Lower account management costs through segmentation

Office World News, Sep 1998 by Saviano, Neil

The highly competitive and volatile marketplace has forced office products dealers to constantly monitor their cost of doing business. My experience in working with many dealers, however, has shown that one vital cost that is not addressed as aggressively as it should be is the cost of selling. On a broad scope, the selling costs that dealers tend to focus on are salaries, commissions, bonuses, travel, and advertising and promotion. The cost of managing accounts by sales people and the dealer's cost effectiveness in account management are often neglected.

Cost effective account management is tied closely to the cost of a sales call. Though this is an important aspect of the cost of selling, dealers need to look at a broader picture. This picture begins with account segmentation, or breaking accounts up into groups determined by their potential sales and accordingly setting up a system of cost effective account coverage. A dealer can then determine if the cost of a sales call is justified.

Industry experts have determined that a typical office worker consumes approximately $600 per year of office products (including basic furniture). The cost of a typical field sales call is close to $30-compared to $4 for a telephone sales call. This information combined with account analysis that focuses on the number of office workers per account will enable a dealer to put together a system of cost effective account coverage.

Account segmentation should be the result of an account analysis. Typical segments (or groups) of accounts could fall into the following categories per number of office workers: 1-5, 6-10, 1115, 16-20, 21-30 and 30 plus. Strategically, it makes sense that groups with the lower number of office workers would be covered with more of a phone/fax/mail process, while the larger groups would warrant some field coverage.

Dealers need to be cautious of field coverage with the smaller groups. It's not uncommon to find dealers losing considerable dollars by covering small accounts in the field. A client consulting assignment uncovered the following situation: a field sales person was visiting an account with four office workers twice monthly. The company was realizing approximately 70% of the account's potential, or about $1,680. Total gross margin dollars for the account was $420 annually. Total sales call costs were $720. The cost of order processing and delivery rose the deficit even higher. The analysis resulted in altered coverage where the sales person opted to begin phoning the account every other week and visiting the account quarterly. The cost of selling to the account lowered considerably, and ultimately the account went where it belonged-to telemarketing.

Segmentation exercises like this one can be quite revealing for dealers and can put them quickly on the road to cost effective account coverage. Segmentation can be equally as revealing for a sales person, especially one whose income is heavily weighted toward commission and bonus. The revelation is enhanced by the perspective that the sales person is operating his or her own business in the dealership. This will typically allow a sales person only 1000 hours per year of actual direct selling time. By simply dividing their annual income goal by 1000, sales people will uncover their hourly income needs. In the field sales person account coverage example cited here, the sales person was earning only $84 per year of commissions (20% of $420), or $3.50 per hour-- far below her required $40. Dealers need to be encouraged to bring their sales people through similar exercises and prove to them that they may be operating an unprofitable business.

Sales automation software helpful As my previous articles related, sales automation software needs to play a larger role in dealer sales and marketing programs.

Segmentation strategies are helped greatly by sales automation software. Sales people will have a constant reminder of account potential if the relevant field is filled in. Accordingly, an account-by-account call schedule can be put in place that assures that a cost effective system of coverage is maintained and is being monitored by both the sales person and sales management.

Accounts can also be coded to show what percentage of their potential is being realized and they can be targeted with related promotions.

Dealers need to constantly view account segmentation in terms of increasing both sales revenue and return on investment. My previous article on target marketing [July 1998] brought out a segmentation example that is tied to a key segmentation variable-account potential (number of office workers per account). In that example, all small accounts (the 1-5 office workers group) were fax broadcast twice monthly with reorder forms from their telephone sales person. The accounts were encouraged to fill out an order form from a list of common items and to add additional products. This segmentation strategy drove sales revenues from previously uncovered accounts, but did it with a small amount of sales expense and thus assured a higher return on investment from the related sales effort.