The penetration plan is your annual blueprint for getting into and staying in the business of a principal customer. The way you get in is by improving the customer's profit. The way you stay in is by continuing to improve the customer's profit, extending it to the solution of new problems, and never letting go.
The process for penetration planning requires answers to three critical questions that can determine up to 80 percent of your profitability on sales:
Who is my customer?
What can I do to improve my customer's profit?
What will my customer do for me in return?
The answer to the first question is crucial. Your customer is never a company as a whole, nor is it even a division. It is a specific business manager within a division whose costs you can reduce or whose contribution to sales you can increase. If you are IBM, your customer is not PepsiCo. Nor is it PepsiCo's Frito-Lay division. It is the manager of Frito-Lay's inventory control function, for example, whose contribution to Frito-Lay profits you can improve by improving that manager's performance in a key indicator, such as same-day shipments.
Planning to penetrate divisions or departments of customer companies is a far cry from vending commodity merchandise to purchasing managers on a price-performance basis. It is a totally different process: data-dependent rather than persuasion-dependent. Its database must therefore be structured to support the differences in sales strategy that a consultative approach demands.
Opportunity databasing hinges on one central concept: maximizing contribution. Two kinds of contributions are involved. One is your profit contribution to a customer. You must maximize it. The other is a customer's profit contribution to you. You must maximize that also.
The role of a profit maximizer differs from the role of a needs analyst or a benefit provider or a problem solver. All these are intermediate steps. Through needs analysis, the provision of benefits, and the solving of problems, profits become improved. This is the ultimate step. If it does not take place, all the intermediate objectives can still be accomplished, but they will be in vain.
High-penetration objectives—superior profit objectives for your customer and for you as well—are financial objectives. Nothing supersedes them. They must come first in your penetration plan because they are the purpose of the plan. The only reason to plan is to be able to set and achieve high financial objectives.
The objectives of your plan should be databased in the manner of the Fast-Penetration Planner:
The most likely profit contribution that will be made by you to each customer
The most likely profit contribution that will be made to you by each customer
"Most likely" profits are a conservative estimate. They are only somewhat more bullish than bearish. They represent the contributions that can be expected if your strategies work according to plan and if there are no important hitches that have not been planned for. In practice, they should come out just about right.
If you help customers improve their profits from incremental sales, you may have to adjust the gross profits by the customers' effective tax rate before you commit to an objective. If you improve customer profits by cost savings that can flow directly to the bottom line, you can calculate the profits as net incremental gain. Only the net counts. Neither you nor your customers can take anything else to the bank.
The total annual contribution you expect to make to your customers is the sum of all the Profit Improvement Proposals you plan to install in their business functions during a year. The contribution your customers make to you is the sum of your profits from the sale of each proposal that is collectible during the same year. Two ratios are helpful to monitor how effectively your resources are being allocated to obtain each customer's contribution. One compares profits to the expenditures required to achieve them; this is return on investment (ROI). The second is the more traditional ratio of revenues to expenses.