Every task should be done by the least expensive person who is capable of performing that task effectively and efficiently.
In other words, if you are an IT Manager who spends 4 or 5 hours to save the company $200 on its monthly phone bill, you have actually cost the company money... plus avoided doing the job that you are actually paid to do.
In the end, it's all about effective delegation. If you can't do it, you can't look yourself in the mirror and call yourself a manager.
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Showing posts with label Costs. Show all posts
Showing posts with label Costs. Show all posts
Wednesday, February 14, 2018
Thursday, March 6, 2014
What Goes Up Can't Come Down
There is a truism about incentives that applies equally to Customers and Employees: What goes up can't come down.
When you consider an incentive program for employees, regardless of whether it's a spiff program for Customer Service, a bonus structure for Salespeople, or a shared pool for people within your organization who find ways to save money, it's always best to start conservatively, with the smallest incentive that you believe actually is still an incentive. If it turns out that the incentive is too low (depending on whether or not your business is seasonal, it can take anywhere from 90 days to a year to figure this out accurately), it's easy to lift it a notch or two down the line.
But what happens if you start too high, and have to trim back?
Even if none of your employees hit the incentive minimum, scaling it back will immediately be seen as a negative - as you 'taking away' something (even if no one ever received it). And it will be grumbled about behind your back for months and months to come. Who needs that kind of grief? Especially grief that you caused for yourself?
There's nothing wrong with incentivizing behavior; there's no doubt that, when done correctly, it works. But the 'when done correctly' part is key. Consider carefully what you are incentivizing, and start slow and small.
The same applies to Customers. The author Terry Pratchett tells a story about a bounty that was placed on rats in his fictional city of Ankh-Morpork. To curb the city's rat population, citizens were given a fixed amount for each rat tail that they brought in. The result? The rat population increased, because the citizens were farming the rats to earn extra money.
If your incentive has a loophole or a flaw, I personally guarantee that one of your Customers will find it. In fact, many of them consider it their job to do so. And you know what? They're right, and shame on you if you missed something, because getting it right the first time is your job.
It's important not to create incentives in a void; don't ever let Marketing do it alone. Run it by every Salesperson and Customer Service rep you have; they are terrific at finding holes and faulty logic. Plus, by having them take part, they will also take ownership. How can that be a bad thing? Marketing, Sales, and Customer Service all talking to each other? Fantastic!
And, again, until you know what response rates are going to be, start slow and small. It's no good ordering 500 free iPads to give away for every new Customer signed if 5,000 show up. They will blog, Twitter, and Facebook your reputation back to the Stone Age, turning a campaign that you planned as a big plus into a potentially lethal minus.
Look. Listen. Learn.
When you consider an incentive program for employees, regardless of whether it's a spiff program for Customer Service, a bonus structure for Salespeople, or a shared pool for people within your organization who find ways to save money, it's always best to start conservatively, with the smallest incentive that you believe actually is still an incentive. If it turns out that the incentive is too low (depending on whether or not your business is seasonal, it can take anywhere from 90 days to a year to figure this out accurately), it's easy to lift it a notch or two down the line.
But what happens if you start too high, and have to trim back?
Even if none of your employees hit the incentive minimum, scaling it back will immediately be seen as a negative - as you 'taking away' something (even if no one ever received it). And it will be grumbled about behind your back for months and months to come. Who needs that kind of grief? Especially grief that you caused for yourself?
There's nothing wrong with incentivizing behavior; there's no doubt that, when done correctly, it works. But the 'when done correctly' part is key. Consider carefully what you are incentivizing, and start slow and small.
The same applies to Customers. The author Terry Pratchett tells a story about a bounty that was placed on rats in his fictional city of Ankh-Morpork. To curb the city's rat population, citizens were given a fixed amount for each rat tail that they brought in. The result? The rat population increased, because the citizens were farming the rats to earn extra money.
If your incentive has a loophole or a flaw, I personally guarantee that one of your Customers will find it. In fact, many of them consider it their job to do so. And you know what? They're right, and shame on you if you missed something, because getting it right the first time is your job.
It's important not to create incentives in a void; don't ever let Marketing do it alone. Run it by every Salesperson and Customer Service rep you have; they are terrific at finding holes and faulty logic. Plus, by having them take part, they will also take ownership. How can that be a bad thing? Marketing, Sales, and Customer Service all talking to each other? Fantastic!
And, again, until you know what response rates are going to be, start slow and small. It's no good ordering 500 free iPads to give away for every new Customer signed if 5,000 show up. They will blog, Twitter, and Facebook your reputation back to the Stone Age, turning a campaign that you planned as a big plus into a potentially lethal minus.
Look. Listen. Learn.
Friday, January 10, 2014
Generational Businesses
You've got to love entrepreneurs. They're responsible for much of our Gross National Product, most of what makes America great (ie, new ideas) and almost all of the best jobs. They work ridiculous hours, often starve themselves to pay their employees in the early days, take crazy risks, fight fear with enthusiasm, and learn what they don't know by doing. Entrepreneurs are what makes the rest of the world wish they were us (that is, Americans). They may be eccentric (Steve Jobs used to soak his feet in the toilet), they may eventually become self-entitled (two words: Larry Ellison), they might be arrogant (pick your favorites here), but a certain amount of all of these ingredients are required to be the man or woman who says, "I have an idea and I'm going to make it real!"
But piss on their kids.
This isn't sour grapes. Most of us will never be founders, and that's okay. Many of us actually like being the folks who help make the vision happen; we just want someone slightly less mad than Captain Ahab to follow. It can be satisfying to be the person that figures out the 'how' without the pressure of having to come up with the 'what' or the sleepless nights spent pondering the 'why'. An entrepreneur's work is never done, but we get to go home and have lives.
But why do so many seem to mess it all up by leaving the business to their kids?
It's not that they walk into wealth (okay, maybe it is, a little). But if you work as hard as founders do and take the big risks, you should absolutely be comped for that, and making sure your kids have the best of everything that you can afford is the American Way. Send them to the best schools, buy them the best clothes, take them skiing in Whistler and snorkeling in Belize. Do it all. But never, ever leave them your business.
Let's start with the obvious: You understand your business because you had to know everything; there wasn't anybody else. You know how to handle employees, what makes an effective marketing campaign, how to negotiate with vendors, and how to keep Customers coming back.
Now let's look at your son/daughter: Their first job was probably working for you doing some kind of menial job. But they didn't technically report to you - thy reported to the head of whatever department handles shipping, cleanup, moving merchandise around or whatever. But they're your kid. How likely do you think that manager was to rip them a new one when they did something stupid that cost the company money? They probably didn't even tell you. And who else gets to set their own hours?
From day one, they are raised in an environment of resentment.
Now your kid gets older. You send them to college, they take a few classes, but nothing too stressful because they have a job waiting for them at home; their degree is window dressing. And they come back and you give them some kind of management job, their very first, and set them loose. And they suck, because they have no experience actually doing anything, because all of their lives you were the doer.
Trouble is, you don't notice, because everyone still comes to you, just like they always have. You don't know it, but your son or daughter is a joke, and nobody tells you, and they get used to making money - probably more money than anyone but you - for doing nothing very much. Until the day that they do something so monumentally dumb that it can't be brushed under the carpet.
And you fire them, right? Just like you would any manager that did that incredibly dumb thing. You fire them, because you realize that you should have put someone in that job with some experience under their belt, someone who'd worked for several other companies and could actually do what needed to be done. Right? Right?
"Of course not," you say. "This is my child, here. They are beautiful and perfect, even if they are a little dumb sometimes. They just made a mistake. I'll have a talk with them. It will be okay."
So you have a long talk, and they're really embarrassed, just like that time they cut their little sister's hair or put that baseball through the window, but you give them a couple of pointers, pat them on the back and, just so they know that you love them, you give them a promotion. (Tell me that you have not seen this happen.)
Time goes by. Things seem to be going okay. You're working just as hard as always, still making all the big decisions, but you're the president and that's what president means. Meanwhile, your kid has learned that the secret to keeping everyone happy is to let them do pretty much whatever they want, and to spend most of their day chatting with employees about things that have nothing to do with the business, or having meetings where there is a lot of conversation but no decisions.
Eventually, you get old. You spend a little less time at work because your son or daughter is now in a VP role of some kind, and they have to stretch their wings sometime. Everyone in the business seems happy, so things must be going well, right? Your business has become a Name, it's not as hard to fight for Customers as it used to be, and you stopped having to worry about making payroll years ago. And someday, probably much later than you promised your spouse, you retire, move to Costa Rica for part of the year, and your business is in the capable hands of the 2nd Generation, one or two or more of them, but of course they never fight like they did when they were kids, and things are exactly the way you dreamed they would be, with grandkids coming to visit you and afternoons spent fishing or antiquing or traveling with friends.
Until a new competitor with a better idea, better staff, or both moves in and eats your empire alive. Not right away, usually. There's time for your kids to hire expensive consultants to tell them what to do and to endlessly debate whether or not they should do it, and getting second opinions from still more consultants, trying to do what you always did because it always used to work, but the new guy does new stuff and, before you know it, Customers stop coming in the door. Then the layoffs begin, until finally there's no one left. Your kids have money, of course, and they made more on the sale of the business or the land, but you still remember the look on the faces of all of the employees on the day that you or your son or daughter told them when they would receive their last paychecks.
Not all 2nd Generation businesses die this way. Some last long enough to be passed along to the 3rd Generation - kids who want to do something other than work for their folks, who in fact work for someone else and build up some experience, and eventually realize that their parents are running a money machine into the ground. If they come into the business, they're all about numbers, and hire experienced managers to do most of the work. They're more like a ringmaster than a founder, with a keen eye on the books, and they make sure any children that they bring into the business work somewhere else first, just like they did, and walk in the door with ideas of their own.
So if you're an entrepreneur, rather than go through all of this, ask yourself a couple of questions (plus probably a few more), and act accordingly:
1. Did your kid(s) ever ask for your business, or is that your idea?
2. Did you ever ask them what they wanted to be when they grew up?
3. Can you get someone better for less money?
But piss on their kids.
This isn't sour grapes. Most of us will never be founders, and that's okay. Many of us actually like being the folks who help make the vision happen; we just want someone slightly less mad than Captain Ahab to follow. It can be satisfying to be the person that figures out the 'how' without the pressure of having to come up with the 'what' or the sleepless nights spent pondering the 'why'. An entrepreneur's work is never done, but we get to go home and have lives.
But why do so many seem to mess it all up by leaving the business to their kids?
It's not that they walk into wealth (okay, maybe it is, a little). But if you work as hard as founders do and take the big risks, you should absolutely be comped for that, and making sure your kids have the best of everything that you can afford is the American Way. Send them to the best schools, buy them the best clothes, take them skiing in Whistler and snorkeling in Belize. Do it all. But never, ever leave them your business.
Let's start with the obvious: You understand your business because you had to know everything; there wasn't anybody else. You know how to handle employees, what makes an effective marketing campaign, how to negotiate with vendors, and how to keep Customers coming back.
Now let's look at your son/daughter: Their first job was probably working for you doing some kind of menial job. But they didn't technically report to you - thy reported to the head of whatever department handles shipping, cleanup, moving merchandise around or whatever. But they're your kid. How likely do you think that manager was to rip them a new one when they did something stupid that cost the company money? They probably didn't even tell you. And who else gets to set their own hours?
From day one, they are raised in an environment of resentment.
Now your kid gets older. You send them to college, they take a few classes, but nothing too stressful because they have a job waiting for them at home; their degree is window dressing. And they come back and you give them some kind of management job, their very first, and set them loose. And they suck, because they have no experience actually doing anything, because all of their lives you were the doer.
Trouble is, you don't notice, because everyone still comes to you, just like they always have. You don't know it, but your son or daughter is a joke, and nobody tells you, and they get used to making money - probably more money than anyone but you - for doing nothing very much. Until the day that they do something so monumentally dumb that it can't be brushed under the carpet.
And you fire them, right? Just like you would any manager that did that incredibly dumb thing. You fire them, because you realize that you should have put someone in that job with some experience under their belt, someone who'd worked for several other companies and could actually do what needed to be done. Right? Right?
"Of course not," you say. "This is my child, here. They are beautiful and perfect, even if they are a little dumb sometimes. They just made a mistake. I'll have a talk with them. It will be okay."
So you have a long talk, and they're really embarrassed, just like that time they cut their little sister's hair or put that baseball through the window, but you give them a couple of pointers, pat them on the back and, just so they know that you love them, you give them a promotion. (Tell me that you have not seen this happen.)
Time goes by. Things seem to be going okay. You're working just as hard as always, still making all the big decisions, but you're the president and that's what president means. Meanwhile, your kid has learned that the secret to keeping everyone happy is to let them do pretty much whatever they want, and to spend most of their day chatting with employees about things that have nothing to do with the business, or having meetings where there is a lot of conversation but no decisions.
Eventually, you get old. You spend a little less time at work because your son or daughter is now in a VP role of some kind, and they have to stretch their wings sometime. Everyone in the business seems happy, so things must be going well, right? Your business has become a Name, it's not as hard to fight for Customers as it used to be, and you stopped having to worry about making payroll years ago. And someday, probably much later than you promised your spouse, you retire, move to Costa Rica for part of the year, and your business is in the capable hands of the 2nd Generation, one or two or more of them, but of course they never fight like they did when they were kids, and things are exactly the way you dreamed they would be, with grandkids coming to visit you and afternoons spent fishing or antiquing or traveling with friends.
Until a new competitor with a better idea, better staff, or both moves in and eats your empire alive. Not right away, usually. There's time for your kids to hire expensive consultants to tell them what to do and to endlessly debate whether or not they should do it, and getting second opinions from still more consultants, trying to do what you always did because it always used to work, but the new guy does new stuff and, before you know it, Customers stop coming in the door. Then the layoffs begin, until finally there's no one left. Your kids have money, of course, and they made more on the sale of the business or the land, but you still remember the look on the faces of all of the employees on the day that you or your son or daughter told them when they would receive their last paychecks.
Not all 2nd Generation businesses die this way. Some last long enough to be passed along to the 3rd Generation - kids who want to do something other than work for their folks, who in fact work for someone else and build up some experience, and eventually realize that their parents are running a money machine into the ground. If they come into the business, they're all about numbers, and hire experienced managers to do most of the work. They're more like a ringmaster than a founder, with a keen eye on the books, and they make sure any children that they bring into the business work somewhere else first, just like they did, and walk in the door with ideas of their own.
So if you're an entrepreneur, rather than go through all of this, ask yourself a couple of questions (plus probably a few more), and act accordingly:
1. Did your kid(s) ever ask for your business, or is that your idea?
2. Did you ever ask them what they wanted to be when they grew up?
3. Can you get someone better for less money?
Friday, May 4, 2012
Co-op Advertising
Something you'll hear me say over and over again is that every part of your organization must be monetized. From Accounting through Warehousing and beyond, every department has to make money on its own - enough to absorb its own costs of operation and staffing and still have something left over. Co-op advertising is a perfect example.
The idea behind co-op advertising is that you purchase advertising space - typically in an expensive media outlet or catalog (perhaps even your own catalog) - and resell part of that space to Customers or Vendors who otherwise couldn't afford to advertise in that outlet.
If your Vendors produce physical goods, you might let them buy ad space in your catalog in return for a certain volume of their products. This is cheaper for the Vendor - their cost to produce that good is nowhere near what they're asking you to agree it's worth in credit. And if your cash flow is tight, getting product in exchange for space in a catalog that you've already paid for can seem like a good deal.
The real goal in selling co-op space is to turn a profit on those sales. If you buy a full page ad in a given magazine, for example, charge your Vendors or Resellers at least 20% more for the space than you paid. If you've picked the right outlet, your Vendors / Resellers want to get in on it, but the monetary divide is too wide. But they may be able to afford an 8th of your space in exchange for what a 6th would cost.
Tip 2: Don't expect Salespeople to sell co-op space if you don't spiff them for it. It's not going to happen. You know why? Because it's a distraction from selling your goods and / or services, and they know it. Better to hire someone who is brought in specifically to sell co-op and reward them when they do.
If a Vendor agrees to be in your publication or media outlet, make sure they follow your guidelines for submission. Don't let them push you around; there's not a PR fellow around that hasn't had to deal with such guidelines, and yours are likely to be far more reasonable than many.
The idea behind co-op advertising is that you purchase advertising space - typically in an expensive media outlet or catalog (perhaps even your own catalog) - and resell part of that space to Customers or Vendors who otherwise couldn't afford to advertise in that outlet.
If your Vendors produce physical goods, you might let them buy ad space in your catalog in return for a certain volume of their products. This is cheaper for the Vendor - their cost to produce that good is nowhere near what they're asking you to agree it's worth in credit. And if your cash flow is tight, getting product in exchange for space in a catalog that you've already paid for can seem like a good deal.
The real goal in selling co-op space is to turn a profit on those sales. If you buy a full page ad in a given magazine, for example, charge your Vendors or Resellers at least 20% more for the space than you paid. If you've picked the right outlet, your Vendors / Resellers want to get in on it, but the monetary divide is too wide. But they may be able to afford an 8th of your space in exchange for what a 6th would cost.
Tip 2: Don't expect Salespeople to sell co-op space if you don't spiff them for it. It's not going to happen. You know why? Because it's a distraction from selling your goods and / or services, and they know it. Better to hire someone who is brought in specifically to sell co-op and reward them when they do.
If a Vendor agrees to be in your publication or media outlet, make sure they follow your guidelines for submission. Don't let them push you around; there's not a PR fellow around that hasn't had to deal with such guidelines, and yours are likely to be far more reasonable than many.
Thursday, May 3, 2012
Expensive Reports
Does your organization issue corporate credit cards to execs and Salespeople, then pay their bills for them? How's that working out for you? Getting those expense reports on a timely basis, are you? With all of the receipts included, and with your form filled out correctly? No?
Of course you're not. Know why? Because you're doing it wrong! Do this, instead:
Here's what this does for you:
Of course you're not. Know why? Because you're doing it wrong! Do this, instead:
- Issue corporate credit cards, just like before, only have the bills go to the employee's home address.
- Set the account up in such a way that the employee has to pay each bill themselves, out of their own pocket.
- Ensure that - once you have received a properly filled out expense report with all necessary receipts attached - you reimburse the employee no later than the end of that week.
Here's what this does for you:
- Because they are personally liable for all charges, you don't have to chase employees for reports or receipts any more. If they don't provide them, you don't reimburse, and they still have to pay the credit card company.
- Any interest charges they incur are theirs to pay - not yours or the company's. As long as you reimburse promptly, it's not your fault if they pay their bill late. It's their bill, after all, not yours.
- If they don't have a receipt, you don't reimburse for that item. No slipping in slush money, no losing receipts. Everything must be documented and included, or the money lost is theirs.
- Because the grace period for many credit cards is now 20 days or even less, after a month or two, the first thing a Salesperson will do after returning from the road is to complete and turn in their expense report. As long as they do that, they will never have to actually pay for anything out of their own pocket - they will pay each bill almost as soon as the expenses are incurred (providing they don't wait to make payment once they receive their reimbursement - again, not your problem).
- That fellow who used to lose all of his receipts? He quit. Good riddance!
Wednesday, April 11, 2012
Headcount
While many organizations these days talk the 'lean' talk, few walk the lean walk. When considering an increase in headcount, your first question should always be:
Is this task even necessary?
You would be amazed at the number of (mostly legacy) companies that assume that, if a task already exists, then it must serve some vital function. Folks, it just ain't so. Do your due diligence and dig down a bit. If after that you decide that the task that you're considering adding bodies to is necessary, the goal is to add as few bodies as possible can, both so that you're a good corporate steward and also to decrease the likelihood that you'll have to look them in the eye and lay them off 12 months from now.
How do you determine 'right number' of bodies to add, or if you really need to add bodies at all? It's a simple matter of efficiency vs. cost increase. Here's the yardstick that you should use, in order of least expensive to most expensive solution:
If you don't do #1, you have to do #2 (which costs more). If you don't do number #1 and #2, you have to do #3 (which costs more). And if you don't do any of them now, right now, it will cost 3 times as much later.
A good place to go for answers about how processes can be improved is the people who already do the job - especially employees who are relatively new, and don't already have tunnel vision. They'd love to tell you all about the things that they know will make their jobs easier.
When discussing headcount (or anything else), beware of anyone who uses the words, "Do what's best for the company."
Is this task even necessary?
You would be amazed at the number of (mostly legacy) companies that assume that, if a task already exists, then it must serve some vital function. Folks, it just ain't so. Do your due diligence and dig down a bit. If after that you decide that the task that you're considering adding bodies to is necessary, the goal is to add as few bodies as possible can, both so that you're a good corporate steward and also to decrease the likelihood that you'll have to look them in the eye and lay them off 12 months from now.
How do you determine 'right number' of bodies to add, or if you really need to add bodies at all? It's a simple matter of efficiency vs. cost increase. Here's the yardstick that you should use, in order of least expensive to most expensive solution:
- Improve the process.
- Improve the tools.
- Increase headcount.
If you don't do #1, you have to do #2 (which costs more). If you don't do number #1 and #2, you have to do #3 (which costs more). And if you don't do any of them now, right now, it will cost 3 times as much later.
A good place to go for answers about how processes can be improved is the people who already do the job - especially employees who are relatively new, and don't already have tunnel vision. They'd love to tell you all about the things that they know will make their jobs easier.
When discussing headcount (or anything else), beware of anyone who uses the words, "Do what's best for the company."
More often than not, the translation of this phrase is, "Screw the company! Do what will get me my bonus!" It's the corporate-speak version of, "Can I be honest with you?", which is invariably invoked just before someone tells a whopper. It's also a frequent code-phrase for, "How can we cover our asses?"
If you're running your business right, doing "what's best for the company" is exactly that - doing what benefits your Customers and the majority of your employees, both now and long-term. Doing anything else isn't just short-sighted and selfish, it's suicidal - plus you'll take everyone else with you. Retaining knowledge and talent is what's best for the company. Never forget that.
Here's one more headcount tip:
If you're running your business right, doing "what's best for the company" is exactly that - doing what benefits your Customers and the majority of your employees, both now and long-term. Doing anything else isn't just short-sighted and selfish, it's suicidal - plus you'll take everyone else with you. Retaining knowledge and talent is what's best for the company. Never forget that.
Here's one more headcount tip:
If you plan to hire more than 2 people, hire 1 person less than what you think you'll actually need.
Especially with a new position, or additions to an existing employee level, you'll be amazed how clever people are at making things work better if there aren't quite enough hands to stir the pot.
Monday, April 9, 2012
Cretins Cap Commissions
If your organization is like most, you have Salespeople (whatever you may actually call them). And, if you are doing your due diligence, your Salespeople have goals to hit. But suppose your Salespeople surpass those goals?
Many organizations make the mistake of capping a Salesperson's (or Sales Manager's) bonus and/or commission once they hit a certain percentage above goal. This is the dumbest idea since the square wheel. Here's why:
No matter how much over goal a Salesperson sells, the company makes revenue that is beyond its goals. Some companies make the excuse that keeping all of this money is a buffer in case other Salespeople fail to hit goal. If you built your sales goals properly, this buffer should have already been factored in.
You're just being greedy.
The worst part is that it encourages your Salespeople to sandbag. There is more possible revenue out there but, since there is no incentive for the Salesperson to bring it in now, they will either 'save it for a rainy day' or let it go to a competitor. Either scenario creates a hole in your market share, and an opening that your competitors are sure to exploit.
Think about this a little deeper, and you'll realize that your Salespeople feel like they're actually being penalized for being terrific at their jobs. How is it their fault that you set their goals too low? If you were them, and you came in ahead of goal, wouldn't you start looking for another company that values your skill and consistency more?
Of course you would.
