I  have been busy completing the details on my first book (click here) and have been working like a one-armed paper hanger in a hurricane behind the scenes on my second book– a book I am tentatively calling “The HVAC Territory Manager’s Field Guide.”  (My editor may suggest a better title, so for now, this is a working title.)

I finalized the paperwork on the contracts over the weekend, and we should be in print in about 90 days +/-, so expect it to be ready in mid-June of this year!  (Just in time to help rescue your career from a worsening economic nightmare…)

This is going to be a huge book– the manuscript is 564 pages long!  It will also have a CD-ROM as part of the project, and there will also be a Sales Manager’s Guide (on CD-ROM only) for sales managers who wish to take their sales teams through the process.

Here are the chapter titles for now…

CHAPTER 1: WHAT IS YOUR JOB?

Overview of what it means to be a territory manager

CHAPTER 2: MAXIMIZING YOUR INCOME

How to do the things best for which you get paid

CHAPTER 3: WHAT IS YOUR TIME WORTH?

Determining how much you are worth per hour; and then, why would you do stupid stuff with your time when you are worth that much?

CHAPTER 4: RULES OF THUMB

Quick ways to determine key averages and performance indicators for dealers

CHAPTER 5: TERRITORY ANALYSIS

Simple ways to analyze a territory and build a sales plan

CHAPTER 6: TERRITORY FORECASTING AND PLANNING

How to forecast sales, expenses, margins and profit and then build a plan to achieve these

CHAPTER 7: THE TYPES OF CONTRACTOR

Commercial, residential, service, low-temp, and so on– how are these business segments handled differently by successful contractors?

CHAPTER 8: THE LIFE CYCLES OF A CONTRACTOR

How contractors change as they go through their life cycles and what you can do to be of the greatest value to them at every step along the way

CHAPTER 9: HEY, IT’S A BUSINESS!

Understanding the fundamentals a dealer has to know– how to run a successful business (no TM is born with this knowledge)

CHAPTER 10: FINDING NEW DEALERS

How to recruit to find diamonds and rubies, not lumps of coal

CHAPTER 11: HELPING CONTRACTORS DEVELOP AND MATURE

How you can bring what a dealer needs to his party to help him grow and earn his business

CHAPTER 12: ACCOUNT SEGMENTATION

How to organize your accounts along logical lines and differentiate your sales calls with those classifications

CHAPTER 13: KEEPING SCORE

Tracking the numbers; what and how, and why!

CHAPTER 14: GOT DEALERS?

How many dealers do you need to achieve a given sales goal (such as share of market or dollar level)?

CHAPTER 15: BASIC CONTRACTING FINANCIAL MANAGEMENT

The HVAC business by the numbers; what every dealer needs to know (and most TMs don’t)

CHAPTER 16: KNOWING YOUR STUFF

Being the right balance of subject-matter expert and resource versus being useless to your dealers

CHAPTER 17: INFORMATION MANAGEMENT

How you pass information up and down the channel to help all concerned; how to leverage technology to get more done face to face

CHAPTER 18: DOING THE GRIND

Seeing to the details of the job– finishing the paperwork, dotting the i’s, crossing the t’s

CHAPTER 19: SALES REVIEWS

How to survive a sales review!

CHAPTER 20: MARKETING AND ADVERTISING

Can you speak audience ratings?  Column-inches?  Gross rating points?  You need to if you are going to be of great marketing help to your dealers

CHAPTER 21: SALES SKILLS—THEY AIN’T WHAT THEY USED TO BE!

The old days of feature/benefit selling and trial closes belong in museums; learn the new low-key way to persuade dealers to take action.

CHAPTER 22: DEEP COMMUNICATION, THE KEY TO AMAZING SALES

Reading people beneath the surface and unpacking their decision processes so you can influence their decisions

CHAPTER 23: DISPUTE RESOLUTION

Problems are going to arise; how do you handle them effectively?

CHAPTER 24: DOING A GOOD SHOW

Showmanship and presentation finesse– it’s what separates the territory makers from the order takers

CHAPTER 25: PRUDENT ETIQUETTE

Know when to walk away and when to dig in and get involved

CHAPTER 26: EXPENSE REPORTS AND THEIR ROI

The ever-present pain in the neck of expense reports and why you need to track them carefully

CHAPTER 27: TIME MANAGEMENT

The first myth of time management is that it exists.  Learn how to manage yourself to be effective in the now.

