For any business supplying parts, raw materials or consumables to original equipment manufacturer (OEM) customers, it’s essential to be able to perform a sales gap analysis in order to determine the remaining potential on gross profit and to put plans in motion to secure additional business. What is an equipment manufacturer sales gap analysis and what role does it play in managing a customer? Simply put, a sales gap analysis is a simple and straightforward method of quantifying existing business, and applying a dollar value to the business that remains.
It’s the most important step in customer account management and is pivotal to understanding an account’s potential for growth and the territories overall potential for gross profit. So, how is a sales gap analysis performed on an equipment manufacturer?
Gap Analysis on an Equipment Manufacturer
Let’s assume that a company is providing a number of products for the equipment manufacturer's lines. It wants to know how much business it has now, how much is remaining and what that remaining business means in terms of gross profit. In order to make this example as relevant as possible, we’ll make the following assumptions summarized in the table below.
Afterwards we’ll show how this information is gathered. The gap analysis is a rather simple and straightforward process – IF and only IF you have the relevant information. For that to happen requires your sales team be proactive and aggressive in securing the information vital to making the sales gap analysis useful. This means they should be embedded in their customer's businesses. Here's what it looks like.
- OEM has 8 machine types.
- The manufacturer's corresponding yearly volumes for each machine type are summarized in the table.
- The company’s current gross profit per unit sold is $2.50/Unit.
- The company’s current sales and gross profit are shown in the light blue shaded areas.
- The company’s remaining volumes and potential gross profit are shown in the green shaded areas.
- The company’s current gross profit at this account is $1,475.00 (shaded blue area).
- The potential gross profit available, or the GAP, is $1,312.50 (shaded green area).
How is the Gap Analysis Performed and What are the Steps to Make it Work?
Once all the information is available, it really is a simple process to determine what the company currently has as business and what it has left to pursue. However, most companies lack the ability, knowledge or even the understanding about why it’s important to gather this information. It’s the reason why you often hear someone saying “They must be a big account, how much business could we really get?”. These questions often come from companies that either don’t perform a sales gap analysis, or don’t know how to do it. Here is a list of the important steps to making a gap analysis work.
1. Understand Customer’s Business
It simply goes without saying that your business must know your customer’s business. None of this is possible if your sales people aren’t embedded in their customer accounts. They must know how what their customer’s product lines are, their big hitters, their hot sellers and their potential for new product developments.
2. Gather Customer's Volumes
Understanding the equipment manufacturer's business and what they make is one half of the equation. The other half is to know their volumes. Where does this information come from? Well, it comes directly from the customer, the market, industry news letters, trade shows, the customer’s website or its catalogs and brochures. Asking for it is perhaps the best way to gather the information. It’s your company’s job to bring value to the OEM and this information is essential to making that happen.
3. Quantify Current and Potential Business
Assign a value to the original equipment manufacturer's business that speaks directly to the potential of the account. The best way is to determine the current gross profit at the account and the potential gross profit that remains. What is the gross profit of the products your company is currently selling to the customer? What is the current total gross profit of the account? What's left to pursue?
4. Understand the Calculation
While this is a simple example, the basic rule applies regardless. Find out the customer's volumes, what your business currently has and deduct it from what your company doesn't have. Finally, apply a dollar value to the potential. Use it to depict the remaining business available and establish sales goals and objectives based on these totals.
The Benefits of Selling to Original Equipment Manufacturers (OEM)
When it comes to performing a sales gap analysis on an equipment manufacturer, it really amounts to understanding the manufacturer's business, their volumes, their growth and their approach to market. Sales must be able to provide this information on all of their largest customer accounts. It’s the essential first step in determining a customer's value and a territory’s potential for growth. It’s also pivotal to determining a company’s market share and one of the most important aspects of measuring the sales success of a given salesperson's management of the customer's account.
It's essential that your sales team is able to handle all aspects of business-to-business (B2B) sales negotiation.
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