Driving Add-On Sales
Companion item sales can drive margin growth
by Jason Bader
Do you want fries with that? We hear it every time we visit our favorite 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 satisfaction of the purchase is enhanced by the additional complementary items. 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, while most wholesale distributors can only dream of making such a lofty markup, the principle remains the same. Selling complementary products drives gross margin dollars to new heights and improves overall customer service.
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 lines to 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 an improve this metric is because of the impact on gross margin dollars coming in the door. A complementary 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 to $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 complementary 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 their skills and less time sourcing product.
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 complementary product opportunities is presented.
Teaching this concept makes a great foundation for product training classes. Almost any one of our stocked products has a complementary 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 complementary 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 complementary relationship of these products.
If you want to create a 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 complementary 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 complementary item database. This means that relationships need to be documented in the software. Similar to the earlier challenge with product training, the enormity of creating this complementary database often scares off most users.
Work smarter, not harder
Don’t try to create complementary item relationships for your entire stocked database. As mentioned earlier, just focus on the high-hit items. If you can focus on creating complementary 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 complementary items.
As suggested earlier, I strongly encourage you to determine the current average lines per order. Create the benchmark and set a goal of improving that by half a 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.
Jason Bader is the owner of The Distribution Team, which specializes in helping distributors become more profitable through strategic planning and operating efficiencies. For more information, call (503) 282-2333 or contact him by email at Jason@Distributionteam.com or visit www.thedistributionteam.com.
This article originally appeared in the May/June 2017 issue of Industrial Supply magazine. Copyright 2017, Direct Business Media.
INDUSTRIAL SUPPLY MAGAZINE
The November/December issue of Industrial Supply magazine features an in-depth cover story about Kimball Midwest. Plus, we're featuring articles by contributing writers Dirk Beveridge, Frank Hurtte, and Mike Marks, as well as interviews with numerous product and distribution industry experts.