CHAPTER 28: GETTING YOUR SALES MANAGER TO WORK FOR YOU

Your boss should also be your greatest coach and helper; use him (or her) to make big gains

CHAPTER 29: MENTORING THE NEXT WAVE

Doing what you can to prepare the next generation (or, if you ARE the next generation, doing what you can to shorten your learning curve)

CHAPTER 30: IS SALES MANAGEMENT IN YOUR FUTURE?

So you think you want that corner office and those nice little perks?

The book will retail for $79.95, but once the publisher has the order form up on his web site, I’ll be offering pre-printing deals for volume orders.  Stay tuned for that in a future blog post!

]]> http://www.lodestarconsultinginc.com/one-step-closer-to-the-tm-field-guide/feed/ 0 http://www.lodestarconsultinginc.com/my-new-book-is-available/ http://www.lodestarconsultinginc.com/my-new-book-is-available/#comments Wed, 24 Feb 2010 19:06:01 +0000 Richard Harshaw http://www.lodestarconsultinginc.com/?p=690 This will come as perhaps a surprise to some followers of this blog, but I have a new book out on building a glorious church.  It is published by InterMedia Group and can be ordered by following this link.

It reflects my passion as a Christian to see the church assume her rightful and glorious place as the steward of the Kingdom of God and how we as Christians can cooperate with God in that awesome project.  (If there is one thing that melts my butter more than the HVAC business, it is my life in God and its expression in my local church, Church for the Nations.)

If you’d like an autographed copy, use the “Contact Us” link on this web page to send me an email requesting an autographed copy.  You’ll need to include your shipping address.  I will invoice you via PayPal so you can pay by credit card, and I’ll have to add shipping and handling.  The book lists for $22.99.  Arizona residents will have to also ante up the sales tax to help our beleagured governor and state treasury, making the total for Arizona residents $25.13, plus shipping.  Those who don’t live in Arizona would only need to pay the $22.99 plus shipping.  (Shipping can run from $8 to $25, depending on how you want it shipped.  Please indicate how you want me to ship your book– U S Postal Service, UPS ground or UPS 3-day.)

ALSO OF EXCITING NEWS is the fact that my book on Territory Management (mentioned in an earlier blog post) is 99% done and should be at the presses by May or June.  When it is ready, I’ll be sure to let you know!

Childs writes this chilling line in the introduction:  “There are two easy ways to die in the desert: thirst or drowning.”

Most people get the first option; few understand the second.  But the fact is, every year, Arizona has brief but furious rains and the washes (gulleys), which are normally dry, quickly fill with raging flood water and can become lethal to anyone unlucky enough to be in a wash when a flash flood comes galloping down upon them like a thundering herd of wild stallions.  (Another of his books, The Desert Cries, recounts a summer in Arizona where over 20 people died in such flash floods, including a hiking party caught by a killer flash flood in the awesome Antelope Canyon, in our state’s northeast corner).

But what many people don’t realize is that the desert holds a surprising amount of drinkable water (even though you may need to filter it and treat it with purification tablets) if you know where to look for it.

An even casual scan of some of the topographic maps of Arizona show numerous “tanks”– like White Tank (for which the White Tank Mountains west of Phoenix are named), Red Tank, Smith Tank, and so on.  When I first moved to Arizona and started poring over the topo maps to find benchmarks to recover and possible sites from which to do astronomy, I thought these referred to water tanks for cattle.  But there were so man of them!  And frankly, there aren’t that many cattle on some of these quadrangles!

Then I learned in Childs’ book that a tank is the ugly English word for a beautiful Spanish word, tinaja, which is probably better translated as “basin”, like a large ceramic shaving basin.  Tinajas are depressions in rock that are carved out by fast-moving water that cascades down from the mountains during our furious thunderburst storms.  They take thousands of years to form.  They are shaped sort of like a gravy boat, being steep at the input end, and tapering to shallower and shallower water as the water approaches the exit point, where it cascades down the mountainside to the next tinaja.  (This shape keeps them purged of sediment, so that a free-fowing tinaja will be full of fresh rain water after a rain and little, if any, sand and silt.  Ranchers, thinking it would be good to build up the walls of tinajas to trap more water find that they then lose their hydrodynamics and silt in quickly, becoming useless.  It seems like every time people try to improve on God’s designs, they mess up things!)

Here is the point: people are often found dead in the desert because they run out of water and instinctively head for the low ground, thinking that this is where water goes in a rain storm (it does), but not realizing that the desert sand in such lowland is like a sponge!  Often, a flash flood will disgorge a wall of water, silt and mud out of a canyon in a 20-foot tall freight train (carrying trees, cacti, and house-sized boulders), and within a mile or two of hitting the shallow, open washes, be totally absorbed by the thirsty desert.  Too often, people trying to enter the United States illegally from Mexico are found dead in these areas, their plastic milk cartons of water having gone dry two days earlier.

