August, 2006

5 Ways to Win New Business

How you can take business away from the competition without using price to do it.

By Bill Lee

Lumber dealers have just come off of one of the most amazing stretches of business activity in the history of our industry, but many dealers continue to post anemic gross margins. Even though housing starts have set all kinds of records in recent years, salespeople continue to use low-ball pricing as a marketing tool. Here are some cases in point from interviews I conducted for this article:

Kansas salesperson: "My prospects are super loyal to my primary competitor, so the only way I can get them to give me the time of day is to come at them with pricing that is below the market.”

Georgia salesperson: "When I quote my largest prospect, he cherry-picks my quote like crazy. If I want the entire [house] package I have to not only be low on the total quote, but low on every item on the quote.”

California salesperson: "Ever since the market softened out here a couple of months ago, my prospects have become unbelievably price conscious. We’re dealing primarily with production builders and they tell me that their superiors won’t allow them to do business based on anything other than price.”

Michigan salesperson: "We’re dying a slow death up here. The collapse of the auto industry has every salesperson in this market trying to outbid each other for any job that comes our way. Our [gross] margin is down almost five percentage points.”

New England business owner: "Even when residential construction is strong, a lot of our competitors continue to use price as their marketing weapon of choice. If housing starts begin to decline in the region, I fear that there will be an all out price war.”

What is it about our industry? Are we suicidal? What’s it going to take for us to develop the pricing discipline to generate the kind of gross margins necessary to produce optimal bottom-line profits? In my full-day sales seminars I use a slide that reads:

• Faxing price lists is not selling.
• Doing takeoffs is not selling.
• Quoting is not selling.

My point is that while each of the above are tasks that salespeople in our industry find it necessary to perform from time to time, none of them is selling. Each is nothing more than a task. So if managers expect their salespeople to take business away from the competition at optimal gross margins, they must spend more time teaching their respective sales forces how to take business away from the competition without using price as a weapon. To accomplish this, our salespeople are going to have to learn how to sell as effectively as they perform tasks.

It’s my perception that most salespeople quote too quickly; that is, before they have earned the right to have their quote taken seriously. Virtually 100% of the time, buyers buy from salespeople they like. It helps, too, if the salesperson has earned the buyer’s respect, but almost never will a buyer give an order to a salesperson he doesn’t like.

Selling builders is relationship selling. It takes a lot of patience to build a solid relationship. You don’t build a relationship on the first call; perhaps not even on the tenth call—especially when the builder already has a good relationship with a competitor. Unless a salesperson just gets lucky, he or she won’t knock a competitor out of the picture with a low-ball quote.

How effective are you or your salespeople at building relationships? Do you follow a system? Do you have a plan to establish relationships?

The most effective way I’ve found to build a relationship is to design marketing programs that allow both customers and prospects to participate in company events. When 90% of the marketing effort is made up of sales calls, relationship building is an inordinately slow process.

Marketing events that give prospects an opportunity to start feeling comfortable with your key people and your customer base will speed up the relationship-building process. Many dealers include the following events among their annual marketing activities:

Bus trip to a professional sporting event such as a baseball game, football game, hockey game, basketball game, etc.

• Golf tournament
• Educational seminars for contractors
• Hunting trips
• Fishing trips
• Contractor night
• Open house
• Buying show
• Product training sessions
• Travel programs

The key is to invite prospects to attend these events along with customers. Don’t put any pressure on them to do business with you; your only goal is to get them involved enough to begin feeling comfortable with your organization. Don’t be naïve; established relationships aren’t broken overnight. On these occasions, do everything in your power to reduce the odds that the prospects will feel uncomfortable. Here are a few ideas:

• Supply nametags so prospects don’t feel like strangers.
• Always assign seating so that prospects can sit beside one of your good customers who is also a friend of the contractor.
• Where appropriate, include the contractor’s spouse and seat the spouse next to the spouse of a customer he or she will feel comfortable with.

2. Know Your Customer

There are three things that motivate virtually all customers and prospects:

• They want to make more money.
• They want to solve their most pressing business problems.
• They want to be more successful—however it is they define success.

The following are four educational seminars that I believe will work for just about all lumber dealers. I suggest a short seminar following breakfast in a private room in a local restaurant. Just make sure that you check out the speakers to make sure that they are good on their feet, are skillful at keeping the audience’s attention and will represent your company well.

1. Invite a CPA to talk to your customers and prospects about strategies to reduce their tax liabilities.
2. Invite a banker to discuss what contractors must do to reduce their cost of borrowing.
3. Invite a lawyer to discuss contracts, change orders and other legal documents to enable contractors to avoid legal pitfalls.
4. Invite a building inspector to discuss building codes and how they are being enforced. Ask him to include the most frequent violations and suggestions to avoid them.

