When it comes to the next recession, it’s only a matter of when, not if – so let’s get prepared. The promo industry has reported declining sales for Q1, although we see lots of distributors still growing, especially larger companies. Here are some tips for distributors to keep growing sales and even profits regardless of tariffs, economy, and recession concerns.

First, let’s get our mindset right. Yes, industry sales may be trending down, but that doesn’t mean you have to accept it and follow the trend. Be a positive leader and make sure you and your sales team make a conscious decision to always grow. Build that culture that has your sales team feeling like nothing can stop them! Some distributors will stick their head in the sand and accept the reality of recessionary times, but you can do better!

If your current clients are buying less, then let’s use that extra time to focus on getting more clients. In our $26 billion dollar industry, there is lots of business to be had and this is the perfect time to grow your market share. Growth-minded distributors have a New Business Development (NBD) plan that is always being executed in good times and bad. One of the reasons larger distributors do better during recessionary times is that they often have a consistent focus on NBD. They have proven strategies they consistently execute to acquire new clients. When the inevitable recession hits, or they lose that large account, they don’t have to figure out what to do next and how to replace the lost business – they already have a pipeline full of prospects that they have been nurturing for years. If you don’t have a culture of NBD in your business, now is the perfect time to get started.

Another common strategy for fast growing distributors is that they have dedicated resources for NBD. Yes, your commission sales reps should spend more time on NBD, but once traditional reps get busy managing a large book of business, NBD time drops significantly, and it’s difficult to suddenly ramp back up when needed and start building a prospect pipeline from scratch. And finding new sales reps that can hunt and build a million-dollar book is like finding a needle in the haystack! You heard it here first – the traditional straight commission sales rep model is the number one contributor to slow and inconsistent growth.

Rapidly scaling larger distributors have often taken company control of NBD. They have a full-time hunter who is solely focused on turning prospects into opportunities for the Account Management team. The NBD role is solely focused on selling your company to prospects and convincing them to give you the opportunity to do business with them – I call this the “client sale”. Once the client has agreed to do some business with your company, then you can turn them over to your Account Manager who will focus on their project/product needs – I call this the “product sale”. Separating “sales” into two dedicated roles allows the NBD role to consistently provide a steady stream of new clients that are ready to buy from you. Many of the fastest growing distributors in the industry have at least one full-time person doing nothing but NBD!

But what if you can’t afford or can’t find that full-time hunter? Often this NBD expert already exists within your organization, and it is usually the distributor owner. When you started your business, you focused on hunting and as you got more clients, you gradually spent more time working on “product sales” instead of “client sales”. And now growth has slowed or even stopped. While you may not be able to work on NBD full-time, you can execute strategies that will allow you to spend significantly more time hunting and mitigate the effects of a recession. It’s a lot easier to hire someone that is good at “product sales”, than it is to hire a great hunter. Account Managers are great at managing client relationships, exploring sales opportunities with current clients and providing creative project solutions with high levels of responsiveness and customer service. Back-office staff can be hired to take order management and bookkeeping off your plate and industry service providers such as Office Beacon can provide offshore staffing solutions that are very affordable for distributors on a tight budget. The strategy is to offload tasks that can be done by others while you return to growing your business by focusing on NBD again. And if you are like most distributors we work with, NBD is the part of the business you really enjoy and are good at, so go get that next big client!

Recessions can also take their toll on profitability, especially if you are investing more in NBD. So, watch your administrative expenses, especially if cash flow is tight. If you experience a dramatic drop in sales, I encourage fast action to align your expenses with the reality of your current revenue. If you don’t have a pipeline full of prospects that can be turned into new business quickly, then you run the risk of running out of cash. Too many distributors ignore the reality of lower sales and underestimate how long it will take to return to profitability. You have good people working for you and you don’t want to lose them, but lower sales require lower overhead to remain profitable, and a failure to align your expenses with the reality of your new revenue can lead to some very bad results for your business and your family. As sales come back, you can always hire more good staff to handle the growth. And the best way to prevent this difficult situation is to develop a culture of NBD!