Our economy is something like the desert right now– unpredictable, and dangerous.  Yet almost every HVAC salesman is looking for water in the wrong places– the low ground, the easy places to walk to.  Yet, they will find no water there, only death.

If an HVAC sales person wants to survive this desert, he must climb into the mountains, seeking the trapped and life-giving rain water that can only be obtained by herculean effort, climbing higher and higher.  There are no easy solutions.

In this economic desert, where will you seek your water?  In the easy places (where many will die this year), or will you climb the hard mountains and work hard and find the life-giving water in the heights?

Think about it…

I was watching a report last week on The Fox News Channel (yeah, I’m one of THEM) about the bowling industry in America– or rather, what USED to be the bowling industry in America. At one time, almost all of the bowling equipment sold in the US (balls, pins, machines, shoes, uniforms, bowling alley furniture, etc.) was made by either AMF or Brunswick.  But when NAFTA was passed in the 1990’s, the factories went to Mexico to take advantage of the cheap labor market.  Why?

Because American bowlers were demanding cheaper and cheaper gear, and it could not be produced in the States with our higher standard of living (and attending wage base).  So the Mexicans celebrated as they inherited hundreds of millions of dollars’ worth of factories, development, and expertise.  There were fiestas down south as plants closed up north, and several small US towns hat depended on AMF and Brunswick were decimated.

But now the Mexicans are singing the “Bye Bye Birdie” song because the manufacturers (still mostly owned by Americans) are moving their plants to someplace where the labor is even cheaper– yes, China.

I find it ironic as it can be that our friends to the south, who celebrated their big wins with NAFTA-inspired migrators like AMF and Brunswick are now in the same state of shock our workers were 16 years ago.

Why?  For the same damned reason as it was in the early 90’s– American bowlers want their goodies STILL cheaper.

I’m going to reap a lot of flak for what I am about to say, so before you hit me with your flame thrower, read the entire

Off-shore call center?

blog carefully.  I am a patron of Walmart.  I like Walmart.  They have been generally good for America, especially in the smaller towns were they set up shop.  But there is a downside to Walmart– and it is what I call the “Walmart mentality.”  It’s the mindset that cheaper is ALWAYS better, that somehow it has become an American right to have the best of all goods at the cheapest possible price.

The result?  Someone off shore makes a knock-off of  a high-quality US product (or, sometimes, a poor-quality one, as Detroit knows only too well) and sells it for 25% less than the US product, usually at Walmart (and similar discount chains– it’s not just a Walmart issue).  So what does the American manufacturer do?  Try to match prices and keep the quality up (sometimes an impossible task), so they either have to beat the bat snot out of their employees for concessions to stay “competitive” or they must move out of the country to where labor is cheap.

It began 50 years ago.  First shoes went offsore.  I grew up in a small town in the Midwest that had, among other things, a shoe factory, owned by the Brown Shoe Company.  I worked there one summer while in high school. At one time, it employed about 400 people, making shoes that Americans built, Americans wanted, and Americans wore.  Then someone– I don’t know who– maybe the Italians, maybe the Fillipinos, or Indonesians– began making equally good shoes (or better ones) at a lower price.  Brown tried to keep up by cost cutting, but it was not enough, and eventually Brown outsourced all its shoes to off-shore factories.  Today, Brown is still in business as an American company, but the shoes are not built here any more.  Because Americans wanted it cheaper, faster, cheaper.

Then television sets left the American landscape.  Do you remember when RCA, Magnavox, Philco, Emerson, Motorola and others were built here?  I do.  They are all built in Asia now.  And they are darned good sets too!  But again, we clamored for cheaper, faster, cheaper.  And we got it.

Steel mills followed soon thereafter.  Then cameras.  Then computers.

We demanded it cheaper, and we got it.   But at what price?

What does the future hold for us?  I have heard it said that information technology is the new steel mill for America, that we have a huge lead in that area and that we can leverage that for wealth.

But not for long.  We’ll lose that lead to cheaper, faster, cheaper soon too.

Gee whiz, I sound pessimistic on this, don’t I?  But have I missed it?  Am I wrong?

The English art critic and essayist John Ruskin said it so well over 100 years ago:

“It’s unwise to pay too much. But it’s worse to pay too little. When you pay too much, you lose a little money, that is all. When you pay too little, you sometimes lose everything because the thing you bought was incapable of doing the thing it was bought to do.

The common law of business balance prohibits paying a little and getting a lot. It can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run. And if you do that, you will have enough to pay for something better.

