NASA has a poster hanging with bees that reads:

“Aerodynamically, a bee’s body is not made to fly; the good thing is that the bee doesn’t know. “
The law of physics says that a bee cannot fly, the aerodynamic principle says that the breadth of its wings is too small to keep its huge body in flight, but a bee doesn’t know; it doesn’t know anything about physics or its logic and flies anyway.
This is what we can all do, fly and prevail in every moment in the face of any difficulty and in any circumstance despite what they say.
Let us be bees; no matter the size of our wings, we take flight and enjoy the pollen of life.” FROM SOUL ALCHEMY ON FACEBOOK

I find that section from Soul Alchemy very encouraging. How would we be seeing things at night if Thomas Edison quit after six tries to make a light bulb?

So what is your plan for your department or your dealership?

We have experienced the worst pandemic in history. We hope that we are on the downside of it. In our consulting practice, we frequently quote Doctor Steven Covey’s Seven Habits of Highly Successful People – Begin with the End in Mind.

When a reporter asked, “How did it feel to fail 1,000 times?”
Edison replied, “I didn’t fail 1,000 times. The light bulb was an invention with 1,000 steps.”
“Great success is built on failure, frustration, even catastrophy.”

So, where do you go to get guidance for your goals? Some people ask their lawyers, accountants, doctors, or next-door neighbor. Some people consult their business associations, or they ask the contact people from their manufacturer.

Establishing Revenue Targets

Recently I was talking with a dealer principal about his sales coverage. He told me that his manufacturer didn’t measure market share, and he wouldn’t know how to calculate that. I said, let’s try an exercise. There are 328.2 million people in the USA (as of 2019). His manufacturer is a publicly-traded company

so we went and got their annual stock exchange report to find out their yearly sales. I told him to divide the total dollar sales by the number of people in the country. Obviously, that is not difficult to do.

We then looked at the territory coverage that his company was responsible for and estimated how many people were in that territory. We now had two numbers the total headcount in his region and the price per person from his manufacturer for the country. Multiplying the number of people in his territory times the dollars per person in the USA, we have a target purchase volume for him if his company is doing the “average” volume for his product in the country. Next, we compare his purchased volume from his manufacturer with the calculated target. He was about average.

So, according to his manufacturer, he was doing an adequate job selling their product in his territory. He should be happy, right? Well, who wants to go to the annual meeting and stand up in the middle of all of your peers and shout, “I’m Average!”?? Generally, we want to be leaders, the top performers, or at least in the top section of performers.

Setting Annual Growth Rates

Growth rates change by type of industry, capitalization, and staffing requirements. If you are a software company, 20% growth per year will lead to death, but if you were a health care company, that 20% would be outstanding. As an industrial equipment dealer or distributor, 15% annual growth will lead to doubling your sales volume in 5 years. Why should you be reaching for a target like this?

• Inflation in the USA range from 1.26% to 3.84% (2016 to 2008)

• Cost of Cash or Investments (Investopedia claims that inventory carrying costs can run between 20%-30%) You also should include your insurance costs, your personal property tax rate, and the opportunity costs for using this money better.

• Price Increases – The cost of steel, the import fees, and general labor problems all impact the increases that your manufacturers pass on to you in increased prices.

If Inflation was 2%, the Cost of Cash (investment cost) was 10%, and the Manufacturer’s Price increase was 3% you are already at 15%. We have not included your labor cost increases, rent, or other expenses in this simple calculation. Whether you see all of these factors at these levels right now, it gives you an idea of what you should be bringing into your evaluation and goal-setting elements.

Using Football’s Salary Cap Approach

“A salary cap is essentially an agreement between the league and players that places a limit on the amount of money a team can spend on salaries for players. The NFL uses a hard cap, meaning that no team is allowed to exceed the cap limit for any reason.” From the Bleacher Report, Turner Broadcasting

So do you have a salary cap? A salary cap would indicate that you know what you can afford to spend, and you have controls in place not to exceed that number. Wow, that would mean you’re managing your expenses! Working for the last 35 years with dealers and distributors of industrial and commercial equipment, I have seen a couple of approaches to setting the salary cap. One of the simplest is 1/3 of the gross profit amount. So if you are making 60% gross profit – you can afford 20% of revenue for personnel. Remember this includes all overhead staff, salaries, hourly wages, bonuses, taxes, benefits,

and administrative costs. If you’re making 35% gross profit, you can afford about 10-12% personnel expenses. Simple, right?

Other industry personnel benchmarks have been 50-60% of the sales department’s gross profit, 10% of the revenue in parts or rental departments, 20% of the revenue in the service department, and 5% of the aftermarket revenue for administrative expenses. Surprisingly, you’ll find these departmental targets are not that far from the 1/3rd of gross profit dollars.

We’ve discussed your company revenue goals, your personnel expense caps, and your possible market share. We didn’t discuss every benchmark or target in your business. But we wanted to start you thinking, planning, and taking control to succeed better. Working with you to achieve productivity, profits and performance is our goal as a consulting firm. Your success is what we are here to develop.