I got asked today how we grew the Microsoft Business at (then) Distributor Metrologie from £1m/month to £5m/month, at the same time doubling the margin from 1% to 2% in the thick of a price war. The sequence of events were as follows:
- Metrologie had the previous year bought Olivetti Software Distribution, and had moved its staff and logistics into the company’s High Wycombe base. I got asked to take over the Management of the Microsoft Business after the previous manager had left the company, and the business was bobbing along at £1m/month at 1% margins. Largest customer at the time was Dixons Stores Group, who were tracking at £600K sales per month at that stage.
- I was given the one purchasing person to build into a Product Manager, and one buyer. There was an existing licensing team in place.
- The bit I wasn’t appraised of was that the Directors had been told that the company was to be subject to a Productivity Improvement Plan, at the same time the vendor was looking to rationalise it’s UK Distributor numbers from 5 to 4. This is code for a prewarning that the expected casualty was…. us.
- I talked to 5 resellers and asked what issues they had dealing with any of the Microsoft distributors. The main issue was staff turnover (3 months telesales service typical!), lack of consistent/available licensing expertise and a minefield of pricing mistakes that lost everyone money.
- Our small team elected to use some of our Microsoft funds to get as many front line staff as possible Microsoft Sales certified. I wasn’t allowed to take anyone off the phones during the working week, but managed to get 12 people in over a two day weekend to go from zero to passing their accreditation exam. They were willing to get that badge to get them better future career prospects. A few weeks later we trained another classful on the same basis; we ended up with more Sales accredited salespeople than all the other distributors at the time.
- With that, when someone called in to order PCs or Servers, they were routinely asked if they wanted software with them – and found (to their delight) that they had an authoritative expert already on the line who handled the order, without surprises, first time.
- If you’re in a price war, you focus on two things; one is that you isolate who your key customers are, and secondly you profile the business to see which are the key products.
- For the key growth potential customers, we invested our Microsoft co-op funds in helping them do demand creation work; with that, they had a choice of landing an extra 10% margin stream new business dealing with us, or could get 1% lower prices from a distributor willing to sell at cost. No contest, as long as our pricing was there or thereabouts.
- The key benchmark products were Microsoft Windows and Microsoft Office Professional. Whenever deciding who to trade with, the first phone call was to benchmark the prices of those two part numbers, or slight variations of the same products. However, no-one watched the surrounding, less common products. So, we priced Windows and Office very tightly, but increased the selling prices by 2-3% on the less common products. The default selling price for a specific size of reseller (which mapped into which sales team looked after their account) was put on the trading platform to ensure consistency.
- Hand offs to the licensing team, if the business landed, were double-bubbled back to the field/internal salesperson team handling each account – so any more complex queries were handed off, handled professionally, priced and transacted without errors.
- We put all the measures in place, tracking the number of customers buying Microsoft software from us 1 month in 3, 2 months in 3 and every month. We routinely incented each sales team to increase the purchase frequencies in their account base on call out days, with programs that were well supported and fun in the office.
The business kept on stepping up. Still a few challenges; we at least twice got reverse ram raids, emptying returned stock back into our warehouse on day 30 of a 31 day month, making a sudden need for sales on the last trading day a bit of a white knuckle ride to offset the likely write down credit (until Microsoft could in turn return the cost to us). The same customer had, at the time, a habit of deciding not to pay it’s suppliers at month end at the end of key trading months, which is not a good thing when you’re making 1% margins assuming they’d pay you to terms.
One of the side effects of the Distribution business is that margins are thin, but volume grows aggressively – at least until you end up with a very small number of really big distributors left standing. A bit like getting wood shavings from wood on a lathe – you want just enough to peel off and the lathe turning faster and faster – but shy away from trying to be too greedy, digging the chisel in deeper and potentially seizing up the lathe.
With a business growing 40%+ per year and margins in the 1-2% range, you can’t fund the growth from retained profits. You just have to keep going back to the stock market every year, demonstrating growth that makes you look like one of the potential “last men standing”, and get another cash infusion to last until next year. And so it goes on, with the smaller distributors gradually falling away.
With the growth from £1m/month to £5m/month in 4 months – much less than the time to seek extra funds to feed the cash position to support the growth – the business started to overtrade. Vendors were very strict on terms, so it became a full time job juggling cash to keep the business flowing. Fortunately, we had magnificent credit and finance teams who, working with our resellers, allowed us the room to keep the business rolling.
With that, we were called into a meeting with the vendor to be told that we were losing the Microsoft Business, despite the big progress we’d made. I got headhunted for a role at Demon Internet, and Tracy (my Product Manager of 4 months experience) got headhunted to become Marketing Manager at a London Reseller. I stayed an extra month to complete our appeal to the vendor, but left at the end of June.
About 2 weeks into my new job, I got a call from my ex-boss to say the company’s appeal had been successful at European level, and that their Distribution Contract with the vendor was to continue. A great end to that story. The company later merged with one of the other distributors, and a cheque for £1000 arrived in the post at home for payment of stock options i’d been awarded in my last months there.
So, the basics are simple, as are the things you need to focus on if you’re ever in a price war (i’ve covered the basics in two previous blog posts, but the more advanced things are something i’d need to customise for any specific engagement). But talking to the customer, and working back to the issues delivering a good and friction free experience to them, is a great way to get things fixed. It has demonstrably worked for me every time – so far!