Why Counter Sales are Killing Your Profits & What to Do About It
Tuesday, December 05, 2017—Counter Sales are perpetually amongst the biggest money-losers in distribution. It's a bigger issue than companies without advanced analytics realize, and represents one of the best opportunities for fast profit gains. There are specific actions companies employ to convert counter sales into an important profit contributor.
WayPoint is an online service companies use to pinpoint losses from accounts, products and every other money-losing part of their businesses, so they can take action to plug the leaks. The world's most profitable companies use WayPoint to calculate detailed costs, and get exclusive profit reports not available from any other system.
WayPoint reports consistently show that counter sales are a significant profit killer, and addressing this intelligently can immediately open opportunities for cost reductions and profit increases. In most companies this can represent tens or hundreds of thousands in new profit retention, if not more.
Decades ago, distribution companies were more or less pure wholesalers, selling only to established resellers or installers of the product line, and not open to walk-ins or unknown accounts. Since they've always supported a certain amount of will-call business, it seemed logical to use the same facilities to get incremental business by letting anyone and everyone come and buy on a quasi-retail basis.
The problem is that the service model is much, much more expensive than the incremental operating cash coming from the typically small sales seen at the counter. The problem is compounded by a measurement issue, due to counter sales being used as a catch-all for miscellaneous transactions that aren't counter sales at all.
Any place you have a chronically-money-losing entity or activity, it will always be due to an improperly planned and structured service model. Nobody has thought through what the purpose of the activity, how it interacts with customers, what resources are needed, how the activity is monetized, and especially what the costs are.
A quick, easy and powerful education that will give you this skill set can be found the book "Business Model Generation", which you can find in most book stores or online at Amazon for just a few dollars. Using the methods in the book, you can evaluate the real potential of any part of your business in an hour. It's a tiny investment that can permanently correct pernicious profit challenges that cost you tens or hundreds of thousands each year. It's worked for thousands of companies, including mine.
Back to counter sales.
The real issue is that the costs of the counter sales service model exceed your operating cash (or gross profit). A secondary issue is that counter sales diverts personnel and space from the profitable business done with regular wholesale accounts.
This isn't to suggest getting out of counter sales, although that's occasionally the best answer. More often, it's better to restructure both the service model and the cost structure to bring them into alignment to produce profits rather than losses.
On the cost side, start by eliminating costs like commissions and trade credit. Stop paying commissions on counter sales – they're not due to sales effort from a rep, and there's insufficient margin to support them. They also need to be truly "cash and carry" – even for large accounts – meaning check or credit card payment only. This because they're outside the normal flow of business, and a big source of collection costs when paperwork goes missing. The "carry" part of "cash and carry" means no free shipping on counter sales orders. Again, there's insufficient margin to support it, and the customer's already right there.
Further, counter sales typically take much more time, so you want to reduce manpower consumption by automating the process as far as practical. Think of Costco and Home Depot. There, customers can do their own picking, and their own checkout with scanners and credit card terminals. You can analyze your counter sales to identify most commonly-sold products and place those in front of the counter, and install the same kind of self-serve automation the box stores have. To support this, all the self-serve product will need retail packaging with bar codes. Your vendors already offer them, and you'll need to make them part of your mix.
It's very important to end the practice of breaking cartons – there's a reason you can't obtain a single or small quantity of low-value product – nobody can afford the cost to handle it. Having a customer buy a carton of six spray bottles not only gives you enough margin to cover your costs, it also prevents the customer from coming back and create five more money-losing orders!
Also on the revenue side, counter sales need their own price model. Here, you're really competing with retailers, who may be more conveniently located for a quick pick up, and the saving represented by wholesale shouldn't be enough to justify the trip. In fact, you're better off if the price differential to retail is so small that customers actually go to nearby retailers, and you forgo both five dollars in margin and ten dollars in costs.
Counter sales is one of the easiest and least risky areas you can make changes that will materially affect profitability. The worst that will happen is that you'll lose an insignificant amount of sales, while reducing or freeing up time and resources that could be better applied to money-making business.
There will likely be some accounts that consider your money-losing activities to be "good customer service". In a few cases, the business may be attached to valuable and profitable accounts, so you develop a special model that meets their needs. In other cases, the money-losing counter sales are all there is. If you can't create a rational model that makes money, you really ought not be doing that business.
Finally, you should immediately implement miscellaneous sales accounts for oddball transactions like employee purchases and accounting adjustments to properly isolate them from actual counter sales. This will enable proper analysis so you can identify and address other activities that are also bad for business.
Why does this matter? Because counter sales is likely a significant and unnecessary drain on the good profits you make elsewhere, and a few hours invested in correcting it can add a lot to your bottom line.
What's the takeaway? Unless you have a streamlined service model, counter sales contribute little in operating cash, while running up expenses, and diverting manpower from productive uses. If you want to make more money, and you don't want to go back to a traditional wholesale-only model, you need to implement a perfectly-tailored low-cost model specifically for counter sales.
If you'd like to put the best cost and profit reporting system to work for your company, find out more about the online WayPoint system at http://www.waypointanlytics.net.
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