Sell sales force on generating profits as well as volume.

Probably the most common problem in our industry today is price erosion.

Every foundry can point to a growing number of customers, particularly larger ones, who are driving casting prices down to their lowest common denominator.

Foundries that once boasted a unique combination of excellent quality, good service and delivery are being regularly knocked off by the competition. Differences in foundries have tended to become neutralized and performance promises have been almost standardized.

And further aggravating the problem of volume losses has been the traditional tendency in our industry to measure sales and marketing performance by the size of periodic volume increases. Unfortunately, this perspective tends to obscure the element of profitability of sales. Even with moderately rising prices, profits can still fall below expectations. With our industry's high material and labor costs, price increases frequently fail to completely cover rising production costs. Therefore, even though sales dollars continue to rise, profitability may, in fact, be failing.

Getting your sales force focused on profit rather than volume can be a very effective approach to help alleviate the problem. If the name of the game is profit, then the hottest item to sell salespeople on is profit improvement.

Opening a clear channel of communication between the company and the individual salesperson is the first step. This involves making detailed and easily understood profitability reports available to them. The better the information they receive concerning performance, the better they will be able to adjust to the profit goals you set.

First, there should be a report for each salesperson, indicating castings sold by part number during a specified time period, usually by month. Indicated here should be both sales volume and profitability related to a predetermined base, typically compared to a preceding time period, year-to-date, or performance vs. forecast. Preferably all three.

Second, a report should be prepared on each key customer, with the same comparative standards. In our business, it's likely that 20% of your customers will account for 80% of the volume. it could be possible to have a salesperson spending 80% of his/her time with that important 20%. Or perhaps they should be spending more time trying to promote some of the small and medium-size accounts among the 80% to the point at which they become larger customers.

If you classify your customers by profitability as well as volume (A, B and C for example) it will be easier to decide whether it might be more profitable to have your sales people concentrate their efforts on a particular group or classification of customers. Also consider classifying the 80% on the basis of business growth potential.

Important questions you will have to ask include: Are my sales representatives spending too much time with just a few customers? Are they wasting time calling on marginal customers? How do we define marginal customers? Shall we eliminate marginal customers? Should we raise prices substantially for marginal customers?

Performance Reports

Detailed performance reports can serve several purposes. They can flag account successes and failures. They can be used to compare sales territories. They can be used as a basis for sales compensation. And, they can indicate where to put additional sales-people. Growth areas may benefit from an increased sales force. But, where the territory is drying up for reasons beyond your control, the sales force may profitably be reduced.

Smaller foundries, in particular, have difficulty in accurately measuring costs. And, many are unwilling to go to the expense of making this kind of customer profit analysis. Those that have, though, find that the results more than justify the expense involved.

Also, the objection is sometimes raised that explicit profitability information that shows costs in relation to sales is data that is too sensitive to give to salespeople. What if it gets into the hands of a competitor? Even assuming the competition could get fragments of such information, the time and effort it would take to construct a revealing cost picture of your operation would be next to impossible to justify.

Many foundries think that the salesperson should be concerned only with making sales, not profits. But consider the expanded earning possibilities if they concentrate their efforts in the areas of greatest profit contribution and largest potential customer growth.

It is a fact that competitive pressures can create wide swings in an individual customer's profit level of perhaps 50% or more. Since this is the case, why not sell your salespeople on concentrating on the upper range of profitability? When salespeople are evaluated only on sales volume, they will naturally concentrate on what is easiest to sell.

The bottom line is that if you construct a system where the salesperson's rewards increase with more profitable sales, they will put more effort into getting them. And, in either good times or bad, profits can be increased by channeling more information to your salespeople.