with them.

Average Deal Size ($, %) It’s important for salespeople to focus on the largest deals and the key areas within their accounts and territories. An average deal size that is rising is a good sign that salespeople are pursuing appropriate opportunities.

Revenue per Stage ($, %) Once there is a clear separation between stages, one can determine weighted pipeline value per stage and compare it to previous periods to assess the probability of hitting one’s overall sales targets.

Product Mix ($, %) Once there is some visibility into the pipeline of opportunities, management can look at the product mix in terms of what’s being offered and what’s being sold. Incentives and coaching can be aligned to match the product strategy and the different price points and margins of specific offerings.

Sales Cycle Time (days) The sales cycle can be looked at from an overall standpoint (example: average sales cycle is 3 months), or in terms of looking at it from a stage perspective in terms of average length of time in the “XYZ” stage this quarter v. last quarter.

Lagging Metrics Description
Some of the key lagging metrics for the sales area include the following:
Revenue Attainment / Growth ($, %) This metric can be evaluated for the overall business, for each salesperson and for each product.

Profitability ($, %) Margins can be assessed and tracked at the gross, operating, and net levels.

Win Rate (#, $, %) Win rate can be looked at in terms of the number of opportunities won and the amount of the pipeline won, which are often different percentages.

Market Share ($, %) Market share depends upon who is calculating it and their respective interests. As long as it is measured consistently, it is valuable.

Cost of Sales ($, %) It’s often hard to get a true cost of sales figure. Most organizations look at travel and entertainment (T&E), commissions, salaries, pursuit costs, etc.

After a company identifies some key leading and lagging metrics, they need to determine the best approach for reaching their targets. The following steps are a rough roadmap of what should happen to develop and deploy a sales process improvement initiative.

1. Bring together the key stakeholders to define the goal, to design the project, and to determine the guideposts along the way.
a. A core process team should include key stakeholders and possibly, external consultants.
b. The team should define the project goals, the measurable objectives, the critical success factors, the specific activities, the timelines, the tracking metrics, and the deliverables.
d. Keep it as simple as possible. Clearly define the goal state and make sure that improvement can be measured.

2. Assess the current sales process.
a. Analyze the current sales process documentation, reports, and tools before beginning the discovery interviews.
b. Select a high-performing cross section of sales executives, sales managers, and sales professionals to interview, to gain an understanding of the current situation, improvement areas, and what the future should look like.
c. Try to identify gaps, redundancies and other opportunities to streamline and improve the sales process.
d. For each sales activity discussed, clearly identify who owns it, supports it, and reviews it.

3. Create a rough outline of what an improved sales process might look like.
a. Develop a working model that can be shared, critiqued and improved, with input from the core sales process team.
b. Conduct a workshop using one-on-one, or small group interviews, to improve, refine and validate the proposed sales process.
c. Determine the alignment of tools and technology to each activity
d. Integrate the necessary sales methodologies into the framework.

4. Implement the approved new sales process. This new process should help salespeople to close more business, do less administration and get better feedback and coaching.
a. The core sales process team should meet to create a communication plan for disseminating the new sales process.
b. One of the key critical success factors for the sales process to work is to make sure that the front-line sales managers are aligned, motivated and capable of executing the new sales process.
c. Sales managers must coach to the sales process.
d. Sales process execution must be monitored and tracked.
e. The results of the initiative must be communicated to all stakeholders.
f. Sales process improvement can never end.

Some of the biggest obstacles to execution are:
The lack of integration between various processes that link to the sales process (like forecasting), including sales methodologies, selling skills and sales tools.

The lack of clear roles and responsibilities

The sales management process often does not reinforce the sales process, key metrics, or collaborative behaviors (like team selling) and does not act as a framework to coach and improve performance.

Managing Sales Opportunities

For complex logistics solutions sales, the customer is often not a single decision-maker. This means the sales process can be prolonged and complex. The justification for any major initiative now receives intense scrutiny, often resulting in extended sales cycles, numerous selling hurdles, and deferred decisions. In order to train salespeople to deal as business consultants, or strategic orchestrators, when dealing with complex sales, you must teach salespeople the following:

1) Teach salespeople to choose target accounts, based upon many criteria. These criteria include such factors as the size of the account, the level of contact they have at the company, or whether there is an existing relationship with our employer that they can leverage.
2) I encourage them to develop a close relationship with people at more than one level of the decision-making group.
3) Teach them to think conceptually in order to discuss the high-level concerns of upper management, as well as to think practically to solve the nuts and bolts problems associated with moving freight efficiently.
4) Teach salespeople to ask targeted questions, in order to learn about the needs of a customer, using a diagnostic, consultative approach. This approach allows the customer to address more concerns than simply the issue that initially drew attention to the company as a target.
5) When we determine needs that we can satisfy, we begin develop a solution with the customer, using our existing suite of services and standardized IT systems, where possible. Teach salespeople that over-customization does damage to profit margins. It is why most third-party logistics companies now face declining profit margins.
6) Teach the salespeople to work towards closing the sale through insuring that the customer takes part and “buys in” through each step of the solution development.
7) Teach that as the relationship matures into the retention phase, the account becomes very profitable if it is retained. Good account management is important to avoiding the “customer churn” that many transportation companies experience.