There is hardly anything in the world that someone can’t make a little worse and sell a little cheaper and people who consider price alone are this man’s lawful prey.”

Can product quality and superior salesmanship save the United States from its plunge down the world’s economic toilet? I hope so!  I’m betting on it!  But we have our work cut out for us!

I then decided it was time to go ahead and get a new laptop as well, so I got the latest Lenovo Think Pad.  The thing is so fast and powerful, it can launch and guide a rocket to Alpha Centauri!

Both have Windows 7 (in my opinion, a VAST improvement over XP and a huge improvement over Vista).  However, there is no upgrade path from XP to W7 (there is from Vista to W7), so I had to install all my software again, etc, and that took a few weeks.

Anyway, I’m back for the year, and ready to go.

So here’s my first blog post for 2010.  You ready for this?

Normal???

When you were a little kid, did you ever wonder if you were “normal” compared to your classmates?  Maybe some were taller than you—a lot taller.  Or smarter. Or better looking.  Or better athletes. Most kids, at some point, wonder how they compare to everyone else. It’s normal.

We never outgrow that tendency.  Even as adults, we wonder, “Am I normal?”  We look at others, the houses they have, the cars they drive, their appearance, and we wonder, “Is that the way it is ‘spozed to be?  ‘Cause I ain’t that!”

Every five years, the US Department of Commerce, in cooperation with the Census Bureau, undertakes a massive study of business in the United States.  They look at dozens of industries, including Plumbing and HVAC. The last survey was done in 2007, and the data just recently became available. I will report to you what the data showed for the average US HVAC contractor in 2007 (adjusting for inflation since 2007) so you can see if you are “normal.”  (By the way, being normal is not necessarily a good thing.  How much would people jeer at you if you put on the side of your trucks, “ABC Heating— Man, Are We NORMAL!”

The average HVAC shop had 10.64 employees in 2007.  (I wonder what 0.64 people looks like?)  Half the shops are bigger than that, half are smaller.  (And we are talking about roughly 100,000 shops.)  A breakdown by size shows this:  1-4 people (58,039 shops); 5-9 people (19,295 shops); 10-19 people (12,242 shops); 20-49 people (7,638 shops), and over 50 people, all the rest (3,255 shops).  There are a ton of small shops out there, and only a relative handful of “mega houses.”  If we graphed this data, we’d have a sharply dropping line that ran from a high on the left to a low on the right.

Yet the sales data is completely different. If we look at the total sales racked up by each size bucket, we find that the curve would have a hump in it, like a camel’s back.  The 1-4 man shops account for only 10.5% of the sales (but are 58% of the shops), while the 4-9 man shops account for 13%; the 10-19 man shops rack up 17% of the sales; the 20-49 man shops tally 23% of the sales; and the rest of the family brings in 36.5%.

The average payroll per shop was $495,293 (which amounts to about $46,550 per employee).  Of that, 69% went to direct labor.  Fringe benefits came to $148,158 per shop (30% of pay).

The average shop in 2007 had $1,737,275 in sales.  This amounts to a throughput average of $163,247, a marked increase over 2002 (which one would expect considering the 2006 change to 13 SEER as the minimum efficiency standard).  Equipment and material ate up 37% of this and subs about 9%.  The average shop spent $60,488 per employee at the supply house to get equipment and materials.

Gross margins averaged around 46% in 2007.  (So if the average dealer wanted to make 12% net profit, he’d need to divide costs by 0.42.)

Sadly, the average shop only spent about $11,105 on advertising (less than 1% of sales!).  The data did not indicate whether this was before or after co-op dollars, so I’ll assume it was net (after co-op).  Even at that, there is not enough going towards advertising to sustain the average shop’s hunger for leads.

I don’t have the net profit figure for 2007, as the way the Government reported the data made it very murky to extract, but I would imagine that if it followed historical trends, it was below 3%.

Now here is what worries me— this data was all compiled before the Great Recession of 2008-2010 hit.  I suspect the numbers have gone south across the board, but we won’t know for a while.

Make sure your tray tables are in their upright and locked positions, that your seat backs are fully up, and that you have securely fastened your seatbelts. I think 2010 may be a very turbulent year for the economy in general and our trade in particular.

One thing is certain— the definition of “normal” is going to change, and those who are below normal will probably become fossils in the bedrock of our industry.  Does that make you sit up and start to want to manage your operation better?

Mr. Drucker’s writings are not normally common fodder for most small business people because he wrote primarily about large business (the Fortune 500 and similar classes of company) and most small business owners don’t see themselves in the same light as the corporate behemoths Drucker spoke of.  But Drucker actually had a lot to say that is good for small business too!