To recap:

• Be a positive leader and get your sales team hunting again
• Develop a NBD strategy that will deliver consistent opportunities with new clients
• Get someone to work on NBD full-time
• Hire Account Managers and/or back-office staff to free up time for NBD
• Watch your overhead expenses and align them with the reality of your current sales

Average distributor gross profit margins (GPM) range between 34% – 36%, but I work with many distributors that average 40% – 45%. So, what is their secret and how can you raise your margins? It mostly comes down to the mindset of the distributor owner that they have passed on to the sales team. If it’s embedded in your sales culture to get 35% margins, then that is what you will get. The good news is that changing this mindset is not difficult and the benefits include an immediate and long-term increase in profitability.

The first step is to overcome the traditional mindset that says small orders require higher margins and large orders deserve lower margins. The most profitable distributors understand that most of their profit comes from larger orders at higher margins – this is the Sweet Spot for profitability! Unfortunately, many distributors give back much of their profit by accepting too many small orders with low margins – this is the Danger Zone where profit is often minimal for the rep and negative for the distributor.

Coach your sales team to analyze their client list and focus on growing sales to clients that have higher average order sizes and above average margins. And clients with small average order sizes and low margins likely need to be replaced with better clients. The best orders/clients allow distributors and reps to be aligned when it comes to making profit!

The good news is that this isn’t just theory as most distributors have recent examples of large orders with high margins. Share these with your sales team and celebrate when reps land an order in your Sweet Spot! This constant reinforcement of your margin strategy will change and maintain the mindset you are looking for!

Hopefully, low prices are not your differentiator as we all understand this is a race to the bottom that most can’t win. Make sure your sales team understands the inherent marketing value of branded merch and your specific differentiators that appeal to buyers. Instill a sense of pride in your company – if you’re telling your clients you are the best, then don’t be afraid to charge like it.

Equip your sales team with the talking points to not only overcome price objections, but to clearly justify your price. Buyers need to understand that service, creativity, brand protection, etc. come with a cost.

Being proactive with ideation is a great way to minimize competing on price. If clients send you a product idea they found and ask for a quote, you’re likely in a bidding situation and haven’t added any value to warrant a higher margin. Preempt this situation by understanding your clients event dates and making sure you provide creative solutions before your client starts their own research. Now you are adding value and can justify your price! This is a key differentiator between the best sales reps and order takers – more on this topic down the road.

Up selling and cross selling are two great opportunities to increase margins. Suggesting creative packaging or fulfillment solutions differentiates you from the product sellers and bundling additional value-ad products or services into one price, makes it more difficult for the client to price shop.

And don’t forget the power of the relationships you have forged with your top clients. They know, like and trust you and have likely decided that you are their preferred merch provider. If you are confident you will be getting the order, then it’s ok to ask for a fair price that reflects the value you bring to the relationship.
You also can choose your clients, so encourage your sales team to gradually replace Danger Zone clients with new clients that value what you deliver and are willing to pay your price (Sweet Spot).

Margins can be increased significantly by gradually changing your rep’s mindset and habits. Don’t scare them by asking to raise margins by 5% right away but rather ask for a modest 2% increase where possible. Every time you are preparing a quote, pause and ask yourself “can I get 2% more margin?”. Over time, reps will have success, grow confidence, and will expand their margins by even more than 2%, and many will take it to the next level on their own and gradually start asking for 3%, 4% or even 5% more, especially from clients where their relationship is solid.

Establish a new company margin goal (40%?) and a minimum required margin for each order (35%?). Most industry specific ERP systems allow commission structures that automate this process. Ask reps who feel a need to quote below your minimum margin to review the project with you in advance as there may be situations where lower margins are justified. This quick review meeting allows you to coach the rep and determine a margin strategy that works for both the rep and the company.

New habits will be gradually created over what is typically a 3-month period. Have an over-the-top focus provided by significant internal marketing. Share Sweet Spot orders via a daily team email. Single out reps at every sales meeting that are taking actions to replace small clients/orders with larger clients/orders. Run an incentive contest and reward the rep with the highest margin each week until new habits are formed. Don’t let reps forget about asking for just 2% more margin and create a company sales culture of winning with higher margins!