By Craig Webb
President, Webb Analytics
When it comes to time and efficiency, lumberyard executives are an odd lot. On one hand, they obsess over buying products at the most profitable moment, stocking them quickly, keeping them as short a time as possible, and moving them to job sites precisely when the customer needs them. On the other hand, their sales operations’ outside reps often can set their own hours, so they aren’t on the clock. There’s little concern for how those outside sales reps do their work … so long as the revenue numbers look good.
I’ve noticed this contradiction in recent weeks during dozens of interviews with LBM executives nationwide. Ever-better tracking technology and the import of supply-chain management ideas is empowering dealers to make quick, dramatic improvements in the movement of materials. But we haven’t yet seen similar examinations of sales operations on a widespread basis. I think there are three reasons why:
1. Dealers are focusing their efficiency efforts first on the more factory-like parts of the business, such as truck turnarounds and truss-making.
2. The sales office, by comparison, runs more like a craftsmen’s guild in which the outside sales reps rebel when somebody tries to make them change habits. Thus, dealers are holding back.
3. The number of hours that workers spend on a task—a crucial metric in most business segments—historically hasn’t been rated as important in shops where OSRs set their own hours.
I can accept reason No. 1, but the other two hold less water today.
Prolonging Bad Habits
Homes and products are getting so complicated that OSRs’ skill sets are challenged, and could get out of date. You can see the consequences in material takeoffs, which OSRs handle at 47% of the biggest dealers nationwide, according to Webb Analytics’ Construction Supply 150 survey. But having each sales rep do a material takeoff solo and by hand can promote inconsistent results and, even worse, needless mistakes. Dealers who handed takeoffs to in-house teams or to outside services like Paradigm Estimate have discovered big inconsistencies between reps’ takeoffs, and even more commonly, mistakes.
“With blueprints often being dozens of pages long, there’s just so many opportunities for errors to happen,” says Mohammad Zagnoon, Director of Operations for Paradigm Estimate. “When a company moves the material takeoff function to a dedicated resource, they can achieve improved standardized processes, which gets the work done faster and more consistently across the entire organization. You simply don’t reap those benefits when each OSR is a lone wolf.”
Several dealers told me that having experts take over that work reduced the cost of fixing errors so much that it more than covered the cost of using in-staff or outsourced experts.
Some OSRs will contend that they need to do takeoffs themselves because it helps them understand better what’s involved in the project. The top-level reply to that argument is that if understanding is all that’s desired, it takes far less time to inspect a design than to painstakingly measure every wall and tally every stud.
A better answer requires that OSRs and their bosses start getting concerned about time management and which services matter most to a customer.
Time Is Money
I believe we’re approaching a time in which it will be common for dealers to scrutinize their sales operations’ processes and recognize that the true value of OSRs is building customer relationships and solving problems, not creating material takeoffs. The natural outcome of this shift will be greater efficiency and higher profitability.
That said, here’s an important question: What is an OSR’s time really worth and does it make financial sense to offload some of their tasks with software, outsourcing, or other staff? Using a formula provided by longtime consultant Jim Enter provides an answer.
Assume an OSR contributes $1 million in gross profits per year and gets a commission equal to 10% of gross profit, or $100,000 per year. Also assume the OSR works a standard 2,000 hours per year (40 hours per week for 50 weeks). With these parameters, a rep needs to generate $50 worth of gross profit for every hour worked.
Now suppose this OSR has a customer who buys $50,000 a year in goods at 25% gross profit. That yields $12,500 in gross profit to the dealer, of which the sales rep would get $1,250 in commissions. Given the need to collect $50 in gross profit dollars per hour, this means the rep can devote only 25 hours per year to that customer, or roughly two hours per month. And remember: Time spent here includes driving to and from the customer, doing research, handling the takeoffs, coordinating with inside staff, and visiting job sites.
If the customer in this example is anything but a docile lamb, odds are the OSR works with that customer more than two hours per month. Based on the current effort expended, that customer is a money-loser.
“More and more, dealers tell us that OSR time spent on takeoffs means they’re not focusing on what’s most valuable to the business -- and that’s sales,” says Zagnoon. “Options like takeoff services and technology can make better use of OSR time, increase operational efficiencies, and increase profits.”