Drucker had the ability to write about complex and abstract concepts, but also to put real-life feet under them and make them pragmatic (a real rarity, if you spend much time reading the HBR or other similar publications).

Drucker wrote in the 1980’s, for instance, that allowing executive pay to get out of control (where the focus was on taking excessive risks to reap possibly huge short-term gains) would lead to economic disaster for those companies who practiced it.  (AIG, Fanny-Mae, Freddy-Mac, Leiman Brothers, Goldman Sachs… the list goes on and sounds very familiar, does it not?) That is because Drucker believed in principle-based management, something from which American big business today seems to have drifted.

He bemoaned Detroit’s reluctance to change and adapt to the new world realities and since his death, we have seen the near-collapse of GM and Chrysler.

He warned of emerging industrial competition from the third world, and no one listened, until now America lags behind China and other industrial comers in annual output.   (When was the last time you bought a TV set made in America?  Or shoes, or even a shirt? Oh, they can still be found, but it is getting harder and harder, isn’t it?)

More Drucker-isms for small business: “If I put a person into a job and he or she does not perform, I have made a mistake.  I have no business blaming that person.”  (“How to Make People Decisions”, HBR July/August 1985).

Or this: “Asking, ‘What is right for the enterprise?’ does not guarantee that the right decision will be made.  Even the most brilliant executive is human and thus prone to mistakes and prejudices.  But failure to ask the question virtually guarantees the wrong decision.”  (“What Makes an Effective Executive”, HBR June 2004).

To quote Rosabeth Kanter (“What Would Peter Say?”, HBR November 2009), “Drucker was not a revolutionary.  He merely asked that we constantly challenge assumptions.  He preached steadiness and long-term vision.  He recognized that leading in turbulent times requires foresight about where things are heading as well as judgment about what not to change.  He would remind us that the best preparation for a smooth journey, even as we steer across troubled waters or leap across chasms, is a clear sense of meaningful purpose.”

There is rising optimism that 2010 will be a year of moderate recovery.

I don’t share that optimism.  Recent articles in the Wall Street Journal, for instance (lead stories of Tuesday, Nov. 19, 2009 and Tuesday, Nov. 24, 2009) combined with the fact that in 2010 the five-year ARMS that were sold in 2005 go up (and these are for the most part jumbo loans) has me thinking that the last half of 2010 will be as bad as the end of 2008, maybe even worse.

I hope like heck I am wrong, but my reading of the tea leaves does not give me much confidence in our ability to climb out of this government-made hole.  Now more than ever we need the wisdom of dead sages like Drucker and Deming.

Get their books while you still have time and read them, then act on what you learn. It just might save your business in 2010!

In the 1990’s, I became interested in a concept called open-book management and had the opportunity to attend a seminar at a company that was a pioneer in this field, Springfield Remanufacturing Company, located in Springfield, Mo. The plant manager and CEO, Jack Stack, had written a book called The Great Game of Business which described their approach to beefing up the financial literacy of their employees, and I decided I had to see if this stuff was really true or just hype.

Springfield Remanufacturing (you can check their web site at http://www.srcreman.com/homepage.htm) is in the business of remanufacturing diesel engines for large trucks and tractors and do about the best job of it of anyone in the country. I don’t know if they still offer the monthly “open book management” seminars like they did in the 1990’s, so if you want to check them out, you may have to call them.

My experience over the 3-day session I attended was amazing. Here you have a manufacturing plant that employs several hundred people, most with only a high-school education, and everyone on the shop floor knows the key numbers every week! Each week, the department managers gather at the central offices for a half-day recap of the business for the past week. Each manager divulges to the others the numbers his department reached (not just production numbers, either— we’re talking financial numbers as well!). If he or she is not on track to meet the mutually-agreed upon business plan the team put together at the end of the prior year, they had better have an explanation, because any person in the meeting (not just Mr. Stack) can grill a speaker if the data is not on track. (And man, did they!) After the meeting, the department managers take the results of the meeting back to their departments and hold mini-meetings where they share not only the department’s financial performance but the company’s as a whole.

So why do they do this? To build a more profitable company. As Jack Stack writes in his book, “When you appeal to the highest level of thinking you get the highest level of performance.” Gee, such a nice, warm and fuzzy platitude, the kind of thing Pollyanna might say. But is it real?

My experience blew me away! As part of the Great Game of Business Seminar, you are allowed to tour the factory floor and talk to any employee you wish. Any question is legitimate. I paused at one station where a 30-something woman was putting the final touches on diesel fuel injector nozzles. A small part, a pittance as they might say in England. I asked her, “What do these injectors cost?  Do you know?” (Thinking I had her!)

