Yoho: Creating Positive Cash Flow
authors Dave Yoho | February 10, 2021
During these chaotic times it is important to examine your business plan as well as your sales/marketing model. This calls for an intense review of cash management, marketing costs, commission plans and the analytics of lead distribution.
Here are a series of the most frequently asked questions we received on this subject.
Q: As part of your methodology to retain 10 to 20 percent pre-tax net profit, how do you handle a salesperson selling a short (less than the price listed) contract?
Like everything else, this requires a plan. Start by making salespeople aware of selling “value” as opposed to utilizing a price drop to make the price more justifiable. A salesperson selling a contract below your price standards has to understand in advance that each contract must stand on its own as a profitable entity. If sold at a lower price than the system calls for, the sale is evaluated as such.
Example: A salesperson brings in a $15,000 priced contract for $14,000. This represents a $1,000 reduction (.066%)
Solution 1: The job is 6.6% ($1,000) short. If the salesperson was entitled to 10% at full price, he should receive roughly $500 as commission on that transaction.
Solution 2: Your price anticipates a 10% pre-tax profit ($1,500) now short by $1,000. If you decide to be generous, the $1,000 could be split 50/50. However, this should not be standard practice.
NOTE: If it is your desire to maintain a 10% pre-tax net, you have to use a formula similar to solution 1 or 2. An arithmetic problem demands an arithmetic solution.
Q: How can we measure the true cost for an individual salesperson based on the number of leads they receive?
Operate with an understanding of fully loaded marketing costs. If at the end of a month you took in ‘x’ dollar volume in new sales, and your fully loaded marketing costs were 15 percent, you divide the total number of leads you “issued” in that period to determine the actual cost per issued lead (the national average runs anywhere from a low of $200 to a high of $600 per lead issued). Then multiply the number of leads issued to the individual salesperson by your issued lead cost.
Example: Seven leads issued (per week) at a cost of $400 each = $2,800. In a four-week period, that’s $11,200. Approx. $145,000 for a year. That plus the commission paid is the annual cost to keep that salesperson in the field.
If that salesperson brought in $1 million worth of business, it cost you in excess of $145,000 plus the commission to provide the salesperson with leads. Your sales compensation model may need re-evaluation. Many of our clients’ salespeople are required to self-generate leads and offer a customer reward program after a sale is made for referrals.
Q: Does purchasing (from vendors) via credit card increase cash flow?
Yes, in many cases. Example: If you were to purchase (via credit card) $50,000 in one month, there is a “closing date.” Example: The 23rd of each month. If that $50,000 is on the 24th of the month, you don’t pay that amount to the credit card company until 30 days later.
Q: What is your solution to high turnover when hiring salespeople?
There will always be turnover, particularly in sales and marketing jobs. The problem arises when turnover is excessive. One of the major reasons for turnover is “mis-hires.” The second most common reason is mismanagement and lack of coaching—including the failure to do efficient “ride-alongs.”
We have studied training and coaching methods over the last 40-plus years. Along the way we have developed systems to considerably reduce turnover. Modern companies identify turnover as a costly issue. Reducing turnover has a major impact on reducing costs for hiring/training with sales and marketing departments.
We have developed a series of remarkable, easy-to-use online assessments. One of these is the DISC Behavioral Profile. The one we developed was an outgrowth of five years of research and, to our knowledge, is the only DISC Profile that is successfully used both for hiring and training employees. It is an evaluation tool and a guide that reinforces training and coaching.
The DISC Profile is best suited to be given to an applicant before the in-person interview. It is completed online and takes 10 minutes, and the results are immediately sent to whoever is making the hiring decision. The results of the DISC Profile respond to the three major hiring questions:
- Can they do the job?
- Will they do the job?
- Do they fit the model of your organization?
A modern sales and marketing organization has to rely on something beyond “intuition” or outdated hiring and training philosophies. The selection and retention of qualified sales and marketing personnel depends on management. In short, “sales managers do not manage sales, they manage people.” Once you establish that, you can start to develop systems and methods to hire the right people and avoid the wrong ones.
Q: How do we get more referrals?
Ask the average sales or marketing employee to identify which leads received by the company are the most preferable; in most cases, referrals are the overwhelming choice. A modern marketing plan calls for methods to solicit referrals.
In most organizations there is a “customer referral plan,” which is given to the customer after the sale is made. A caution: Most states have laws that prohibit the use of offering the referral bonus as an inducement to buy.
Here is how to put this into practice: Once the sale is made, the salesperson states the following:
“Mr.–or Mrs.–Jones, thank you for your confidence in our company. While the installation is in progress, your friends or neighbors may ask ‘What project is being done and by whom?’ It is my hope that you will suggest to them that they contact us–and for that purpose, here is a plan developed by my company, which includes an added incentive.”
It is at this point a request for referrals is first generated. However, to achieve the greatest impact, someone from the company should follow up at the conclusion of the job. Many of our savvier clients repeat the process at least three times after the job is completed by a combination of a letter, an email, a personal call or a text.
In addition to all else, project managers and installation crews should be actively trained to suggest the same thing. Every salesperson should be trained and re-trained via scripting to call back their old customer list with that intent. The ideal time for this is often when the salesperson is driving from one lead to another, and it is referred to as “windshield time.”
Finally, there are numerous online referral programs that can supplement your efforts. Most of them are simple, easy to implement and revenue-driven. A special note: A referral lead will typically reduce your marketing costs while adding to your “bottom line.” We invite your individual questions, the answers to which will be published on our blog at daveyoho.com. QR
Dave Yoho Associates is the oldest (since 1962), largest and most successful consulting company representing the remodeling, home improvement and home services industries. They are credited with the introduction of Customer Satisfaction Selling, Step Selling and How to Run a More Profitable Business to those selling products and installation directly to the consumer. The company has a staff of account executives who consult for large and small retailers, manufacturers and service providers. For more information email email@example.com or visit daveyoho.com.