Manufacturing Today

Sales strategies

Five commonsense sales strategies for manufacturers.

By Douglas DeRubeis

Every football fan has witnessed a team show its dominance by jumping out early in a game with a couple of quick scores, and then, just as quickly, pull back and play it safe, no longer doing what gave it the fast scores. The same can be said of many manufacturing companies. They start out strong, do the right things and then pull back. The typical manufacturing company gets a strong start through the reputation of the owner as a competent and reliable technician and word-of-mouth advertising; however, the sales effort begins and ends with only this method. Although word-of-mouth sales can get a company from zero to a million dollars or two in a relatively short time, something mysterious happens above that level: Sales plateau, and for every new customer that is acquired, attrition takes one away.

Somehow, the traditional approach to sales just stops working. When this happens, the business owner usually blames the economy or the competition. In reality, the problem is lack of a true sales process – one that can generate sufficient new business to exceed the attrition. If left unchecked, attrition eventually takes over, and sales begin to decline. It’s the beginning of the end.

ANY PROCESS IS BETTER THAN NONE

Even an efficient sales process can drive sales forward. Let’s say, for example, a company has two salespeople – an efficient one who sees four prospects a day and closes one, and a less efficient one who closes one out of 10. Despite differences in efficiency, as long as both go out diligently day after day, they are driving the business forward and each will bring in a new sale.

A sales process doesn’t have to be efficient to be effective, it just has to be relentless and repetitive. Of course, it couldn’t hurt to train less-efficient sales people in better salesmanship, closing techniques and prospecting. But a firm’s biggest mistake is doing nothing.

ROUND OUT BUSINESS CYCLES

The next obstacle to overcome is the cyclical nature of manufacturing. For example, Hicks Equipment, a manufacturer of photo-finishing equipment, primarily served customers whose season extended from September to December. Hicks filled most of its orders from March through August, but then struggled to keep its skilled people on payroll. The company applied two strategies to overcome the cycle.

"We made arrangements with large competitors to manufacture equipment they did make themselves during our slow time of the year," says Ray Hicks, owner. "For the larger companies, the photo-finishing business was less cyclical, so they could easily shift their inventory cycle to provide us with constant cash flow throughout the year. And since our overhead was already covered, we could offer the equipment at a price they could not refuse."

Hicks further utilized the slow period to sell and deliver on service contracts. "We were able to sell our technical labor at a discounted fixed rate rather than on an hourly basis," Hicks says. "Thus, we were able to fully utilize our capacity in mechanical, electrical and software engineering. No one could compete with us on that basis and our customers liked it because they received exceptional service." Hicks Equipment became so successful that it was acquired by a large competitor.

Segmenting the marketplace is an excellent way to overcome business cycles and underutilized capacity. For example, a company that fabricated parts for heating and air conditioning manufacturers sold unused capacity to lawn and garden equipment manufacturers at an hourly rate lower than that charged to its regular customers.

Because the two types of customers were in different industries, they would not compare prices. Besides, the parts sold to one industry were unlike the parts sold to the other.

USE A SITUATIONAL APPROACH

Creating a steady stream of new and repeat business requires the flexibility to segment the market and price accordingly. The fact is that selling is situational, and each situation has its own cost. This is particularly true for job-shop manufacturers for whom every unsold hour is a cost. That’s why in job shops, the sales process has to change continually based on capacity.

One solution for near-term unused capacity is to sell it to competitors at a price they can’t refuse. Since the competitor will most likely furnish tooling and materials, and since machine time and labor will cost the same whether or not the unused capacity is sold, any amount earned contributes to the manufacturer’s bottom line.

Hicks Equipment decided to use a situational sales strategy for its fabricating operations.

"Our salespeople sold available capacity at a rate no one could beat," Hicks says. "Whether you operate a machine tool 12 hours or 16, it costs the same since our building and overhead were fixed costs. Any additional work we brought in was profit."

During the transition from film to digital photography, Hicks manufactured machines that automatically digitized photographic film, including motion picture film.

"There was such a tremendous demand for our equipment that we found ourselves in the position of going out to buy extra machining capacity at a discount from companies doing the same thing we were doing," Hicks says. "With a bit of planning, making the best use of your available capacity and capital assets can pay you handsomely. But you really have to know what it is costing you to operate.

APPLY THE MATHEMATICS OF SALES

Every company has historical ratios that make its sales predictable. Let’s say that every four sales calls lead to one request for a quote.

Further, assume that every five requests for quotes turn into one purchase, and that two out of every three purchase-orders received from new customers become sustaining business. Finally, let’s say that every purchase order is worth $500.

To generate a certain amount of income, one only needs to calculate backwards to determine how many prospects salespeople need to see or how many phone calls are needed to generate one appointment.

If the business owner is the main salesperson, it’s crucial that he or she has an assistant to schedule appointments with decision-makers.

One manufacturer stood consistently at $12 million in sales. Then, its main customer was purchased by a larger corporation, which decided to centralize all its buying. Overnight, the manufacturer went from $12 million in sales to $8 million. For five years, the owner attempted to increase sales to no avail. When he was introduced to the mathematics of sales, he used historical company ratios to calculate that each of his four sales people had to see six prospects per day to increase sales by $4 million. Without any change in pricing, at the end of six months, the company was once again a $12 million business.

COMBINE DIFERENT APPROACHES

If it takes four face-to-face meetings with a prospect to elicit one request for a quote, clearly these meetings cannot be attempted in four consecutive days and will typically take two or four months to accomplish.

However, it has been shown the timeframe can be reduced by replacing one face-to-face meeting with two phone calls or three direct mail pieces within a four-week period. Therefore, with the right combination of two phone calls and three direct-mail pieces or e-mails, one can replace two of the face-to-face meetings, as long as it’s not the first or last meeting.

The phone calls have the most impact if they come between mailings to alert the prospect to their arrival. In this way, the sales cycle of turning prospects into customers can be shortened from eight to five weeks. One of the biggest mistakes in selling is the rely on only one venue, such as direct mail or trade journal advertising. These are efficient tools, but only when used in unison with a total sales approach that includes personal visits, phone calls and e-mail.

BEYOND THE PLATEAU

Selling is the most avoided element in manufacturing companies. Business owners in particular don’t like to make personal sales calls because it means possible rejection and time away from the plant. Renowned sales guru Tom Hopkins says, "Learn to love the word ‘no.’"

Whether the closing rate is one out of four prospects or one out of 20, consider that every ‘no’ moves the process closer to a sale. Thus, any manufacturer stuck at a $1 million plateau that is willing to make six calls one day a week can increase sales by $100,000 to $125,000 for the year.

Setting and keeping the right number of appointments per day to generate the right number of requests for quotes will generate the right number of purchase orders and the right ratio of sustaining business. This is a proven system that has been applied successfully by many different manufacturing companies.

However, this system works only if the manufacturing enterprise makes quality parts at a reasonable price with appropriate levels of service. If the process is inefficient at first, don’t despair. The ratios can be easily improved through training, but the first step is to get the process going.

Douglas DeRubeis is a consulting services director with International Profit Associates, Inc. (IPA). IPA and its related companies provide comprehensive business consulting services to companies in the United States and Canada. For more information, call 847-495-6786 or visit www.ipa-iba.com.