3. Don’t Quote Too Soon

In my sales seminars I encourage salespeople to build the relationship with the prospective builder first and begin soliciting the prospect’s business only after they believe that they have developed a strong enough relationship to have their quotes taken seriously.

When salespeople get this process reversed, the prospect will almost always shop their quote to the salesperson or to the lumberyard where they already have a strong and many times a long-term relationship.

This one major mistake so many salespeople in our industry make reduces productivity levels enormously. As a test, ask yourself this question: What percentage of your time or your salespeople’s time is spent doing takeoffs and working up quotes that your prospects use for nothing more than keeping your competitors honest? My research suggests that the average salesperson in the lumber business spends a good 25% to 35% of his or her time producing quotes that never become orders.

There’s only one purpose of the initial call on a prospect: to get permission to come back. It’s not to get permission to quote on the prospect’s next house job. Once salespeople make this change in their approach, productivity almost always elevates significantly.

What is the best way to gain prospects’ favorable attention? My favorite method is to do something over and above the call of duty that the prospect perceives as a benefit—without asking for something in return.

Think about it! If you were a builder and a supplier salesperson did something for you that helped you make more money or helped you be more successful or helped you solve your most pressing business problems often enough, wouldn’t you begin to want to repay this person by giving him or her a piece of your business? The answer to this question has to be yes.

A story I enjoy telling in my sales seminars describes a salesperson who had built a strong relationship with a prospect, but had never been successful at getting even one order. So on one sales call, he asked enough questions to learn that to make a sale, this prospect was forced to slash his prices each time a potential home owner visited both his and his primary competitor’s models.

Seeing this as an opportunity to earn a shot at the prospect’s business, the salesperson asked if he could do some research on behalf of the prospect and come back to the builder with some recommendations on how he might more effectively compete.

His efforts were successful at helping the builder significantly improve his gross margin. The salesperson did an in-depth, apples-to-apples comparison with the competitor who built similar-size houses in a subdivision a mile or so down the road. He scrutinized the model homes of both his prospect and the prospect’s primary competitor. Then he armed the prospect with enough hard, irrefutable evidence for him to successfully defend the prices he was asking for his homes.

It is my firm belief that salespeople who understand the business of building well enough to help their customers and prospects make more money, be more successful and solve their most pressing business problems, will always have an abundance of business. They are not just salespeople, they are consultants.

There are few problems salespeople’s prospects struggle with that salespeople don’t see solved somewhere in their travels. To be a successful consultative salesperson, all he or she has to do is ask enough probing questions and then set out to find a solution to individual problems prospects are experiencing. Does this approach work every time? No, but the odds of it working outweigh the quote-and-hope philosophy enormously.

How many prospects can outside salespeople effectively work? The answer will naturally vary according to the size of the customer base they’re working now, but salespeople who try to work too many prospects rarely have enough time to do the spade work necessary to break the loyalty the prospects currently feel for the competition.

My research indicates that the average salesperson in the United States will generate sales of around $2.5 million in rural areas and around $3.5 million in metro areas. Since hundreds of salespeople in our industry sell in excess of $7 million annually, you can imagine how many salespeople are stuck in a less-than-$2-million rut.

The biggest key I have found in my work with outside salespeople is how well they pick and choose their customers and prospects. The most productive salespeople flat out refuse to keep customers on the books who don’t provide a satisfactory return on the time spent servicing the account.

Reality Check: If you are a salesperson, estimate the average number of hours you spend each month with each of your assigned customers. Next, especially if you are paid on commission, divide the number of hours per customer into the compensation you earned last month on each customer. The resulting number will represent how much you earned per hour on each customer in your customer base.

The first time I performed this exercise I found that I was earning less than $10 an hour on about one third of my customers and in excess of $50 an hour on the other two thirds. I was slammed 100% of the day because the customers who were taking up such a huge percentage of my time were not purchasing enough from me to justify the time they demanded of me.

Solution: Prune the customers who demand so much of your time that you can neither earn a satisfactory income from servicing their business nor find the time to prospect for new business. Perhaps there are some newer salespeople in your company who would appreciate being handed these customers to service.

There are two ways to grow sales: Sell more to existing customers and take business away from the competition. Try these steps:

Identify the products that each of your current customers are not purchasing from you and ask them why they’re not buying them. Their answer will become the obstacle you must focus your efforts on to get this portion of their business.

Then identify four to five specific prospects who meet your company’s ideal-customer profile and focus your prospecting energy on them. Earn an opportunity to sell them. Then call on them until they buy or die.

BILL LEE has nearly 40 years of experience in the construction supply industry. A consultant and seminar leader, he is the author of two books: Gross Margin and 30 Ways Managers Shoot Themselves in the Foot. Contact him at: www.BillLeeOnLine.com or 800.277.7888.