One Blog |April 28, 2014 | POS Tracking Software
How To Prove The Productivity Gains of POS Marketing Using OnTrak
In this blog post I’ll be talking to you about our SignTrak product, which is used by beverage alcohol beverage distributors to track, measure and manage their investment in printed point-of-sale (POS) signage. However, all of the discussion, examples and conclusion in this blog apply equally to all our products: MenuTrak (for custom beverage menus), PermaTrak (for permanent signs and displays, and SampleTrak (for beverage sampling).
Recently, we were invited by one of our larger customers to their corporate offices to discuss the gains in efficiency and productivity provided by SignTrak, now that they have been using the software for about two years. To paraphrase our customer, “We know we’ve had productivity gains, and we know our POS ordering and production activities are more efficient, we just are unable to prove it.” Essentially what our customer wanted was some help in overcoming what has been, for several decades, loosely referred to as a productivity paradox.
Improvements Through Automation
Most companies undertake automation initiatives with the belief that a particular task will be made more efficient for the enterprise by the “improvements” associated with automation alone. “Improved” can have several meanings. Here are some that come to mind. Which one did you think of first?
- Improved POS effectiveness
- Faster speed of execution and production
- Lower costs of production
- Increased production
- Reduced errors and reworks
- Some or all of these characteristics
Each one of these benefits is possible; but why is it that so many companies have difficulty in actually quantifying them?
The Before and After Analysis
In our experience, the culprit that prevents the quantification of benefits of an automated system is the lack of a “before” automation snapshot. It’s difficult to quantify the improvements of an automated system if there is nothing to compare the outputs of the new, automated system, to. The truth is most companies can’t perform a “before and after” analysis, because while they now have the “after” data, there is no “before” data.
In a moment, I’ll give you a method to “go back in time” before the adoption of an automated application like SignTrak, to demonstrate and quantify the initial improvements that are realized after the adoption of the system.
Objectives of Implementing an Automated System
First, however, let’s list some of the objectives our prospective customers tell us they are trying to achieve with SignTrak:
- Reducing POS ordering errors
- Reducing POS delivery time to market
- Reducing POS ever escalating costs
- Increasing the recovery of available supplier co-op marketing allowances while improving supplier relationships
- Making critical information available for better POS business decisions
- Improving communications among sales reps, POS production personnel, warehouse inventory personnel, and marketing and merchandising personal
Our view is that SignTrak helps our customers better achieve their objectives.
Collecting the Data
Now we need to determine some method to quantify the benefits attained of adopting SignTrak – assuming the absence of “before-SignTrak” data.
Most of the initial benefits that can be attributed to deploying SignTrak come from error reduction which, in turn, reduces “reworks” (which lowers the overall costs of POS). Additionally, SignTrak improves the accuracy of communications which leads to greater productivity, for both the reps and the sign makers, by reducing the amount and frequency of phone calls, emails and text messages between them. Reworks, too, are typically slashed by 90-95% due to more accurate communications.
Here is an example of what you’ll need to build your “before SignTrak” picture, if you’re already using SignTrak:
- The recollection (by sign shop personnel) of the frequency and average duration of calls, and other like communications, between the reps and the sign shop personnel; both before SignTrak and after SignTrak’s deployment
- The number of sign reworks per month – before and after SignTrak’s deployment
Armed with the above and other data, available from your back office system, you can determine any number of pieces of information that will go far in quantifying the value and ROI of SignTrak. Let’s elaborate.
A Case Study – Hypothetical Beer Distributor
Assume you are a 6-million case beer distributor who employs 30 sales reps. A sales rep works a total number of about 1,920 hours per year, which is 57,600 “rep sales hours” per year. This means that every sales hour worked yields average sales of about 104 cases of product.
Your sign shop and graphics personnel tell you that they spend an average of 5 minutes per day talking with each rep about their POS orders. That’s a total of 150 minutes per day or 12.5 hours per week devoted to clarifying POS requirements. That means your sales and sign shop personnel spend over 650 hours per year, or more than 16 weeks, on activities that are not direct sales activities.
The cost of all of this “lost selling time” is potentially 62,400 case equivalents. Assuming a revenue number of $13 per case equivalent, this comes to over $800K in lost revenue. In addition, we can estimate the time savings per-rep, per-day due to the improved communications. SignTrak gives each rep about 3 minutes (a reduction from 5 minutes spent clarifying POS requirements to 2 minutes), which equates to an opportunity cost reduction of 360 hours per year or 37,440 case equivalents. If the reps use this time to sell, then there is the potential to increase sales by 104 cases per hour on average. In revenue terms, this equates to nearly $500K of potential top-line gains at $13 per case.
Finally, the sign shop tells you they have about 15 reworks per month. This translates to at least some customer dissatisfaction, but quite possibly additional loss in case sales. If POS is placed in the trade one or two days later than planned, it could affect sales a few percentage points. Of course there are materials and labor costs associated with reworks too, and if the sales rep feels obliged to come out of the trade to retrieve the corrected signage, there is also the opportunity cost of the time, to and from the account, which again can be equated to lost case sales.
Clearly this is an example based on a hypothetical SignTrak customer; and your circumstances – annual case sales, number of reps, amount of time spent on the phone clarifying POS requests, reworks, average case revenues, and so on – will undoubtedly vary from the example presented here.
But hopefully you can see the spirit of the value that can be realized by using SignTrak even if you don’t have a “before and after” measurement.
Real Customer Results
In several of our clients, such after-the-fact calculations pointed to an EBITDA (Note 1) increase of about .25% (one-quarter of a percent) as a benefit of implementing SignTrak. Other beer distribution customers have determined the value of SignTrak to be in a decrease of their costs of one-half cent per case delivered.
While it is true that “Your mileage may differ,” we find that a subscription to SignTrak typically returns at least $2 for every $1 spent on the subscription. Where else can you find this kind of ROI in these days of ever leaner and meaner beverage alcohol distributor operations?
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Note 1: EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization