InTents August/September 2023 - 37

Once this client's team understood
how the income flowed, we talked
about the income statement of the
location. We talked about how a slight
improvement in gross margin would
really change the net profit picture in
the company. The next step in changing
the mindset was to create gross profit
goals in the company. We started
with the least profitable location and
developed a daily gross margin goal
based on the current expenses for the
location. We bumped it up a bit to foster
some downstream profitability. By
creating a daily gross margin goal, we
provide a constant reminder of what
we want to accomplish. In this case, we
came up with a goal and then created
a simple feedback method designed to
show the location how it was doing.
Each day, the branch manager reviews
the sales report from the previous day
and writes the gross margin dollar
total for the day on a wall calendar in
his office. For those of you beginning to
twitch in your seats, the number has no
dollar designation or decimal points. In
order to tie the number in with our goal,
the number is either written in black
pen (for gross margin dollars exceeding
the goal) or red pen (for gross margin
dollars below goal). The calendar is
visible to the employees because you
have to walk through the manager's
office to get to the refrigerator. It doesn't
get much simpler than this.
Sales compensation
One of the ways to make sure that we
are driving a gross margin mentality is
to ensure that the sales compensation
methodology supports our efforts. What
are you basing sales compensation
on? If the commission is a percentage
of gross sales dollars, you are going
to have a difficult time changing the
mentality. Although many companies'
compensation plans are based on gross
margin, there are still a few holdouts. I
often see this in companies where cost is
not shared with the sales team. This type
of scheme can also be found in companies
where deviation from established sales
pricing is rare or non-existent. I hate to
say it, but both of these scenarios lead me
to believe that there are some real control
issues in the executive team. When you
don't empower your people to do their
job, your potential is severely limited.
When we put an emphasis on gross
margin with our sales team, there may
be a shift in product focus. Hopefully, we
will see a greater interest in higher-profit
products. Even when a low-profit product
is sold, there will be more incentive to
round out the sale with complementary
high-margin products. This is a swift
way to emphasize margin importance to
modify sales compensation.
I recently had the opportunity to meet
the former CEO of Fastenal Co., Will
Oberton. For those of you unfamiliar with
the company, they are a multibillion-dollar
industrial fastener and supply distributor
boasting more than 20% net profit before
taxes. In the words of my father, that's
some pretty tall cotton. He was speaking
at an event that I was involved with and I
sat in on his presentation. He spoke about
a bold program that he had instituted
with the company's sales compensation.
Essentially, if a sales order posted less
than 20% gross margin, the order was
not eligible for commission. As you can
probably imagine, this caused a huge
ruckus in the sales department. Some of
his regional managers were very vocal in
their opposition. Oberton held his ground.
He stated, " If the company can't make
money on the sale, why am I going to pay
the salesperson? " The results worked
in his favor. By the end of the year, the
company's overall margins had improved
and one of the most vocal opponents said
that it was the best thing they had done
in years.
If you are forced
into a discount, try
to think in terms of
a 3% or 7% discount.
Those additional
two or three
percentage points
can really add up.
InTentsMag.com 37
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InTents August/September 2023

Table of Contents for the Digital Edition of InTents August/September 2023

InTents August/September 2023 - Cover1
InTents August/September 2023 - Cover2
InTents August/September 2023 - 1
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