Think your business is in great shape because sales are up? Certainly, that’s a great place to be – and it’s where many industry companies find themselves right now. The Counselor Confidence Index, which measures distributor outlooks on their sales for the year, recently reached an all-time high. But company operations run deeper than just the top line. To gauge exactly how healthy your business is right now, experts recommend conducting regular check-ups. It’s an analysis that winning distributors do on a regular basis to ensure that they’re always set up for success.
Here are four questions to assess the current state of affairs at your business.
Is my net profit where it should be?
“I’ve had a great year – my sales are up $100,000.” It’s a common refrain that Dave Regan, vice president of sales and marketing from The Vernon Company, says he hears from salespeople. But sometimes, Regan says, when salespeople look at their margins and expenses, they realize they made the same amount of profit, or maybe even less, than they did the year previously. According to the Counselor State of the Industry report, the average gross profit margin for distributors is about 33% on a typical order.
“Gross profit may be great, but if your expenses are going up disproportionately, you’re not really where you want to be,” Regan says. “You need to do the math and factor in what’s going on with both your margins and your expenses.”
Rosalie Marcus, the founder of Promobizcoach.com, says taking the basic step of creating and closely monitoring a profit-and-loss statement can be beneficial. “A lot of times, we lose sight of where our money is going, and there are a lot of expenses that creep up,” she says, like staffing costs, office rental and T&E.
Keeping close tabs on your P&L statement could reveal areas in which you may be able to trim or eliminate costs, says Marsha Londe, CEO of Tango Partners, a business consultancy. For example, examine your order-fulfillment process. “Every touch of an order affects profitability,” she says. “Look for ways to eliminate touches without eliminating service or quality.”
Who are my best clients?
Do you know who your most profitable clients are? The odds aren’t in your favor. According to an American Express OPEN Small Business survey, less than half of small-business owners use customer analysis to make business decisions. Indeed, a recent Advantages survey revealed that just over 60% of distributors track their clients’ average order size and purchase frequency, and less than 30% track a client’s lifetime value.
Tracking these metrics is key, Regan says. “How can a company fully understand which clients they should focus their resources toward without knowing the clients that provide the best profitability and lifetime value?”
To get a handle on client profitability, Regan recommends looking at such metrics as the number of orders a client places in a calendar year, the average order size and average profit margin on the order.
In addition, he says, factor in the “softer” costs, such as the time you spend with each client and how long it takes you to put deals together for them. “Finally, think about how a client views you,” he says. “If the client appreciates your creativity, chances are, he’ll be more profitable than one who doesn’t.”
Am I maximizing my supplier relationships?
It’s no secret that building good relationships with suppliers will help you maintain strong margins and get better service. Regan sometimes sees distributors shop around to so many different suppliers that “they end up with 300 vendors in their system with two orders each,” he says. “You can bet that most of those suppliers don’t know those distributors’ names, and they’re certainly not going to give them the best deals.”
A better approach, Regan says, is to use ASI’s ESP search tool to search for highly-rated suppliers, then spend your time getting to know some of them. One distributor uses trade shows as a tactic to find suppliers that he clicks with. “Shake some hands and feel one another out,” he says. “Do you have the synergy, do you like their product line? You can tell that in a good 10 minutes of standing in the booth.”
As you establish solid relationships with suppliers, Regan says, you’ll be able to negotiate better terms and rebate plans with them. And, they’ll be more likely to help you if you need to speed up an order, or redo one. “You want to work with suppliers who are going to be there when you need them,” he says.
Am I diversified enough?
It’s a fact: 65% of distributors say their clients are seeking more services from them in addition to just fulfilling product orders, according to a recent Advantages study. Today’s competitive landscape has resulted in ad specialty sellers becoming so much more than just providers of promotional products. Experts say that distributors need to differentiate their companies not just from traditional competitors, but from anybody that their clients might do business with.
For example, some distributors are growing their client base by offering graphic design, content creation, event planning or social media services; others are having success by offering face-to-face consultations (something online competitors just can’t do). “Calling on your client in person, really listening to them, and then providing them with helpful solutions is kind of a lost art,” Regan says. “There are plenty of buyers out there who might like the idea that a salesperson will still call on them.”
Certainly, “The closer you can become to your client’s operations, the better off your business will be today,” says Joseph Greenberg, principal with consulting firm JAG Associates. “Seek to provide consultation and services that they simply couldn’t receive anywhere else, and you’ll see your sales soar.”
Dave Regan is the Vice President of Sales and Marketing for Counselor Top 40 Distributor, The Vernon Company. Dave has nearly 30 years of experience helping businesses increase their profit margin and bottom-line revenue. Contact him at email@example.com or 800-743-7545.