Are you a Sales Manager? Do you know a Sales Manager? Good! Send them this post. They'll be glad you did.
Now then: If you are a regular reader of my blog, then you might know that I was a frozen food trader throughout the 1990s. A "trader" is basically a sales rep who does much of his own buying.
I learned more about the nature of negotiation, price competition, manufacturing, intermodal logistics, and international trade while working at AJC International than at any other time in my life. It was awesome.
In 1997, I bought more than $14 million worth of frozen beef and pork for my own account -- and I sold almost $32 million in frozen food to more than 17 countries throughout the pacific rim. Have you ever haggled with a beef packer in a falling shortrib market? Me too!
None of this makes me a hotshot. It simply means that AJC forced each trader to think like a small business owner, and it paid its traders based on two metrics: Booked revenue and invoiced revenue -- which was "booked revenue adjusted for actual storage, handling, inspection, shipping, insurance, interest accrued on inventoried product, bank surcharges, customer credit, and quality claims." Whew!
One of the great things AJC required its traders to do was "cost out" every trade on a spreadsheet. For example, a trader couldn't simply buy a truckload of frozen chicken legquarters for USD 0.135/lb FOB from a packer in Fort Smith, AR and sell them to a Chinese distributor for USD 0.2425/lb CIF Qingdao without accruing (and sometimes negotiating) the costs listed above.
Once the costs were known, the trader would write up the sale on a 3-ply form resembling the spreadsheet -- with one ply going to Accounting (who would tie back to the trade any ensuing bills), one ply going to Logistics (who would manage the movement of the load), and one ply being kept by the trader (who would constantly review his portfolio of deals with Logistics to make sure that they shipped in accordance with the terms of the contract).
As each load moved through the international supply chain (the transit time was usually 40-50 days), each trader had to actually approve the vendor invoices that got tied back to their individual trades.
Just like in real life.
It was not uncommon to get hit with a "lumping" or "box stamping" bill on an odd pallet of product taken from inventory to make weight in a container. If mis-accrued, those charges came out of my paycheck as they were tied back to my trades. Ouch. Loads that arrived late were deemed "out of contract" by customers and short-paid (or "marked to market"). Those costs were also deducted from my trading P&L.
There was even a political and currency "risk premium" that each trader had to accrue, depending on the product's destination. Products sold to Iraq carried a higher premium than the same ones to Singapore.
From 1993-1999, I wrote up more than a thousand trades, and I knew my costs cold. It just wasn't kosher to wing it.
A Temple of Self-Interest
There was very little random motion in AJC's organization. Everyone from the traders to the shipping clerks showed up to make money. To this day, AJC remains a temple of self-interest. So effective was the AJC costing system that one of my first engagements as a self-employed marketing consultant was to introduce the system to a local importer of vitamin raw materials.
AJC's training is so good that its competitors call it "Atlanta Junior College" because so many of its traders have left to start their own niche trading companies. Very successfully, I might add.
Reality Check for the Sales Staff
So it was with great interest that I read Jaclyne Badal's article "A Reality Check for the Sales Staff" in today's WSJ. The article states that "squeezed by global price pressure and customer demands, companies often strike deals that generate revenue but not profit."
But companies are getting a clue: Dow Chemical just implemented software to analyze the profitability of deals. One tactic Dow uses to cut transportation costs is to consolidate shipments (AJC did that eons ago).
From Revenue to Profit
Many companies are trying to boost the bottom line by weeding out products and customers that generate revenue but little profit. According to Ms. Badal's article, sales managers and sales consultants suggest:
- Calculate the true cost of each sale -- including actual storage, handling, inspection, shipping, insurance, interest accrued on inventoried product, bank surcharges, customer credit, and quality claims. If you can tie back your marketing expenses, so much the better.
- Examine individual customers -- especially if they are high maintenance. At AJC, we used to call bitchy, low-profit customers Ankle-biters.
- Share information with customers to justify price increases -- or to jointly control trading costs.
- Consider using software that will block (or require approval of) unprofitable deals.
- Keep the sales team in the loop and consider adjusting commission formulas.
Sales Manager Job Search Tip:
If you are a sales manager who is looking for new career opportunities, please take a look at your accomplishments in light of these suggestions.
- To what extent have you improved your employer's profitability by helping it get its arms around its costs?
- Have you developed and implemented any systems to track revenues, costs per sale, and net profits?
- Have you partnered with your customers to lean-up the value chain?
What are you waiting for? Do these things NOW -- and by all means make sure they are accurately reflected on your resume. You'll make more money and enjoy a shorter, more effective job search for your efforts.