Capping commissions and bonus at a certain percentage in a tiered compensation plan is fine, as long as the amount of money that the Salesperson (or Sales Manager) can make is uncapped. For example, let's say you have a commission structure where Salespeople make nothing until they hit 85% of goal. From 85% to 90% of goal, let's say they make 1% of net margin (or whatever makes sense for your industry), then 1.5% of net margin for 90% to 95% of goal, 2% for 95% to 100% of goal, and 2.5% of margin for anything above 100% of goal. This is fine. But if you say that a sales rep can only make 110% of their base pay in commission, regardless of how far above goal they are, you are begging them to sandbag (if they're merely competent) or leave (if they're terrific).
You want Salespeople to be hungry, so it makes sense for a substantial portion of their compensation to be commission-based... at least 25%, and probably not more than 50%. (This assumes that your Salespeople spend the bulk of their time selling, and not doing non-sales-related tasks.) You also want to be sure that they sell at least 10 times as much in revenue as they make in compensation (again, depending upon your industry and your margins).
How often do you pay commissions?
And while you're talking to Accounting, remind them that a Salesperson should receive repayment for business expenses no later than the paycheck following the date that they turned in their completed (and accurate, please) expense report. You want your Salespeople to spend every waking moment thinking and talking about selling, not wondering when or if they're going to get paid back for that cab ride they had to take to the airport.
Many organizations make the mistake of capping a Salesperson's (or Sales Manager's) bonus and/or commission once they hit a certain percentage above goal. This is the dumbest idea since the square wheel. Here's why:
No matter how much over goal a Salesperson sells, the company makes revenue that is beyond its goals. Some companies make the excuse that keeping all of this money is a buffer in case other Salespeople fail to hit goal. If you built your sales goals properly, this buffer should have already been factored in.
You're just being greedy.
The worst part is that it encourages your Salespeople to sandbag. There is more possible revenue out there but, since there is no incentive for the Salesperson to bring it in now, they will either 'save it for a rainy day' or let it go to a competitor. Either scenario creates a hole in your market share, and an opening that your competitors are sure to exploit.
Think about this a little deeper, and you'll realize that your Salespeople feel like they're actually being penalized for being terrific at their jobs. How is it their fault that you set their goals too low? If you were them, and you came in ahead of goal, wouldn't you start looking for another company that values your skill and consistency more?
Of course you would.
Capping commissions and bonus at a certain percentage in a tiered compensation plan is fine, as long as the amount of money that the Salesperson (or Sales Manager) can make is uncapped. For example, let's say you have a commission structure where Salespeople make nothing until they hit 85% of goal. From 85% to 90% of goal, let's say they make 1% of net margin (or whatever makes sense for your industry), then 1.5% of net margin for 90% to 95% of goal, 2% for 95% to 100% of goal, and 2.5% of margin for anything above 100% of goal. This is fine. But if you say that a sales rep can only make 110% of their base pay in commission, regardless of how far above goal they are, you are begging them to sandbag (if they're merely competent) or leave (if they're terrific).
You want Salespeople to be hungry, so it makes sense for a substantial portion of their compensation to be commission-based... at least 25%, and probably not more than 50%. (This assumes that your Salespeople spend the bulk of their time selling, and not doing non-sales-related tasks.) You also want to be sure that they sell at least 10 times as much in revenue as they make in compensation (again, depending upon your industry and your margins).
How often do you pay commissions?
If it's less often than monthly, you're missing the boat. Salespeople respond to immediate feedback, positive or negative. If they push hard during a given month, they should be rewarded at the end of that month (or punished, if they did poorly).
You want the reward to come as soon after the action as possible.
I don't mean 2 weeks into the following month; that's ridiculous. If Accounting tells you they can't do it, tell them to go bugger themselves and find a way to get it done. I guarantee that the number of Salespeople who hit goal after you make this happen will dramatically increase. Part of the reason is that, if commissions come at least once a month, Salespeople begin to shift their lifestyles up a notch in anticipation of this reward. In other words, they buy things on credit, and then have to hit those higher goals just to keep up the payments.
This is why you will encourage your Salespeople to buy new cars, boats, nicer houses, big vacations, and so on. The more they spend on themselves, the more they'll begin to feel that they deserve those things and more, and the more they will have to sell to perpetuate that self-image.
You want the reward to come as soon after the action as possible.
I don't mean 2 weeks into the following month; that's ridiculous. If Accounting tells you they can't do it, tell them to go bugger themselves and find a way to get it done. I guarantee that the number of Salespeople who hit goal after you make this happen will dramatically increase. Part of the reason is that, if commissions come at least once a month, Salespeople begin to shift their lifestyles up a notch in anticipation of this reward. In other words, they buy things on credit, and then have to hit those higher goals just to keep up the payments.
This is why you will encourage your Salespeople to buy new cars, boats, nicer houses, big vacations, and so on. The more they spend on themselves, the more they'll begin to feel that they deserve those things and more, and the more they will have to sell to perpetuate that self-image.
And while you're talking to Accounting, remind them that a Salesperson should receive repayment for business expenses no later than the paycheck following the date that they turned in their completed (and accurate, please) expense report. You want your Salespeople to spend every waking moment thinking and talking about selling, not wondering when or if they're going to get paid back for that cab ride they had to take to the airport.
Friday, April 6, 2012
Double Dipping is Dumb
Many organizations break their Sales teams down into 2 functional groups: Business Development (sometimes called Outside Sales) and Account Management (sometimes called Inside Sales). While the names might be misleading (for example, Inside Sales reps might actually travel to see Customers and Outside Sales reps might spend a considerable amount of time on the phone, depending upon the industry and the organization's needs), what we really mean is that one group consists of Hunters and another group consists of Farmers.
Hunters find new Customers. Farmers grow the spend of existing Customers.
Some organizations add a 3rd layer: Sales or Account Administration. Typically, this layer appears when the organization's internal processes have become so dysfunctional that you need a whole other - and cheaper - person to make sure orders are entered, processed, completed, and delivered. If your organization has this layer, usually everyone agrees that it's a necessary evil. "We have these extra people," goes the argument, "because our Sales Reps' time is too valuable for this type of work, plus it would cost too much to improve our processes to make a change."
So you teach your Salespeople that certain tasks - like entering and following through on the orders that they are paid for - are beneath them? That certainly is an interesting culture you're building. Of course, it inevitably leads Salespeople to believe that other tasks might be beneath them, too, like returning Customers' calls, but hey - it's your business, and you can make everyone who actually does those tasks resent the Salespeople who have been taught to dump on them if you really want to.
But let's look at that second excuse a minute, shall we? You don't have enough money to improve your process. Fair enough. It might even be true. But just to be sure, let's kick the tires of that argument. Let's say you have just 3 Sales Admins (3's not too bad, right?), and you pay them $30,000 a year or, by the time you add healthcare and other overhead, let's conservatively say $45,000 each. Per year. For as long as your business exists. Which won't be very long if you keep paying 2 people to do one job.
Get the picture?
If you apply just one year of what those 3 admins cost to process improvement - even if it means investing in a much better CRM, accounting system, or whatever it takes to make that job practical for a single person to do - you have $135,000 to work with. And, after the first year, that savings (plus any cost-of-living adjustments you would have had to add on) goes right to your bottom line.
Friend, you can't afford not to be lean. And you never will.
Now let's look at another example of paying 2 people to do one person's job. Let's say you have Hunters and Farmers. Do you pay your Hunters only for a new Customer's initial purchase, or do they receive some type of residual pay for each order thereafter? If the latter, for how long? If you continue to pay a Hunter after they have handed a Customer over to a Farmer, you're double dipping.
Never double dip.
"Okay," you say. "Fair enough. But let's say a Customer took a long time and a lot of work to land. Plus their initial purchase was small, but later purchases weren't. How do I motivate a Hunter to hunt if we immediately take a Customer away from them?"
The issue isn't comping your Hunter for landing the Customer. The issue is paying them a) when they no longer have any connection with the Customer, and/or b) making it easy for Customers to keep going back to their Hunter, preventing the Hunter from hunting.