She walked over to a shelf near her station and pulled down a 3-inch thick 3-ring binder. She turned to me as she opened it and said, “What week?”

Surprised, I said, “Oh, any week. You pick.”

Then she said, “Do you want to know our cost, the cost to the reseller, the cost to the end user, or the cost of the raw materials? Shall I include burden too?”  I just shook my head and chuckled, “Never mind! You know this like the back of your hand, don’t you?” She replied proudly with a smile, “That’s my job, mister!”

Major decisions about capital outlays are not made by senior management— they are approved by management, but not planned or made by management. That is the job of the floor people.

Case in point: employees are taught to watch the balance sheet like a CSI studies a crime scene. One year, the peoplein the shipping department came to management with a request for a new super-duty fork lift truck—a beast that could handle engines that weighed thousands of pounds. They said the ones they had were not big enough to handle the largest engines by themselves—that they had to rig two trucks together to move the biggest stuff in a ballet that almost defied choreography. Management replied, “Have you run the numbers yet?” They replied, “No.” Management said, “Well, do so and bring us back what you find out.”

A week later, the shipping department team came back to the weekly management meeting with the forecasts, projections, and what-if scenarios all worked out. It turned out that the move would put a serious ding in plant equity for a while (and since the employees get a piece of the equity pie, that is serious business!), but in the long haul, it would increase productivity more than enough to eventually offset the investment. As is the case with large outlays like this, the matter was brought to the factory floor for a vote. Employees looked the situation over carefully, weighing their loss of equity (and hit to their year-end bonus checks)  for the long-term gains in productivity— and voted to buy the new truck. Senior management then authorized the purchase.

Now compare that to the typical HVAC company, where often not even the owners know what is going on financially. How often do they get their financial statements? And when? If they don’t get them monthly and by the tenth of the month prox, they are in a fog. And they need to get three reports (income statement, balance sheet, and cash flow statement). And they need to go over them line by line with a CSI’s UV light and look for any clues of fiscal anemia and take countermeasures.

And let alone the crazy and burn-me-at-the-stake thought of the employees knowing the monthly numbers! Heresy!

Yet let me ask you a question: if you are an owner of an HVAC business, you probably have found out by now that these things are a whole lot more trouble than raising babies. Babies just wake you up at night sometimes and crap on you sometimes, but a business can keep you up all night and bury you in crap. You probably did not bargain for all this, did you? So what if your former employer (you know, the one who inspired you to go off on your own and start your own gig) had shared with you and the rest of his employees the monthly numbers and taught you what they meant? What if they had showed you how your contribution (or lack of it) impacted the numbers (and not just the bottom line— the equity too)?

If you had seen those numbers then, would you have started your own shop later? Maybe. Maybe not.

I’m not saying you need to hand out your normal income statement at a monthly meeting— you can condense it down a lot (instead of showing  how much Mary at the front desk makes, just lump her compensation in with all the other office staff and show a line “Office Wages”) and make it simpler to read. But you do need to share the numbers with your people and explain to them what they mean and how their activities affect those numbers.

“But what if we’re having a slump?” someone will say.  “Won’t that scare them?”

Maybe. And perhaps it should. But it should also show them that slumps are normal and that by working together, they can be survived. And they can learn that their daily activities really do impact the company’s finances, maybe more than they thought.

And if you give them a steak in the outcome (I used “steak” on purpose rather than the normal “stake”), they might amaze you!

I will be adding a new departmentalized income statement worksheet tool to The Shop area soon. It includes an option to print a simple 1-page income statement for use in employee meetings. Check in later to see if it is posted yet and get a copy for your shop.

NOTE: For other great insights on open-book management, read John Case’s two books, Open-Book Management and The Open-Book Experience. To that list I would add Charles Coonradt’s The Game of Work.

Two of the Pros who helped me in my sales career: Larry Skorupan (L) and Bob Coe (C).

The seasoned veteran sales professional is a person who has been selling residential and light commercial HVAC systems for several years. He or she has a good grasp of sales skills as evidenced by a closing rate of 65% or higher.  (Some I know hit 90%, and not on price!)

They are masters of the subtle question and know how to elicit strong emotional drivers from their clients and harness their solution to those drivers so sales are (to a casual observer) very easy. (But they fully understand how complex and difficult selling at such a high level is!)

