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Do you want fries with that? We hear it every time we visit our favorite flavor of fast food chain. The fact of the matter is that these folks have mastered the art of add-on sales. They understand that the menu item rarely stands on its own. On the contrary, the additional complimentary items enhance the satisfaction of the purchase. There exists a desire to better serve the customer; and let’s not forget that for every dollar in cost, the fast food chain can sell approximately 20 orders of fries. Now, most wholesale distributors can only dream of making such a lofty markup, but the principle remains the same. Selling complimentary products will drive gross margin dollars to new heights and improve overall customer service.
Lines per order
One of my favorite key performance indicators is lines per order. Although many companies understand the concept, few review this metric on a regular basis. I highly recommend that you measure this every month. Start by creating your benchmark. In the years that I have been pushing this measurement to audiences and my private clients, I have run across a strange anomaly. When a hard goods wholesale distributor first runs this metric, they often fall between 2.3 – 3.3 lines per order. It does not seem to matter what vertical you service, the numbers seem to fall in this range. Judging by the number of products we stock, this tells me that we have a lot of upward potential.
One of the key reasons that we want to study and improve this metric is because of the impact on gross margin dollars coming in the door. A complimentary measurement is gross margin dollars per order. As lines are added to the order, the incremental gross margin dollars offset the cost of processing that order through our system. If we can assume that the average cost of processing an order is $60 - $75, any additional lines we can add will help us become more net profitable on every transaction.
As distributors, we love to stock a breadth of complimentary items. We feel naked if those shelves aren’t loaded. One of our strongest value-added services is the ability to fill a large percentage of the customer’s application needs. This in turn allows them to make fewer stops or create fewer purchases to get their job done. Reducing the pain of our customers is how distributors remain a viable part of the supply chain.
When training our customer service representatives to drive more lines per order, we must dispel the feeling that asking questions is intrusive or somehow conveys that the customer is incompetent. Trust me, this hesitation exists in your newer customer service people. We sell the items our customers forget. When I teach this subject, I usually discuss the consequences of letting a customer go out the door without all the materials necessary to complete the application. In many situations, the customer will be forced to get back in their vehicle to source a critical, yet forgotten item. We can hope that the customer returns to our place of business, but that is not always the case. Superior service means that we help the customer spend more time applying his or her skills and less time sourcing product.
Sell the application
The key to supporting this add-on service mentality is teaching our customer service people how to sell an application, not just an item. We should consider it a failure if we let one line item go out on a sales order. I grew up in the construction supply business, but this holds true for most wholesale vertical markets. When a customer was buying a tool, it was up to me to ask what they were doing with the tool. As an extension of the tool, what were they going into? Were they drilling a hole — think drill bits or hole saws. Were they cutting something — think saw blades or cutting fluid. In addition to looking forward into the application, we were trained to look backward as well. This meant suggesting personal protective equipment, such as safety glasses or gloves. It could also mean extension cords or temporary power equipment. By looking at the whole application, a world of complimentary product opportunities is presented.
Teaching this concept makes a great foundation for product training classes. Almost any one of our stocked products has a complimentary item. With many thousand items to choose from, the challenge is where to begin. High-ticket items can be a good start since they often carry a lower gross margin percentage. To bolster the overall margin percentage, adding some high margin complimentary items can help make the ticket more attractive. Beyond these items, I like to focus on the highest hit items. By definition, these items are the most frequently requested and will appear on the greatest number of sales transactions. Take a look at the top 200 items. Focus on teaching the complimentary relationship of these products.
If you want to create lasting impact, don’t be the only one teaching these classes. I have always believed that handing out teaching assignments is one of the best ways to insure retention. Each week, have a different team member teach about an application. Give them a little time to prepare and coach them on how to present the material. If anything, the instructor will become highly skilled in selling the whole application.
In addition to training focused on complimentary selling, many of our distribution software packages have the ability to suggest add-on items during the order generation process. Although many users know about the feature, very few maximize the capability. The function relies on the company setting up the complimentary item database. This means that relationships need to be documented in the software. Similar to the earlier challenge with product training, the sheer enormity of creating this complimentary database often scares off most users. Work smarter, not harder. Don’t try to create complimentary item relationships for your entire stocked database. As mentioned earlier, just focus on the high-hit items. If you can focus on creating complimentary items for the top 200 or 300 items, you will be off to a great start. As an additional teaching opportunity, invite your customer service people to create the list of complimentary items.
As suggested earlier in the article, I strongly encourage you to determine the current average lines per order. Create the benchmark and set a goal of improving that by .5 line. Monitor this number every month and break the metric down by customer service person. I recommend that you use this information to discover coaching opportunities, not pit your team members against each other. If you do decide to reward improvement, consider a team-based event. You can kill two birds — creating a performance reward and providing an opportunity for team bonding. If you need help getting started, just reach out. My mission is to make you more profitable.