The secret to handling this situation properly is as follows:
This approach keeps your Hunters from being able to live on residuals - every year, they have to completely replenish their Customer base. This will encourage them to help make the transition to their corresponding Farmer as smoothly and as quickly as they possibly can. The quicker and the smoother this happens, the more money both reps make, and neither one feels subservient or entitled.
And, since we're on that topic, anyway, if you are like most organizations, chances are that you pay your Hunters more than your Farmers. Am I right? But if a Farmer retains Customers and grows each one's spend beyond their initial purchase, don't they typically make more money for your organization than your Hunters?
Then why do you pay your Hunters more?
The argument that I hear most often is that landing a Customer is harder than keeping one. This hasn't been true for awhile, and it's time that your culture caught up to reality. Keeping Customers is harder than it's ever been, and it's much harder than taking Customers from a competitor. Landing a Customer is a finite period of time, no matter how long it seems. Plus, if you follow the model above, you get to walk away from any problems after the initial order or two and wine & dine the next Prospect.
Am I saying that you should pay Farmers more than Hunters? No - but only because I don't think you're ready for that yet. But paying them in such a way that they end up making about the same if they hit their respective goals? Yeah. If anything, I think you're overdue for that one.
And if you think this was fun, just wait until we talk about the right way to split a territory.
Hunters find new Customers. Farmers grow the spend of existing Customers.
Some organizations add a 3rd layer: Sales or Account Administration. Typically, this layer appears when the organization's internal processes have become so dysfunctional that you need a whole other - and cheaper - person to make sure orders are entered, processed, completed, and delivered. If your organization has this layer, usually everyone agrees that it's a necessary evil. "We have these extra people," goes the argument, "because our Sales Reps' time is too valuable for this type of work, plus it would cost too much to improve our processes to make a change."
So you teach your Salespeople that certain tasks - like entering and following through on the orders that they are paid for - are beneath them? That certainly is an interesting culture you're building. Of course, it inevitably leads Salespeople to believe that other tasks might be beneath them, too, like returning Customers' calls, but hey - it's your business, and you can make everyone who actually does those tasks resent the Salespeople who have been taught to dump on them if you really want to.
But let's look at that second excuse a minute, shall we? You don't have enough money to improve your process. Fair enough. It might even be true. But just to be sure, let's kick the tires of that argument. Let's say you have just 3 Sales Admins (3's not too bad, right?), and you pay them $30,000 a year or, by the time you add healthcare and other overhead, let's conservatively say $45,000 each. Per year. For as long as your business exists. Which won't be very long if you keep paying 2 people to do one job.
Get the picture?
If you apply just one year of what those 3 admins cost to process improvement - even if it means investing in a much better CRM, accounting system, or whatever it takes to make that job practical for a single person to do - you have $135,000 to work with. And, after the first year, that savings (plus any cost-of-living adjustments you would have had to add on) goes right to your bottom line.
Friend, you can't afford not to be lean. And you never will.
Now let's look at another example of paying 2 people to do one person's job. Let's say you have Hunters and Farmers. Do you pay your Hunters only for a new Customer's initial purchase, or do they receive some type of residual pay for each order thereafter? If the latter, for how long? If you continue to pay a Hunter after they have handed a Customer over to a Farmer, you're double dipping.
Never double dip.
"Okay," you say. "Fair enough. But let's say a Customer took a long time and a lot of work to land. Plus their initial purchase was small, but later purchases weren't. How do I motivate a Hunter to hunt if we immediately take a Customer away from them?"
The issue isn't comping your Hunter for landing the Customer. The issue is paying them a) when they no longer have any connection with the Customer, and/or b) making it easy for Customers to keep going back to their Hunter, preventing the Hunter from hunting.
The secret to handling this situation properly is as follows:
- Bring in the Farmer on the day the Customer signs with you. Identify them as the Customer's Account Manager. Never for a moment suggest that they are the Hunter's assistant, or allow anyone else to suggest this (especially the Hunter).
- Pay the Hunter for the initial purchase, and for every subsequent purchase for a maximum of one year. (If your margins and/or commission percentages are high enough, you can and should gradually wean this amount down. If not, just cut them off after one year.)
- After one year, only the Farmer gets paid for this Customer's purchases.
And, since we're on that topic, anyway, if you are like most organizations, chances are that you pay your Hunters more than your Farmers. Am I right? But if a Farmer retains Customers and grows each one's spend beyond their initial purchase, don't they typically make more money for your organization than your Hunters?
Then why do you pay your Hunters more?
The argument that I hear most often is that landing a Customer is harder than keeping one. This hasn't been true for awhile, and it's time that your culture caught up to reality. Keeping Customers is harder than it's ever been, and it's much harder than taking Customers from a competitor. Landing a Customer is a finite period of time, no matter how long it seems. Plus, if you follow the model above, you get to walk away from any problems after the initial order or two and wine & dine the next Prospect.
Am I saying that you should pay Farmers more than Hunters? No - but only because I don't think you're ready for that yet. But paying them in such a way that they end up making about the same if they hit their respective goals? Yeah. If anything, I think you're overdue for that one.
And if you think this was fun, just wait until we talk about the right way to split a territory.
Saturday, March 31, 2012
Paying Your People
One of the more difficult business concepts for most people to understand is compensation. How much do you pay your people, and why? How often do you increase - or decrease - their comp (and why)? Do you offer an annual bonus? If so, is it a gift or an incentive (and why, always why)?
Let's start with the basics. Every pay plan, regardless of employee or department, must do the following:
People tend to do the things that reward them, avoid whatever punishes them, and stop doing what does neither.
Your job is to figure out what each employee's goals must be in order to reach your organization's goals. Sales is easy, but your accountants must have goals, too, and your IT folks. This requires that you understand each employee's role well enough to know what those goals must be. If they hit each goal, they receive the corresponding pay (everything is a transaction, remember?). If they don't, there must be a clearly defined (and clearly communicated in advance) penalty (your company is punished in a very real way when employees miss goals; to drive success, employees must feel the pain, too). If they surpass a goal, there should be a corresponding - and well-defined - reward.
Any behavior that is neither rewarded nor punished tends to go away on its own, with the exception of sexual harassment, bullying, prejudice, etc., where the behavior itself is the reward. Your other employees have enough to do without worrying about losers who engage in any of this crap. Fire them on the spot, and throw rotten tomatoes at them all the way out the door. Remember to follow through so that you get a nice, solid impact.
As I've mentioned before, performance is not a once-a-year report. You (and your managers) must meet with direct reports at least monthly to assess progress, obstacles, and provide requested resources and support. Performance review is an ongoing responsibility for both you and the employee. If they're doing better than planned, they have a right to expect recognition and a reward. If they are experiencing difficulty, they have a right to expect you to pay attention and mentor them (but not do it for them). In both cases, your attention is required.
The simpler your pay plan - including your pay plan for salespeople - the better. If an employee has to use a calculator or some kind of an outline to figure out how much money they're going to make, you didn't do your job. A 10-year-old should be able to figure out any given employee's paycheck in their head. You want employees to spend their time working, not worrying about how much they're going to make (or when they're going to get it). Because it is usually the most important thing on any given employee's mind, it must always be:
This includes reimbursements for business expenses. And when I say on time, I am a big fan of paying salespeople their commission no less often than once a month. I do it weekly, if I can. I've found that salespeople perform better when they have immediate feedback, whether reward for effort or punishment for lack of effort.
I'm also a firm believer in transparency. That means I have no problem with everyone knowing how much everyone else makes. This topic always starts an argument, but here's my reasoning:
If you are running your organization correctly, everyone knows exactly what milestones must be hit to make a given amount of money, right? Likewise to advance. If your employees know that the criteria is objective, and you're not going to promote someone just because you happen to go to the bar with them from time to time, they will work harder to reach the next level. And anyone who doesn't want anyone to know how much they make is hiding something.
Let's start with the basics. Every pay plan, regardless of employee or department, must do the following:
- Reward production
- Punish lack of production
- Cause the extinction of undesirable behavior
People tend to do the things that reward them, avoid whatever punishes them, and stop doing what does neither.