Such professionals often have the ability to compose a job completely from scratch and do not have to rely on a retail price book prepared by the company’s management, but as a good team player, will use such a book when it is available. They know how to mark up a job for the correct margins and complexity factors and are good at assembling all the components of a superior system and understand their crews well enough to peg the labor required to within minutes of the actual time the job will take.  They are good at load calculations and equally at ease with duct design and piping problems. They understand controls like the backs of their hands and know how to use retail financing programs with grace and finesse.

Such people easily sell $1 million and more a year in residential and light commercial jobs. Some score as high as $3 million a year. And they are all driven to succeed, and wear the badges of their success— the cars they drive, the clothes they wear, the jewelry they use, even their club memberships— with pride.

So how do you pay such beasts?

Recognize that they want pay that says to the world, “I am in the best of the best club! I know how to do it better than the rest!” They want big paychecks, and they usually despise draws or base salaries. To them, pure commissions are the best way to fly.

So consider giving a veteran little (or no) base or draw, and basing their compensation entirely on commissions.

How you structure the commission plan will depend on how they sell for you.  If they sell off a company-supplied retail price book, you can make their commission a percentage of the sales contract they write.  A veteran of such volume should easily earn 8% to 10% (sometimes even more) of their gross sales. [Note: to be sure the company nets the net profit it needs after the commissions have been paid, please see my article on pricing for job commissions by clicking here.]

Thus, if Susan sells $1,500,000 a year off a retail price book and she gets 9% of the sales, she will knock down $135,000 a year, in line with the top producers in most markets according to the web site salary.com.

But what if the sales veteran has complete control of the job pricing and does not use a retail price book?  Then they should be paid a percentage of the gross margin dollars they write up on contract.

Here, it gets a bit stickier, but can still be done with relative ease and good results. I suggest that companies that use such a system base the gross margin payout on a gross margin that nets the company its target gross margin after paying the commissions. (See the article I referenced three paragraphs above.)

I also suggest you stipulate a floor below which commissions are paid at a reduced rate.  For instance, if you determine that your company needs 36% gross margin to be successful, and that to fund the commission the sales veteran must sell jobs at 44% gross margin to fund his commission, you could say that any job that sells below 44% gross margin has reduced commission.  (In this example there is an 8% cushion for a job at 44% and less than 8% for jobs from 43.9% down to 36%.) For instance, the veteran earns half the normal commission rate for sales below 44%, or a sliding scale, such as 7/8 of the commission at 43%, 6/8 (or ¾) at 42%, 5/8 at 41% and so on down to 1/8 at 37%, with no commissions at or below 36%.

But if the veteran brings in a job at 55% gross margin he should get his commission rate on that sale, and it will be a doozy of a commission check! But then, it was a heck of a sale!

The commission check should be based on a percentage of the gross margin dollars. Since the gross margin dollars will be smaller than the gross sales dollars, the commission rate obviously needs to be higher than a commission rate based on sales dollars. For instance, if a sales person normally earns 8% of the sales dollars on a retail price book method, a veteran paid on gross margin would need a rate that yields the same commission dollars as the retail price book price using the gross margin dollars.  For instance, if the retail price book gave a price of $8,000 for a job and it had 44% gross margin in the job, the job would generate $3,520 in gross margin. A commission of 8% of the sale is $640. So a veteran on gross margin commissions would need a rate of 640/3520 or 18% to make the same income.

Two fallback ideas need to be considered. One is the issue of expenses. For high output veterans, many contractors use a generous commission rate and pay no expenses. For instance, a veteran might have a commission rate of 20% or more of gross margin dollars. In return for the chance to earn well into the six figures (say, $2,000,000 volume at 50% gross margin times 20% = $200,000!!!), the veteran pays for his own car and gas, cell phone, sales tools, fax machine at home, and so on. (The company, of course, would still provide normal payroll benefits.)

The second issue is whether or not to pay the veteran his commission on the job after the job is finished and costed out.  I am in favor of this, but some folks wince at the thought. Here, the sales person turns in a job and figures it will take 4 man-days. The job is installed and then costed out.  During cost-out, it is found that the job took 4.5 man-days, and that the sales person overlooked some material that the job needed, so material costs were higher than estimated as well.  The sales person had figured the job at $4,000 gross margin at bid time, but the job actually only generated $3,720 gross margin.  The commission would then be paid on the $3,720 that actually was generated, not the $4,000 that was estimated.

Such a plan keeps the sales person realistic with his labor estimates.

Such a plan can also be combined with a high-throughput incentive program for installers and the sales person can be given a portion of the company’s cut of the savings on a job. For details on how this would work, use the “Contact Us” link at the top of the page, or “Leave a Comment” and ask for the article and I will email it to you as an attachment to my reply.

