In yesterday’s post, I broke down the steps involved in performing a sales gap analysis. It provided some simple and straightforward approaches to gathering the relevant information on the amount of business and corresponding volumes at a given customer account. It summarized the company’s business by assessing current gross profit and remaining opportunities to close.
Performing a gap analysis on a sales territory involves pretty much the same approach. In the case of a gap analysis on a sales territory, it amounts to amalgamating all the information from individual customer accounts and combining the information to provide the sales person, and the company, with a view of the gross profit opportunities that remain. If done properly, the company can then use the information to determine the territory's budget.
The Sales Gap Analysis
Surprisingly, a number of companies don’t do a sales account or a territory gap analysis. While they may know a given account is large, they don’t know exactly how large or what their customer’s size means to the company in terms of potential business. They aren’t embedded in the customer’s business, don’t know their volumes, their product lines, aren’t working with them on new product developments and are basically nothing more than an afterthought.
These are the types of companies that benefit most from doing a sales account and territory gap analysis. It provides insight into how much business the company currently has, what it must do to defend that business, and ultimately, what it must do to enact strategies to grow sales. When the company's sales team needs to provide sales forecasts on available business, the gap analysis is the tool they use. Here is an example of what a gap analysis might look like for an Original Equipment Manufacturer or OEM.
The above table is from Performing a Sales Gap Analysis on an OEM Account
In the above table, the company has performed a gap analysis on a cutomer account. The company makes $2.50 gross profit per-unit sold to this customer. This particular customer has 8 machines and the company has summarized the number of products they could possibly sell for each of the customer's 8 machines. For example, looking at machine #5, the customer could realistically purchase 125 units a year. The company is currently selling 100 units ($250.00 gross profit) so its gap is $62.50 (25 remaining units x $2.50 gross profit per-unit).
Amalgamate Information from a Territory’s Largest Accounts
Depending upon the industry, the size of the territory and the importance of the customers, a territory gap analysis may only concentrate on the largest, highest gross profit potential customers. Some companies have their sales people perform a gap analysis on all accounts in order to get the entire picture. In this example, we’ll assume the company wants to know the gap analysis on only its largest customers.
A territory gap analysis simply involves doing a gap analysis for each and every customer and summarizing current and potential business in an easy to read table. It’s this information that company’s use to establish sales goals and budgets and to provide sales with the tools to grow their territories. It’s also a great way to incentivize sales people by showing them just how much commission they could make in a given territory. Here is what a territorial gap analysis might look like on a territory’s biggest customers.
In this territory, the company currently has a gross profit total of $14,925.00. The territory "gap", or remaining gross profit amongst the customers is $16,692.00. The company currently has 47% of the business in this territory.
How Can This Help Sales?
There are a number of reasons why a sales account & territory gap analysis is essential to sales growth.
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It dollarizes and defines the company’s current business holdings.
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It helps the sales manager and the company in goal setting and establishing sales budgets.
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It incentivizes sales people to pursue business.
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It forces the salesperson to become a trusted advisor to the customer and know their business inside & out.
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It is the preeminent method of sales forecasting
Don’t make assumptions on the size and potential of your customers. Make sure your sales people are actively pursuing new business opportunities and can dollarize the value of future business. It's the most important aspect of sales forecasting and budgeting. A successful gap analysis helps in strategic planning and in inventory management.
To learn about properly handling threats in B2B negotiation, please read: Five Sales Competencies Every B2B Salesperson Must Master
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