{"id":7474,"date":"2006-09-07T19:51:59","date_gmt":"2006-09-07T19:51:59","guid":{"rendered":"https:\/\/zonda-develop.go-vip.net\/prosales\/article\/back-to-basics_o-2"},"modified":"2025-06-27T02:10:09","modified_gmt":"2025-06-27T02:10:09","slug":"back-to-basics_o","status":"publish","type":"post","link":"https:\/\/zonda-develop.go-vip.net\/prosales\/business\/back-to-basics_o\/","title":{"rendered":"Back to Basics"},"content":{"rendered":"
<\/div>

Good pro dealers are always planning for growth. It seems anytime you read an article today about the building supply industry you see new acquisitions and plans for expansion. While buying a competitor and opening a new location are both great avenues to grow the business, some of the most profitable revenue growth can be achieved by better utilizing existing facilities in the markets that your organization is already serving.<\/p>

For example, The Farnsworth Group, a research and consulting firm that specializes in the home improvement and construction industry, is often approached by LBM clients seeking advice on growth planning. The first recommendation Farnsworth always makes is for a company to analyze its business processes to be sure current operations are reaching peak potential before they consider expanding and making plans to enter new markets. By following a two-step process, dealers can make substantial revenue gains using their existing assets. First, they must sell more to current customers and second they must win business from non-customers.<\/p>

<\/media-caption> Rich Lilash \/ www.sturgesreps.com <\/media-producer> <\/media><\/p>

While savvy business owners and executives know these two cardinal rules of growth, they are easily put on the back burner when markets are red-hot. However, as most analysts report today, the business climate will get a little chillier going forward in 2006, so now is a good time for a refresher course in these tried-and-true approaches to business expansion.<\/p>

Selling More to Current Customers<\/b> All progressive dealers have a database that includes their best accounts, their good accounts, and those accounts that barely register on the radar. Most organize their account list in just this fashion: best to worst. What often surprises dealers is the number of their \u201cgood\u201d and \u201cbest\u201d accounts that use them as a secondary supplier. At Farnsworth, we have yet to find a dealer that does not have one of its \u201cbest\u201d customers use them as a secondary supplier. It can be difficult to tell where you stand with your customers, but it is critical to know.<\/p>

Consider that a builder or major remodeler gives approximately 70 percent of its business to its primary supplier, 20 percent to its secondary supplier, and 10 percent to tertiary suppliers. If you have three accounts that each average $150,000 in annual revenue and use you as their secondary supplier, shifting your position to their primary supplier can result in an additional $1.125 million in revenue. Consider prioritizing your account list by opportunity, not by revenue.<\/p>

As an example, we were working with a dealer that was fairly certain it knew where it stood with each of its customers. One of its major accounts was a builder that was purchasing $450,000 in product and services. The dealer felt it had at least 80 percent of this customer’s business. Our research revealed the dealer was in fact the secondary supplier and capturing only 20 percent of the client’s business. The dealer was shocked to learn it was capturing such a small share. The main factor preventing the dealer from being a primary supplier was its service. The company was performing well on delivery, which is how it defined service, but it was underperforming compared to its competitors on fill rates, and its internal staff was difficult for customers to contact. To combat the problem, the dealer guaranteed this builder 100 percent fill rates and internal salespeople who would answer their phones from 5 a.m. to 6 p.m. Follow-up research confirmed that this approach was working. The dealer’s revenue growth was coming from shifting its supplier status within its customer base. While these efforts were initially designed to win the business of one particular customer, they ultimately led to increased revenue with other key customers.<\/p>

You can determine where you stand with your current customers by talking to them and implementing a good customer satisfaction program, which will tell you not only your position with your customer base but also what is required to gain primary-supplier status. In doing this, dealers typically find issues that are relatively easy to fix and will allow them to capture a larger share of available business. Each dealer is different and will find unique opportunities to sell more to their existing accounts.<\/p>

Winning Business From Non-Customers<\/b> Even the best pro dealers seldom have more than a 25 percent market share. This means LBM suppliers typically have the opportunity to substantially increase revenues in their existing market or markets. Adding market share points can have an enormous impact on revenue. For example, if you are a dealer with one unit generating $10 million, increasing your market share from 20 percent to 23 percent will provide an additional $1.5 million in revenue.<\/p><\/div>

<\/div>

All dealers know several major customers that are not buying from them, and it is critical to understand the reasons why they choose to purchase from your competitors. To accomplish this, dealers must understand both their image in the marketplace and the specific needs of their non-customers.<\/p>

A company’s image is generated mainly from its perceived performance. Since we are talking about your non-customers, their image of you is based solely on perceptions or a combination of current perceptions and past experience. We often find that perceptions of a dealer may be hindering its ability to increase penetration in the market. By understanding how your company is perceived in the marketplace, you can address any potentially damaging issues and play upon your strengths.<\/p>

For example, Farnsworth worked with a dealer last year and found that its non-customers overwhelmingly felt the dealer’s order accuracy and delivery systems were substandard. The ironic part was that this dealer had invested hundreds of thousands of dollars to correct these issues more than three years earlier and now had state-of-the-art systems in place. While the salespeople were talking to non-customers about price, they should have been talking about their massive investments in logistics. The company adjusted its message and positive results soon followed.<\/p>

In addition to analyzing your image, you need to understand what is important to your non-customers when selecting a supplier. This is particularly important if you are interested in serving a different customer segment. If you are serving production builders and want to attract major remodelers, you will need to know how they buy to design specific sales programs and convey what messages hit this group’s hot buttons.<\/p>

Dealers can understand their image in the marketplace and the supplier selection criteria of non-customers by executing various formal and informal research strategies. Formal research entails hiring a firm to design questionnaires, to talk with non-customers, and to report the findings and recommendations back to the dealer. The advantage here is you gain outside expertise and perspective.<\/p>

Informal research can be conducted by the dealer. This can be anything from hosting a dinner with non-customers, talking to them at your next in-store event, or conducting a few focus groups. The advantage of informal research is the cost savings, although your non-customers may not be as honest with you as they would be with an outside firm.<\/p>

What Next?<\/b> There are always opportunities for dealers to sell more to existing customers and win business from non-customers. The two types of growth discussed here are especially attractive since they utilize existing assets and do not require major capital expenditures. The key is to begin communicating with your current customers and non-customers to find out exactly where your company stands in their minds. Embrace the feedback you receive and implement programs to make sure your company is responding to the market. Once you are willing to invest time and energy into these initiatives, you will be able to fine-tune your present operation, making new locations and acquisitions even more successful going forward. \u2014Sean Thompson is a project director for The Farnsworth Group, an Indianapolis-based consulting firm that assists clients in developing and using information to formulate opportunistic business strategies. 317.241.5600. sthompson@thefarnsworthgroup.com.<\/a><\/i><\/p><\/div> ","protected":false},"excerpt":{"rendered":"

Good pro dealers are always planning for growth. It seems anytime you read an article today about the building supply industry you see new acquisitions and plans for expansion. 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