What I Learnt from a Multi-Million Dollar Sales Manager

The following are notes taken from a meeting I had with a sales manager of an international multi-million dollar company. It deals with sales strategy and inventory management:

The 20/80 rule: Business schools teach this, applies in real life – The 20% of your top sellers contribute to 80% of your business revenue. This is the bread and butter of your business. Track your 20% top sellers on a monthly basis in terms of:

• sales revenue – ensure they do not drop and if they do, find out why quickly
• competitors' price and sales volume for the equivalent product / service – find out if you can do anything to increase your market share.
• Your market share compared to your competitors' – this can be a simple estimate by looking at the proportion of your products relative to your competitors' on the shelves.

Your 20% top sellers are your ricebowl and do whatever you can to defend your territory. Ensure they maintain a competitive advantage (see earlier article here). The 20/80 rules also applies in business effieciency i.e. you should be spending 80% of your time and money in the top 20% to ensure the biggest return. Delegate the other 80% to others for maximum effectiveness.

If your competitor launches an attack on your ricebowl a.k.a your 20% top sellers, take urgent action, but be rational about it. For example if they offer a competing product at a discount for a limited period and the market has already been saturated, don't jump in and st on the same item asart a price war when not many left will be buying. Think rationally and take alternative steps such as launching a discount on a diffferent product that happen's to be the competitors' ricebowl.

Inventory Forecast– This is a very simple concept I never eveb thought of until the sales manager showed me. To decide on which products to push for inventory clearance, do the following:

1. Do a monthly average sales of each product by unit
2. Find out how much each product you have in stock
3. Divide the stock level of each product by the average sales figure – this will give u the number of months it will require you to clear the inventory based on historical performance
4. Sort the list by the highest number of months to clear to the lowest.

Now you have a list of items you need to find ways to clear ranked by urgency. An example of this would be a product that has sold 3 units in the past 6 months.

3 units / 6 months = 0.5 units per month
If we have 5 units left in stock, it would take us:
5 units / 0.5 = 10 months to clear

Simple math, simple concept, almost common sense, but seeing 5 units left in your store room does not give you the same urgency as knowing it will sit there for 10 months before it's sold out. It's just a different, but very useful way of looking at things. This method of inventory management also helps you plan sales and financials as you know that you would not need to place an order for this item for, say, another 8 months.