Your job is to figure out what each employee's goals must be in order to reach your organization's goals. Sales is easy, but your accountants must have goals, too, and your IT folks. This requires that you understand each employee's role well enough to know what those goals must be. If they hit each goal, they receive the corresponding pay (everything is a transaction, remember?). If they don't, there must be a clearly defined (and clearly communicated in advance) penalty (your company is punished in a very real way when employees miss goals; to drive success, employees must feel the pain, too). If they surpass a goal, there should be a corresponding - and well-defined - reward.
Any behavior that is neither rewarded nor punished tends to go away on its own, with the exception of sexual harassment, bullying, prejudice, etc., where the behavior itself is the reward. Your other employees have enough to do without worrying about losers who engage in any of this crap. Fire them on the spot, and throw rotten tomatoes at them all the way out the door. Remember to follow through so that you get a nice, solid impact.
As I've mentioned before, performance is not a once-a-year report. You (and your managers) must meet with direct reports at least monthly to assess progress, obstacles, and provide requested resources and support. Performance review is an ongoing responsibility for both you and the employee. If they're doing better than planned, they have a right to expect recognition and a reward. If they are experiencing difficulty, they have a right to expect you to pay attention and mentor them (but not do it for them). In both cases, your attention is required.
The simpler your pay plan - including your pay plan for salespeople - the better. If an employee has to use a calculator or some kind of an outline to figure out how much money they're going to make, you didn't do your job. A 10-year-old should be able to figure out any given employee's paycheck in their head. You want employees to spend their time working, not worrying about how much they're going to make (or when they're going to get it). Because it is usually the most important thing on any given employee's mind, it must always be:
- Transparent
- Accurate
- On time
- Simple
This includes reimbursements for business expenses. And when I say on time, I am a big fan of paying salespeople their commission no less often than once a month. I do it weekly, if I can. I've found that salespeople perform better when they have immediate feedback, whether reward for effort or punishment for lack of effort.
I'm also a firm believer in transparency. That means I have no problem with everyone knowing how much everyone else makes. This topic always starts an argument, but here's my reasoning:
If you are running your organization correctly, everyone knows exactly what milestones must be hit to make a given amount of money, right? Likewise to advance. If your employees know that the criteria is objective, and you're not going to promote someone just because you happen to go to the bar with them from time to time, they will work harder to reach the next level. And anyone who doesn't want anyone to know how much they make is hiding something.
My mom always said that, if you have to sneak, it must be wrong. I agree.
As a side note regarding promotions, it is vital that you be objective. If someone hits all of the necessary goals and does not advance, even though a position is open, they will leave. And you know where they'll go? To your competitor, who runs a business instead of a social club.
Also, never advance someone as an excuse to give them more money. Organizations that do this invariably become top-heavy. This makes your organization less profitable, slower to react to the market, and makes communication and the chain of command a complete mess. Always have as few managers (and employees in general) as you possibly can. Lean is healthy!
Last idea for today: Yes, of course you should know what other employers in your area pay their people for the same job. Don't bother with national tables; they tilt toward both coasts, neither of which may be realistic for your region. While you want your pay for a given job to fall about in the middle of the pack (too low, people leave; too high, people get lazy), there are other factors to consider besides pay. Employees leave managers much more often than they leave jobs. If you provide supportive, growth-oriented management, the right people will work to stay, even if a competitor pays slightly more.
People value being valued.
As a side note regarding promotions, it is vital that you be objective. If someone hits all of the necessary goals and does not advance, even though a position is open, they will leave. And you know where they'll go? To your competitor, who runs a business instead of a social club.
Also, never advance someone as an excuse to give them more money. Organizations that do this invariably become top-heavy. This makes your organization less profitable, slower to react to the market, and makes communication and the chain of command a complete mess. Always have as few managers (and employees in general) as you possibly can. Lean is healthy!
Last idea for today: Yes, of course you should know what other employers in your area pay their people for the same job. Don't bother with national tables; they tilt toward both coasts, neither of which may be realistic for your region. While you want your pay for a given job to fall about in the middle of the pack (too low, people leave; too high, people get lazy), there are other factors to consider besides pay. Employees leave managers much more often than they leave jobs. If you provide supportive, growth-oriented management, the right people will work to stay, even if a competitor pays slightly more.
People value being valued.
Wednesday, March 28, 2012
Margin, Margin, Margin!
To run a business, you must have a basic understanding of a few key metrics. Margin is about as key as you can get. If you don't understand margin, you are already losing money, plus you're a sucker. How did you even get this job? Let's cover the basics quick before someone finds out you don't already know them.
Margin is a percentage of the total revenue produced by a good or service. What the percentage means depends on what kind of margin we're talking about - gross margin or net margin. Gross margin is the relationship between gross profit and cost-of-goods-sold (COGS, also known as 'cost-of-sales' - how much it costs to produce the item or sell and provide the service; it doesn't include office expenses, rent, administrative costs, etc.).
Margin is a percentage of the total revenue produced by a good or service. What the percentage means depends on what kind of margin we're talking about - gross margin or net margin. Gross margin is the relationship between gross profit and cost-of-goods-sold (COGS, also known as 'cost-of-sales' - how much it costs to produce the item or sell and provide the service; it doesn't include office expenses, rent, administrative costs, etc.).
Let's do some math:
(Revenue - COGS)/Revenue * 100% = Gross Margin Percentage
Let's say we sell a particular product for $50, and our COGS is $12:
($50 - $12)/$50 * 100% = 76% (or $38 per product sold)
The amount of Gross Margin that you assign to a given product is not arbitrary; although COGS covers your overhead and fixed costs such as wages, etc., it does not necessarily take into consideration the things that make your business last, such as future product development, future growth (including additional payroll), future technology requirements, etc. All of that has to come out of that $38. And if you are partnered with a venture capital firm or your organization is part of a public corporation, you may not see any of that $38 at all.
Another pressure on Gross Margin is competition. If you have a competitor who can produce a similar good or service to yours for a lower COGS, your margin is going to be squeezed. (Think of how the iPad squeezes other tablet makers, and how the Kindle Fire squeezes the iPad.)
In general, depending upon sales frequency (or inventory turns, if you're in retail), you want to choose a Gross Margin percentage that allows you to cover all of the tangibles plus unforeseen expenses such as the above. Once you figure out what that percentage is, and you know the COGS, it's easy to figure out how much to sell the product for:
Gross Margin + COGS = How Much It Costs the Customer
If we know that we want a GM of 6% and our COGS is $32, it goes like this:
((6/(100-6)) * $32 = $2.04 (this is your Gross Margin in dollars)
$32 + $2.04 = $34.04
Here are couple more formulas to add to your tool box:
Net Sales = Gross Margin + COGS
(Gross Margin/Net Sales) * 100 = Gross Margin
And here's one more that is always a toughie: Suppose you have salespeople (even if you don't call them that). How do you figure out whether or not what you pay them (or their manager) is "right"? Easy, and it's a formula that will help you stay out of trouble when it comes to compensation:
An adequate salesperson (or sales manager) should sell 10 times their wage (including commissions, bonuses, and other perks).
See how easy that was? Now gimme 10 laps and hit the showers.
(Revenue - COGS)/Revenue * 100% = Gross Margin Percentage
Let's say we sell a particular product for $50, and our COGS is $12:
($50 - $12)/$50 * 100% = 76% (or $38 per product sold)
The amount of Gross Margin that you assign to a given product is not arbitrary; although COGS covers your overhead and fixed costs such as wages, etc., it does not necessarily take into consideration the things that make your business last, such as future product development, future growth (including additional payroll), future technology requirements, etc. All of that has to come out of that $38. And if you are partnered with a venture capital firm or your organization is part of a public corporation, you may not see any of that $38 at all.
Another pressure on Gross Margin is competition. If you have a competitor who can produce a similar good or service to yours for a lower COGS, your margin is going to be squeezed. (Think of how the iPad squeezes other tablet makers, and how the Kindle Fire squeezes the iPad.)
