“It’s empowering people to give people the resources they need to develop their ability to solve problems with education and confidence.” – John Borland.
Commission sales associates are usually among the highest paid people in many retail stores. Many times, the top sales associates will earn more than the Store Manager or Sales Manager; however, usually they have relatively tight reins on them because of the owner’s fear that they will “give away the farm” in order to close a deal.
As a “gate keeper”, I always felt that when the really good sales associates came to me, I would trust their ability to “artfully negotiate” to close a deal. We would work together and, in many cases,
- They were able to close the deal that day, while the customer was in the store,
- The customer felt like they had “gotten a deal,”
- We were able to protect and usually increase the margin for the store.
The “HOW” is explained below and this ability to achieve can help make your small or medium-size business a sales leader in your market.
It is worth mentioning that not everyone should have access to this kind of latitude; for example, new associates “right out of the box” have to develop their skills to earn this latitude. An owner or manager that knows which sales associates can be trusted to negotiate properly is the key. Knowing which associates would immediately use whatever latitude they were given and then come back for more a few minutes later, will need more development. Sometimes it might take years for them to earn the latitude we are discussing.
Although my experience comes from primarily Home Furnishings and Department Store sales; these concepts can be used in any kind of retail store or service company.
STEP 1 – UNDERSTANDING COSTS:
As a manager and as an owner, there is no reason why sales associates cannot do their own pricing, providing: they are trained properly, they understand the proper terms, they are given the tools to do the job, and there is appropriate oversight.
Exchange Rate – It is very easy to create a spread sheet for your associates with formulas to include: Bare cost, Exchange Rate, Tariffs, Freight Factor, Landed cost, and Margins. Each of those terms should be explained so your associates understand what makes up the “multiplier”. Have a different multiplier for each suppler and update it regularly.
Some companies can either purchase direct from their suppliers and/or sometimes purchase from their head office. Your sales associates need to understand what products can be ordered from your Head Office and what products cannot. For most businesses 80% of their sales come from 20% of their suppliers, so focus on your biggest accounts to start. A simple chart works, because extra freight and handling charges can easily add significantly in extra charges and costs.
Lead times are something else that can be charted, also using the 80/20 rule. Lead times can be affected by “minimum orders”, “container orders,” and “prepaid freight.” All of which need to be explained to avoid unnecessary costs and longer than promised waiting for customers. Ensure that your associates consistently follow up on outstanding orders as well. Try to instill your people with the attitude that a customer should never have to call to find out the status of their orders.
Margins, each business will be different. Take a moment and build a simple chart or “price calculator” using the 80/20 rule so your associates will know what margins are acceptable margins for special orders.
A price calculator is a simple chart or spreadsheet for your key vendors and their appropriate “multiplier” to give your people a retail price at the margins you want. The special-order form is a detailed list of items that your sales associate will need to provide to the buyer so that they can order effectively. This form should be sent to your buyer along with a copy of the sales bill.
Some categories, like pricing appliances and electronics is relatively straight forward and can be checked against a corporate website, or against a manufacturers current monthly price list. If a competitor has a product cheaper, check for “special sell thru credits (STA)”. STA’s are temporary credits that will impact the bare cost. Many suppliers will have a “freight prepaid” amount for minimum order size that can account for price differences.
Depending on the product, some special orders can be harder to train sales associates on. Here are some ways to make it easier:
- Make sure the model numbers and model names appear on the price tags to make it easier for sales associates to cross-reference,
- Make sure that your sales associates understand the nomenclature that the suppliers use and mirror your special-order forms to match what your suppliers use.
As part of your “on-boarding” procedures, ensure that a confidentiality agreement is something that your business uses to safeguard your pricing information.
The key component of making all of this work, is an almost fanatical discipline of your buyer checking the margins. Know that everyone will make mistakes and when errors occur that the store should “eat” the differences rather than punish the sales associate or the customer and realize that mistakes will happen, especially when the sales associate is first learning to do costing. CAUTION: Some owners and managers may be tempted to force their sales associate to charge the customer extra money or force the sales associate to pay out of pocket for errors. The only thing this does it to make the sales associate never want to sell those products again, or to never again take a chance learning and applying something new.
Also, there will be competitors who will undercut you, regular mystery shopping and comparisons of similar or the same products will allow you to keep that to a minimum. Any systematic examples of lower margins should be noted on the “price calculator” and should be noted on the “special order form” for the buyers, so they understand.
STEP 2 – NEGOTIATING:
Some organizations negotiate, others say they don’t. Nothing in retail is black and white, its all gray. Remember though, there’s more to it than just dropping the price.
As an organization it is important that your and your sales associates believe in the integrity of your pricing. It is also important to understand that it is not necessary to discount every time a customer asks. Many times, they are simply asking to see what the sales person’s reaction is. Your first course of action should be to explain the integrity of your pricing, how your price guarantee works, and how your buyers continually shop the market to ensure that you are already offering the best prices, selection, and service.