One final thought— if you have a well-structured commission program (one that brings more money to the company than it costs you to pay out), don’t worry if you have a sales veteran who makes as much (or more than) you do. Think of how much wealth he or she is bringing you in the process! Oh, that you would have a DOZEN such producers selling for you!

I am putting the finishing touches on a manuscript for a book I am tentatively calling “The Territory Manager’s Field Guide.” This practical book will contain 30 chapters that contain helpful tips on how to run a successful territory. The information has been drawn from my own experience as a pace-setting territory manager as well as leading territory managers from around the country I have met in workshops over the years.

Dave learned a lot from me!

This will be a large work– the manuscript in Word 2007 is about 600 pages long! It will also come with a CD-ROM with PDF files, Excel spreadsheets, and other useful tools to help a territory manager be the best he or she can be.

I have already begun talks with my publisher and hope to be able to make a formal announcement and take pre-publishing orders by the end of the year.

Come back to my web page from time to time to get updates and release announcements.

So how do we pay sales people who are no longer rookies but not yet at that level of experience and skill that the truly great sales people attain?

Sam goes for a sale!

Clearly, a level of pay that is above that of a first-year rookie is appropriate, provided the sales person is producing at a rate that is better than a rookie. (For convenience, let’s call this sales person an apprentice. They have graduated from pure rookie-dom, but are not yet at the level of a journeyman.)

A rookie sales person should produce between $300,000 and $600,000 in sales the first year they are on the payroll. Some do even better than this. But these are decent lines in the sand to aim for and are based on contractor surveys.  There is a very high correlation between first year performance and good sales training, by the way, suggesting it is well worth the contractor’s money to send his rookie to a good sales school early in their career.

How much an apprentice should produce will depend on a number of factors, such as population density of the area, the median household income, and the dealer’s brand and pricing levels. Let’s set up a case that should be typical.

Let’s compare two cases: one where the apprentice lives in a fairly populated area of good median household income, and the other where she lives in a remote area with a lower MHI.

For the “rich” case, let’s suppose the apprentice works in Charles County, Maryland. This county has a population of 124,691 people and a MHI of $80,697 (well above the US average of $51,283).  My research shows that the residential and light commercial potential of Charles County, MD is $31,600,000 or so. Since most rookies don’t do much in the commercial arena, let’s say that our apprentice’s market is about $20 million retail. There are 66 HVAC shops in Charles County, MD. 18 of these are of a size large enough to warrant a full-time comfort consultant.

Those 18 shops probably comprise about 67% of the sales in that county (shocking, but true!), so the 18 shops that would probably have a comfort consultant account for maybe $13.5 million in sales. 1 of the 18 shops is much larger than the others (and thus probably does more commercial than residential) so 17 shops are making about $13 million in residential sales. Each shop is thus averaging about $765,000 in residential sales.

This would be the median point of the data, so I would expect to see perhaps one comfort consultant writing up $1.5 million in sales a year and the rest trailing off from that. An average of $765,000 in sales is a decent level for an apprentice in an area like Charles County, MD.

The “poor” case comes from Jackson County, Alabama— population of 53,134 and MHI of only $38,761. The residential potential here is  only about $7 million, and 6 contractors who might employ a comfort consultant. But these 6 probably account for $2.5 million in sales, or only about $410,000 per comfort consultant. Again, that would be the median value, with some apprentices selling perhaps as little as $200,000 and others up to $650,000.

Quite a difference from the denser and richer county in Maryland!

Now that we know the boundaries of the playing field, we can begin to construct a reasonable comp plan for each case.

For an apprentice, we need to start weaning them off a strong base and small commission towards a smaller base and larger commission (the ultimate goal being 100% commission).

I would also consider moving the total pay for an apprentice up from the bottom of the range we saw in the first blog in this series (see here).  If we started a rookie at about $42,000 total pay, we might consider $55,000 or so a good starting point for an apprentice (but again, we must be sure to base this on the local market using a tool like salary.com).

If we made the base only 60% of the total pay, the apprentice would draw about $33,000 a year as base pay (or draw against commissions) and $22,000 in commissions and bonuses. If sales are $500,000 a year, the commission rate would be about 4.4% of sales (when made off a company-supplied retail price book)— we had the rookie set at 1.6% of sales.

For a $750,000 producer, a pay around $64,000 would be reasonable— 60% as base ($38,400) and 40% as commission (based on 3.4% of sales).

In the third (and last) blog in this series, we’ll consider the journeyman sales professional, the seasoned veteran who knows how to sell in a variety of environments and brings in jobs that make the company very profitable!