In general, depending upon sales frequency (or inventory turns, if you're in retail), you want to choose a Gross Margin percentage that allows you to cover all of the tangibles plus unforeseen expenses such as the above. Once you figure out what that percentage is, and you know the COGS, it's easy to figure out how much to sell the product for:
Gross Margin + COGS = How Much It Costs the Customer
If we know that we want a GM of 6% and our COGS is $32, it goes like this:
((6/(100-6)) * $32 = $2.04 (this is your Gross Margin in dollars)
$32 + $2.04 = $34.04
Here are couple more formulas to add to your tool box:
Net Sales = Gross Margin + COGS
(Gross Margin/Net Sales) * 100 = Gross Margin
And here's one more that is always a toughie: Suppose you have salespeople (even if you don't call them that). How do you figure out whether or not what you pay them (or their manager) is "right"? Easy, and it's a formula that will help you stay out of trouble when it comes to compensation:
An adequate salesperson (or sales manager) should sell 10 times their wage (including commissions, bonuses, and other perks).
See how easy that was? Now gimme 10 laps and hit the showers.
Thursday, March 15, 2012
Price vs. Cost
As we've discussed before, language defines culture. Putting a word to something conjures an image and an expectation of the thing named. That's why shamans and occultists put so much store by names - they understood that naming a thing gave them power over it. And for any business that sells any good or service, nothing is more important than the definition of and the distinction between cost and price.
Price is the sticker on that new car. It is a liquid word, and implies flexibility and negotiation. It also identifies the thing to which the price is attached as a commodity... that is, an item that exists in identical form at the business down the street. Anything that is a dime a dozen has a price, and we just named it. (But we'll give you fourteen for that same dime if you buy today.)
Cost is a fixed quantity. In the Customer's mind, it is an immovable object. "The cost of X is Y." There can be no negotiation with cost; it is what it is, and that's what it costs.
Now here's the part where you learn a new language: Everything sold has a cost. Nothing has a price. Ever. This is not a negotiating tactic, nor is it a sales formula. If price has ever passed your lips, you have used the incorrect word. That is a fact, and I can prove it to you:
To have a price, an item must be a commodity - that is, an identical item must be available elsewhere. If you have the only one of a given item that exists anywhere in the world, what you charge for it is not negotiable, simply because it does not need to be. The Customer cannot purchase the exact same item elsewhere, so he must pay what you ask or go without.
"But we sell X," you say, "and the guys down the street have X, too."
To which I say, "No, they don't. No one sells what you sell. And you know why? Because X is not what you sell. X may be included in what you sell, but what you sell is you - your organization and how you do business. Your customer service, your terms, your speed of delivery and accuracy of execution, your satisfaction ratings, your industry awards, your knowledge, and on and on. That is what you sell. And it has a cost."
Make a list of these things (they're called Points of Differentiation, or POD's). Trumpet them. Be the best at them. Don't make anything up or spout half-truths. Make them things that you can say to your kids or your reflection without blinking, looking away, or laughing. Make sure that everyone in your organization - not just the salespeople - knows them by heart. And if you don't believe them, sell your business to someone who does and go home, because you have already given up. Why take everyone else down with you?
One final note: Slap anyone who says that a service has a price, ever. A service is as individualized as you can get - no two haircuts are any more alike than two snowflakes or the services performed by hookers in Vegas.*
*Or so I'm told.
Price is the sticker on that new car. It is a liquid word, and implies flexibility and negotiation. It also identifies the thing to which the price is attached as a commodity... that is, an item that exists in identical form at the business down the street. Anything that is a dime a dozen has a price, and we just named it. (But we'll give you fourteen for that same dime if you buy today.)
Cost is a fixed quantity. In the Customer's mind, it is an immovable object. "The cost of X is Y." There can be no negotiation with cost; it is what it is, and that's what it costs.
Now here's the part where you learn a new language: Everything sold has a cost. Nothing has a price. Ever. This is not a negotiating tactic, nor is it a sales formula. If price has ever passed your lips, you have used the incorrect word. That is a fact, and I can prove it to you:
To have a price, an item must be a commodity - that is, an identical item must be available elsewhere. If you have the only one of a given item that exists anywhere in the world, what you charge for it is not negotiable, simply because it does not need to be. The Customer cannot purchase the exact same item elsewhere, so he must pay what you ask or go without.
"But we sell X," you say, "and the guys down the street have X, too."
To which I say, "No, they don't. No one sells what you sell. And you know why? Because X is not what you sell. X may be included in what you sell, but what you sell is you - your organization and how you do business. Your customer service, your terms, your speed of delivery and accuracy of execution, your satisfaction ratings, your industry awards, your knowledge, and on and on. That is what you sell. And it has a cost."
Make a list of these things (they're called Points of Differentiation, or POD's). Trumpet them. Be the best at them. Don't make anything up or spout half-truths. Make them things that you can say to your kids or your reflection without blinking, looking away, or laughing. Make sure that everyone in your organization - not just the salespeople - knows them by heart. And if you don't believe them, sell your business to someone who does and go home, because you have already given up. Why take everyone else down with you?
One final note: Slap anyone who says that a service has a price, ever. A service is as individualized as you can get - no two haircuts are any more alike than two snowflakes or the services performed by hookers in Vegas.*
*Or so I'm told.
Monday, March 12, 2012
Special Offers and Slippage
From time to time, you may offer your Customers some kind of discount or other special offer by means of some type of coupon, etc. Here are a couple of rules regarding offers of this type that no one seems to follow, and which end up costing you more than the coupon is worth:
The whole point of this type of offer is to make sure that as many Customers as possible know about it. Make certain that you send it out on a day that it will be seen (if via email, Tuesday or Thursday are best; if via social media, try Wednesday just before lunch in your target markets; snail mail, use an unusual envelope or arresting graphic on postcards).
Especially today, when Customers are barraged by marketing messages in literally hundreds of mediums, the best way to keep your message from getting lost in the howl is to send it to your Customers more than once, and in a variety of mediums. Post it ahead of time on your company's website, send snail mail the week before, do an email or newsletter blast the day of, have your reps call key Customers the next day to make sure they got the flyer/email/etc... The squeaky wheel really does get the best results and, if you do it in several mediums instead of hitting Customers multiple times using just one, your opt out rate is far less likely to spike.
Make sure that your employees - especially support and sales - know about the offer before it goes out. Nothing is more unprofessional than a Customer who knows more about your marketing efforts than your employees.
You have enough competition, right? So make certain that other departments don't have competing offers going out at the same time. (How dumb is it to compete against yourself? Yet I can't count the number of times that I've seen this happen, simply due to a lack of communication between departments and/or managers.)
Now let's talk about a key component of any special offer: slippage.
Let's say that you send your special offer out to 1,000 Customers. The offer should require that Customers validate the offer in some way - bringing in a coupon, entering a code into a web form, etc. This serves two purposes:
I can already hear you: "But Dave, if our Customers find out afterward that we had a discount and they didn't get it, they'll be mad at us!"
Bullshit. They may take it out on you, but they'll actually be mad at themselves for missing your offer. And we even have a way around that: Have a second offer available for exactly these Customers, not quite as good as the first offer, and let them know that you are doing this one time only and only because they are such a good Customer. (This will only work if everyone in your chain of command holds the line.)
You want everyone to hear about your offer, but you only want a certain number of people to cash in. That's how offers work: They drive additional business your way without you having to give up revenue. Of course, you honor the offer for everyone who complies with your terms, but for no one else. And from then on, your Customers will watch for your offers, and make sure they save them.
Out of the 1,000 Customers that you sent your offer to, you'll likely get 20 to 30 who convert and comply - 2% to 3%. But your traffic should bump at least 10%. That's a 7% to 8% uptick in business without any discount beyond what you would normally give a Customer without a special offer.
Ain't slippage grand?
YG5FWXED2V2D
The whole point of this type of offer is to make sure that as many Customers as possible know about it. Make certain that you send it out on a day that it will be seen (if via email, Tuesday or Thursday are best; if via social media, try Wednesday just before lunch in your target markets; snail mail, use an unusual envelope or arresting graphic on postcards).