Before simply running to the manager or offering a discount yourself, consider doing the following:
BUILD VALUE – Explain about the features, the advantage, and the benefits (FAB’s), and how all three of these tie-down to what you have learned the customer is looking for using the 6 steps of selling.
KNOW YOUR COMPETITION – A healthy understanding of what your competition offers will help your sales team when a customer is making claims about what your competition will or won’t do.
WHEN SOMEONE ASKS FOR A DEAL – Many times, if your customer is looking for a deal and you recognize that “savings” is their primary buying motivation, you can steer the sale in the direction of items that will maximize the opportunities for you and for the customer.
When a sales person would come to me looking for a deal, I would always ask 3 questions:
(1) What is the type of price tag is on the item?
Sale Tag – nationally advertised item, we are not going to be able to discount.
Clearance Tag – How long have we had it? How badly to we want to get rid of it? A good sales associate can use this information to help their customer and the store at the same time.
Regular Price – What is the margin? Has it been selling at that price? maybe we can do something.
(2) How are they paying?
If the customer is paying cash/debit/or credit card instead of a financing plan, then perhaps we could discount? If the customer wants the longest terms package, your cost could be anywhere from 7-15% which would mean no discounting, unless the customer reduced the term and went with a shorter time period.
(3) Will they pick up their purchase?
If you offer free delivery, the actual cost of delivery can be quite substantial, if a customer is willing to pick up their purchase, then you might consider discounting of between 3% to 5%.
In my experience, sometimes only offering discounts of 3% can seen to offend a sales associate. It is important to realize that most retail margins are not huge and stores can have very large fixed costs. In addition, the sales associate should understand that for the most part customers may appreciate any kind of discount. For a commission sales associate $50 might not seem like a large discount, to the customer that might be a substantial amount.
NEGOTIATING DOESN’T HAVE TO BE ABOUT PRICE – Sometimes it can be about offering services that would normally be charged, for at a discount or to include them as no-charge.
- Quite often smaller purchases do not qualify for FREE DELIVERY. Consider you might authorize delivery at half off or for no-charge.
- Things that required assembly, you might authorize completing assembly at no charge for elderly or handicapped customers.
- Free or discounted disposal is another very helpful service that will make life easier for your customers.
- Normally selling display models is not allowed; however, in rare instances allowing your customer to take the display, rather than waiting excessively long periods of time works very well. This can also be self-serving because if you can’t satisfy customers quickly, there is no sense in having the product on the floor.
Never to use the term FLOOR MODEL, always use DISPLAY MODEL instead. Customers will want a discount for the floor model, but if your sales associates explain that the store does not normally allow its display models to come off the floor, but they were able to get special approval to use the display model, they seldom ask for a discount.
- For large orders or during slower times of the year, sometimes, it might be doing a special delivery on a day that if outside the normal delivery area.
- Sometimes, including something that has a high perceived value, but actually a low cost works equally as well. For example:
- If a customer is purchasing a mattress set, offering a bed frame or mattress protector or at 50% off or for FREE can work quite nicely. Doing the same thing on pillows can also work.
- Discounting accessories to go with an upholstery set can be very effective and is something many sales associates do very effectively, particularly as they knew which accessories may have been in the store for some time.
STEP 3: DEPOSITS
Some stores insist on always either having the entire order paid for in full or a minimum of 25% to 50% and they will not order the product, some stores will not even order the product until it is fully paid for.
If you have this policy, you may be losing sales if your competition is more liberal and flexible for their customers. Always be careful of policies or guidelines that make your business harder to deal with than your competition. For example:
- If a customer wants to place a large order ($5,000+), and the product is regular stock that is already on order, insisting on a 50% deposit before a sale can be written could result in your store likely losing the sale. Sales associates should have the latitude to get a substantial deposit, for perhaps 15-20%, to hold the prices and get the bill in the system,
THINGS YOUR BUSINESS SHOULD BE DOING ALREADY
- Allowing your sales associates to contact your buyers with questions about outstanding orders. It is vital that the buyer(s) respond back quickly, too often the sales person has an upset person yelling at them for an answer.
- Allowing your sales manager to contact the delivery department about making special arrangements. Delivery departments need to understand that the warehouse and delivery departments function to help facilitate business, not to put road blocks in the way.
- If a sales associate is not currently on the sales floor, they should not have to defend why they are not, particularly if they are “clearing phone messages” or “calling customers”.
- Your sales associates are the “pointy end of the spear,” if they need assistance from an office or service associate on behalf of a customer, they deserve to get that attention without any delays.
SUMMARY
All organizations should develop, empower, and foster accountability with their sales associates, unfortunately, many do not. No one disputes the need for guidelines and policies; however, your rules should help facilitate business not drive customers to your competition. Be careful that rules for 1% of your customers don’t negatively affect the other 99%.
Paul