The decision to buy is the result of a long process of investigation, consideration, and review. To be able to market and sell effectively and to make the best use of your resources, it is important to understand how your customers and prospects buy and to recognize which stage of the cycle they are currently in. Although your customers and prospects may vary in size, most companies share a common buying cycle. The buying cycle typically moves through four key stages:
Identify a business need.
Research a solution.
Design and evaluate different solutions.
Purchase

The important measures to consider are the conversion ratio, the quality of business wins and account retention. Sales and Marketing activity needs to go beyond stimulating interest. It has to play a crucial part in all stages of the process through closure and account retention.

Place greater emphasis on the whole sales process, ensuring that all parties communicate with consistent messages that adapt to different stages of the buying cycle. The process of managing sales opportunities with long sales cycles recognizes the role and relative importance of different influencers and decision-makers.

To drive the sale toward conclusion you need to develop a program that successfully builds relationships before, during and after the sale. You must also continue to qualify the process all the way through. If the process works properly, the final negotiations are more of a formality than a sales pitch. The decision has often already been made. The initial contact, discovery, the proposal and discussions, presentations, and explanation of the implementation process have all contributed to a sales process in which the decision-makers recognize the value of what your company has to offer.

Create a Core Value Proposition
The purpose of a value proposition is to identify and satisfy an unmet need in your target market. Examples might include:
To help customers increase their revenue
To help customers decrease their costs
To help customers increase their profitability
Effective value propositions create a strong differential between you and your competitors. They also help to align your business operations more closely to customer needs. It is essential for the sales team to create a unique value proposition that fits individual customers’ specific needs. To be successful, you need to present the value that means the most to each individual at the time the decision is being made.

Speak to All Decision-Makers
Develop close relationships with people at more than one level of the decision-making group. Train salespeople to think conceptually in order to discuss the high-level concerns of upper management, as well as to think practically to solve the nuts and bolts problems associated with moving freight efficiently. The objective is to ensure that your communications build understanding among all decision-makers. When the decision-makers are working as a team in your favor, you stand a better chance of obtaining the business. Each decision-maker will have his or her own agenda. However, you should encourage a collaborative decision-making process that recognizes your company’s wider contribution to the customer’s overall success.

Customer Input
The lines between companies and their customers are becoming increasingly blurred. Customers should interact easily and participate in product development and other processes. You should adopt an approach to customer relationships that encourages friendly cooperation and involvement, rather than the traditional supplier/buyer relationship. This approach can help position your company as an influential trusted resource.

Everyone is a Salesperson
Every point of contact between your company and the prospective customer is an opportunity to reinforce what you stand for, what you deliver, and how you differentiate yourself from competitors. Every employee at your company should act as if it is “their job” to help resolve the problems of the customer. Cross-functional teams assigned to larger accounts have been shown to help with working out issues that may require resources and/or agreement across several departments. Even in the absence of such teams, all employees should be coached in how to help customers by actively listening to them, in order to help solve their problems. Internal communications should therefore feature the same messages that you use in external communications.

Measuring the ROI of Logistics-Related IT

Attempting to measure the ROI of the intangible benefits of logistics-related IT services seems to indicate a need for new metrics that measure more than just the cost and savings of the investment. These new measures should focus on such things as how the service speeds up business processes, improves communications, increases customer satisfaction and assists in decision-making and quality control. These factors reflect performance improvements and what is important to customers, not simply short-term cost savings.

One such method is based upon measuring how current IT investments increase an organization’s options in the future. It is either called Option Valuation, or Modern Portfolio Theory, depending on your source. This method looks at the opportunities that a project creates for additional projects in the future, as an option value that should be added to the project’s other benefits.

There is another method called Real Options. Real Options is slightly different from the method I just mentioned. Its emphasis is on the timing of a project launch or systems upgrade, in order to take advantage of changes in cost savings, quality improvements or market conditions.

There is yet another simple method for measuring future benefits, called Expected Value. Expected Value multiplies the size of the expected benefit of a project by the probability of its occurrence. However, this approach does not provide an estimate of the option value of a project, regarding whether or not a current project makes other future projects possible.

Value Analysis is a method that involves several steps, but is centered on the idea of using low-cost prototypes to determine a rough benefits-to-costs ratio. If the decision-maker feels that the system can provide enough benefit for the cost involved, development proceeds on a full-scale system.

Information Economics is an approach that uses organizational goals to determine which factors are included in an analysis of potential benefits. This method then assigns weights to each factor related to the achievement of the relevant goals. These factors and weights are then used to evaluate the IT alternatives.

Net Present Value (NPV) is still the most commonly used discounted cash flow (DCF) method and is considered the most accurate measurement of future value in today’s dollars. A different DCF method, the Economic Value Added (EVA) approach, takes “cash-adjusted operating profit minus the cost of capital used to produce earnings”. Both of these methods leave the measurement of intangibles mostly up to the clients, while returning the IT department to measuring cost.

Ultimately, old ways of measuring ROI cannot be abandoned when attempting to determine the benefits of logistics IT. Rather, measuring cost savings is sometimes still the easiest way to measure the benefits of an IT project (and measuring the present value of the future cost savings is the most accurate way to depict those savings). However, using these other analysis methods to your advantage with your clients will increase your chances of making a sale.