Especially today, when Customers are barraged by marketing messages in literally hundreds of mediums, the best way to keep your message from getting lost in the howl is to send it to your Customers more than once, and in a variety of mediums. Post it ahead of time on your company's website, send snail mail the week before, do an email or newsletter blast the day of, have your reps call key Customers the next day to make sure they got the flyer/email/etc... The squeaky wheel really does get the best results and, if you do it in several mediums instead of hitting Customers multiple times using just one, your opt out rate is far less likely to spike.
Make sure that your employees - especially support and sales - know about the offer before it goes out. Nothing is more unprofessional than a Customer who knows more about your marketing efforts than your employees.
You have enough competition, right? So make certain that other departments don't have competing offers going out at the same time. (How dumb is it to compete against yourself? Yet I can't count the number of times that I've seen this happen, simply due to a lack of communication between departments and/or managers.)
Now let's talk about a key component of any special offer: slippage.
Let's say that you send your special offer out to 1,000 Customers. The offer should require that Customers validate the offer in some way - bringing in a coupon, entering a code into a web form, etc. This serves two purposes:
- It allows you to count the number of conversions so that you know the response rate. Without this, you have no idea whether or not the offer was successful. Remember: This is a business, not a club; guesstimating is for hobbyists.
- It allows us to exclude Customers who did not actually respond to the offer - a practice known as 'slippage'. The worst thing that you can do is allow employees to push your offer to Customers who have never heard of it (and they will, believe me, unless you order them not to).
There are two reasons for this:
- Your metrics regarding the actual response rate go out the window.
- Your employee is offering a discount to a Customer that was willing to pay full price! Don't get me wrong - you want as many Customers to respond to your offer as possible. But you don't want to offer a discount to a Customer that was willing to pay full price, or you'll go broke, because it becomes habit and then 'the way we do things' overnight.
I can already hear you: "But Dave, if our Customers find out afterward that we had a discount and they didn't get it, they'll be mad at us!"
Bullshit. They may take it out on you, but they'll actually be mad at themselves for missing your offer. And we even have a way around that: Have a second offer available for exactly these Customers, not quite as good as the first offer, and let them know that you are doing this one time only and only because they are such a good Customer. (This will only work if everyone in your chain of command holds the line.)
You want everyone to hear about your offer, but you only want a certain number of people to cash in. That's how offers work: They drive additional business your way without you having to give up revenue. Of course, you honor the offer for everyone who complies with your terms, but for no one else. And from then on, your Customers will watch for your offers, and make sure they save them.
Out of the 1,000 Customers that you sent your offer to, you'll likely get 20 to 30 who convert and comply - 2% to 3%. But your traffic should bump at least 10%. That's a 7% to 8% uptick in business without any discount beyond what you would normally give a Customer without a special offer.
Ain't slippage grand?
YG5FWXED2V2D
Thursday, March 1, 2012
Penny Wise, Pound Foolish
Keep a diary for a week of everything that you do at work and how long it takes. Either fill it out on the PC as each event/task happens to you or get a notebook and carry it around with you each day.
Enter the following:
At the end of each day, sit down, look at each line and think, “Does this task need to be done by anyone, or is it just noise? Does it have to be done by me? If not, who else can/should do it?”
Add up the hours for the tasks that can be delegated, and that’s how much of your day you’ll get back when you delegate those tasks.
It’s amazing how many hours we waste each day doing tasks that are below our pay grade! I used to work with a VP that spent hours every week reviewing the company’s phone bills to see what we could get credit for from the phone company (errors, etc.). He saved us an average of $200 a month. But because of how much his time cost per hour, we were actually losing $1,200 - $1,500 per month in productivity. In other words, there were other tasks worthy of his pay grade that only he could do that he neglected because he was chasing pennies. (We later assigned a support rep to do that task, at a cost of less than $40/month.)
Enter the following:
- What you did.
- How long it took.
- Whether it was something that A) drove the business toward a key goal, B) was merely urgent (ie, putting out a fire), or C) a waste of your time (either no one needed to be there, or you should have delegated it).
At the end of each day, sit down, look at each line and think, “Does this task need to be done by anyone, or is it just noise? Does it have to be done by me? If not, who else can/should do it?”
Add up the hours for the tasks that can be delegated, and that’s how much of your day you’ll get back when you delegate those tasks.
It’s amazing how many hours we waste each day doing tasks that are below our pay grade! I used to work with a VP that spent hours every week reviewing the company’s phone bills to see what we could get credit for from the phone company (errors, etc.). He saved us an average of $200 a month. But because of how much his time cost per hour, we were actually losing $1,200 - $1,500 per month in productivity. In other words, there were other tasks worthy of his pay grade that only he could do that he neglected because he was chasing pennies. (We later assigned a support rep to do that task, at a cost of less than $40/month.)
Monday, February 27, 2012
Decisions, Decisions
For most people, decisions are the hardest part of management. In the end, though, they’re why you collect a paycheck. Unfortunately, good decisions often come only after years of bad ones (either your own or someone else’s), when you’ve finally collected enough experience to have some idea of what you’re doing.
There are a lot of unnecessary civilian casualties between here and there. Work Iz War is meant to help you avoid at least some of that by giving you the benefit of others’ experience. Think of it as mentoring on the cheap.
DO IT NOW
There is a cardinal law of business decisions that supercedes all others. If you remember nothing else that you read here, remember this: Do it now.
I know it’s hard. I know you’re insecure about it. I know you feel like a deer caught in a truck’s headlights. Suck it up! If you can’t make decisions, you’re not a manager. At best, you’re an overpaid babysitter. Also, you can’t wait. Here’s why:
THE LEAKY ROOF SCENARIO
Hey, did you know that your roof is leaking? That’s what a decision that hasn’t been made yet is, a leaky roof. So you bravely climb up on the roof in the snow, take a look at the hole, and it’s not too bad, so you call around to a couple of roofing contractors. Their bids are more than you expected (when are they not?), but you have enough to cover it. The thing is, your car needs new tires pretty soon and you want to go out Saturday and the hole isn’t really all that bad.
So you wait. Until spring.
When spring comes, you call the contractor that bid the lowest in December, and he comes out to re-bid, only something’s wrong. The new bid is three times what it was in December, and it’s a lot longer. When you ask the contractor, he says you should have had him fix the hole in December, before the leak allowed water to rot the roof joists and part of your bedroom ceiling, both of which now have to be replaced.
The lesson: Anything that you don’t do now will cost 3 times as much later.
This lesson also applies to firing an employee who is not doing their job, is working against you, or who was just a bad hire (these happen to the best of us).
Do it now. Don’t wait. Or be prepared to pay and pay and pay.
There are a lot of unnecessary civilian casualties between here and there. Work Iz War is meant to help you avoid at least some of that by giving you the benefit of others’ experience. Think of it as mentoring on the cheap.
DO IT NOW
There is a cardinal law of business decisions that supercedes all others. If you remember nothing else that you read here, remember this: Do it now.
I know it’s hard. I know you’re insecure about it. I know you feel like a deer caught in a truck’s headlights. Suck it up! If you can’t make decisions, you’re not a manager. At best, you’re an overpaid babysitter. Also, you can’t wait. Here’s why:
THE LEAKY ROOF SCENARIO
Hey, did you know that your roof is leaking? That’s what a decision that hasn’t been made yet is, a leaky roof. So you bravely climb up on the roof in the snow, take a look at the hole, and it’s not too bad, so you call around to a couple of roofing contractors. Their bids are more than you expected (when are they not?), but you have enough to cover it. The thing is, your car needs new tires pretty soon and you want to go out Saturday and the hole isn’t really all that bad.
So you wait. Until spring.
When spring comes, you call the contractor that bid the lowest in December, and he comes out to re-bid, only something’s wrong. The new bid is three times what it was in December, and it’s a lot longer. When you ask the contractor, he says you should have had him fix the hole in December, before the leak allowed water to rot the roof joists and part of your bedroom ceiling, both of which now have to be replaced.
The lesson: Anything that you don’t do now will cost 3 times as much later.
This lesson also applies to firing an employee who is not doing their job, is working against you, or who was just a bad hire (these happen to the best of us).
Do it now. Don’t wait. Or be prepared to pay and pay and pay.
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