Ever read Aesop’s fable, “The Ant and the Grasshopper?” It applies to your business.
Don’t be the grasshopper
The fable describes the grasshopper as a happy-go-lucky type who was too busy making music while the ants toiled away. The ants’ hard work paid off when winter came, while the lazy grasshopper starved in the cold. In my version of the fable, the ant is the business that has enough product to break their number and grow their business. The ant knows the storm is coming, even if he can’t see it.
A business that isn’t prepared for the bad times won’t last long enough to enjoy the good times. It will simply be another statistic on the bls.gov website.
It’s a problem of motivation
When I managed a sales channel back in the late 2000s, one of my distributors, Cam, had a full sales staff. His comp plan was great. He offered flexibility and exclusive sales territories. He just couldn’t get his guys motivated. Threats of firing them didn’t help; he had aggressively recruited each of them. They simply didn’t have a drive.
I suggested giving them a visual aid. I offered a maximum discount if he took four full skids of product. The experiment was to “stack ’em deep.” I knew Cam didn’t want to be known as a discounter, so I wasn’t worried he would dump the product and deflate the street price. This was a psychological experiment. I wanted his guys to see the stuff on the shelf.
Cam agreed to my proposal. After he took delivery, he filled the shelves in his warehouse. Every morning, he snapped a photo and emailed it to his staff. Our plan was to show the reps what was available to sell and encourage them to move it. He could have sent all that info as text in an email, but the photo was the real thing. If they visited the office, they saw the product. It was physical, a reminder of their shared purpose.
Sales picked up. By investing in the product, they saw that he had skin in the game, which built camaraderie. They were all in it together now, moving towards a common goal. He showed commitment by taking the product; they needed to show commitment by selling it.
It worked too well
He sold all my product. It was a good problem to have, but then I needed to deliver as the supplier. A little “artificial demand” can be a good thing, but eventually, you need to have the product on the shelf. The cardinal sin of retail is to have empty shelf space. It turns out that’s the cardinal sin of any business.
When you forecast a sales number for the year, you better have enough product for the sales team to make their number. If you offer financial incentives to beat their number, you better have excess capacity for them to do that. You never know when just in time becomes just out of reach.
Business doesn’t stop, even if the world does
As of Aug. 20, there are 37 ships parked off the coast of southern California. While it is clear the pandemic is a once-in-a-century event, it’s not unique in creating supply chain disruptions. Tsunamis, earthquakes, storms, and floods all wreak havoc on distribution. There will be shortages, and those shortages will affect your business.
Be the ant
Calculate your average sale price (ASP) for your products and services. When you forecast your budget for the year, consider three important factors:
- Quantity of product/raw materials needed at ASP to make budget for the year
- Quantity of sales needed at ASP to satisfy your comp plan for your sales team
- Your typical supplier lead time
Now add a 10-15% buffer for the unknown. The unknown could be good: your sales team goes on a run, or your brand goes viral. The unknown could be bad: a natural disaster clogs the ports.
Ask yourself, do you have enough inventory to maintain your business until things get back to normal? The best salesperson in the world can’t consistently sell what doesn’t exist.