If a distribution company is getting 10 percent of its market, the company is doing a fantastic job. Most electrical distributors have a hard time swallowing that bit of information; they think they cover far more of their markets than that. But the fact of the matter is that most distributors haven't taken a close look at just how large the sales of wholesale electrical distributors loom in the towns, counties and states they serve.
These days, it's not wise to remain so blind to the size of the market. If a distributor doesn't make and carry out plans to attack the full gamut of possibilities, suppliers and potential customers simply go elsewhere.
When developing any market forecast, you need to first gather some basic data on the size and make-up of the market. Much of the key information that you will need is in the “Regional Factbook” beginning on page 20 of this issue. If you haven't yet become acquainted with this treasure trove of market planning data, please take a moment to do so. You'll find it well worth your time.
This article offers advice on how to use a variety of different market data in your forecasting, including sales estimates, employment in major customer markets, customer mix and multipliers.
Along with offering electrical distributors' sales forecasts on the state, regional and national level, EW's Regional Factbook offers electrical marketing professionals insight into the sales potential of key customer segments. EW has for years provided “multipliers” that readers can use to forecast the sales potential of individual accounts by simply multiplying the number of employees that a customer has by the EW multiplier. Each multiplier is a dollar figure that represents the average amount of electrical products that electrical distributors sell to each particular type of customer, on a per employee or other “economic factor” (like households) basis.
Let's use the multiplier for electrical contractors from the table on page 39 to see how it works. It comes as no surprise that electrical contractors are the single most important customer group for electrical distributors, accounting for a whopping 37 percent of their sales. For electrical contractors, the multiplier is $36,513. That means that if an electrical contractor has 20 employees, the company's sales potential is $730,260. It's interesting to note the huge sales potential of electrical contractors in individual Metropolitan Statistical Areas (MSAs) when you use this multiplier with the MSA employment figures there (see adjacent chart).
Custom multipliers. Do-it-yourself multipliers allow you to fine-tune your data. Sometimes you will prefer to use a multiplier from closer to home to judge such things as potential sales to an area manufacturing plant. You may want a multiplier based on business in another area of the country, one that seems more akin to your local area. In either case, making a custom multiplier is simple.
Start out by getting the total sales volume of electrical apparatus and supplies in the state or region that interests you. Then fill in the percent of sales in the region or state to the market that you are targeting (like industrial MRO or utilities). Multiply the percent by the dollar sales to get the amount of sales to the target market in that region. Now fill in the factor that you plan to use, such as employees in the target market in that region. Then just divide the target market sales in the region by the number of target market employees in the region to arrive at a multiplier.
What you can do with multipliers
When used with the employment figures in the Regional Factbook, the multipliers help you establish the amount of business electrical distributors (could) do with four major customer groups in your area, and in total.
You can go into greater detail by using locally available sources of information on employment or other measures in end-user industries. The local library should be able to direct to you a source for the number of households in your market. That number, used with the multiplier, would help you get a fix on the amount electrical distributors sell at retail in your local market.
These multipliers are your best option for determining sales in an area of the country not covered in the list of major metropolitan areas in the Regional Factbook. The same approach applies if you want to look at one county of an MSA that covers six counties. You would have to obtain employment figures or economic factors from local sources. For instance, to find the number of electrical contractor employees in a place like Addison, Ill., a city not detailed in the Regional Factbook, you could contact the local Chamber of Commerce, a nearby union chapter, the state university, the state's department of commerce or the local library to track down the figures.
These multipliers come in handy if you want to approximate the amount of sales available from a particular account. Let's say you want to estimate the electrical MRO potential of a certain account. An example: If Union Carbide in northern New Jersey employs around 200 people, and by applying the national multiplier you would expect that the unit purchases about $131,600 worth of electrical MRO product.
You can use the multiplier approach to tailor your own multipliers. You might want to do that if you feel your area differs significantly from the national or regional average.
The multipliers will prove of use if you want to assess the relative size of various customer markets in dollars in the defined area. You can go on from there to do such things as select markets for new or increased sales efforts, advertising and promotion.
The key to sensible business plans lies in developing a reasonable estimate for the size of the local market. The sales of wholesale electrical distributors form a crucial starting point. For the nation, nine regions and 50 states, EW has already computed sales figures; they are available in the Regional Factbook starting on page 20. The Factbook also offers additional information on close to 300 metropolitan areas (MSAs) that you can use to develop market estimates. For each region and state, estimates of sales for this year and next, along with three years' sales history, are available.
This data series uses as a benchmark the actual sales figures gathered by the government in the 1997 Census of Wholesale Trade, which was released last year. In a census, the government asks all companies known to be in a specific business for their actual sales and various other information. By law, they must reply. That makes the Census of Wholesale Trade the most accurate source on sales for the electrical wholesaling industry.
The only problem is, this census gets taken every five years; and business people need far more current data than that to run their companies. EW fills the gap by surveying electrical distributors every year to determine their annual sales results, as well as their forecasts. We then estimate what we believe sales to have been in each of the regions and states for which the Census of Wholesale Trade gave some basis on which to begin. This process became much more difficult with the 1997 Census because the government changed the definition of an electrical distributor, and we had to adjust our benchmark numbers to reflect these changes.
There's another change in this year's Regional Factbook in this area. We did not provide sales forecast for the individual MSAs because the EW survey response for the sales estimates was insufficient in many market areas to offer accurate estimates. However, as you will see later in this article, there are several other methods that you can use to develop sales forecasts at the local level.
How to use sales estimates
For your business plan, whether it be for internal use as your guide for next year or for presentation to an investor or banker, you will need something that states the size of the local market. These sales figures are a documented source you can use “as is.”
Should you be bullish or bearish next year? What investments or cut-backs should you be making for your company? So that you know how to approach business now and later, you need to establish your best guess as to what your sales will amount to in the coming year. The sales figures tell you the direction and magnitude of sales growth that distributors in your state anticipate. They give you an answer as to your own sales — or at least a starting point.
Employment in Major Customer Markets
The number of people employed by a company or in an industry tends to rise and fall with the volume of business it's doing. Employment figures, therefore, act as a kind of gauge to business prospects and conditions in end-user markets. In the Regional Factbook starting on page 20 and running concurrent with the sales data, are employment statistics for four of electrical wholesalers' major customer groups for the nation, nine regions, 50 states, and close to 300 MSAs.
How to use employment figures
With the employee counts on each market, you can compare the relative sizes of various end-user groups in your area. You can also compare the make-up of one market area to another.
You can reflect on whether there are new customer markets or ones that you could be serving better.
If you track the employment figures for each market over time, you will see the broad economic trends unfolding in your market.
You can also use these employment figures with the multipliers on page 39 to determine the size of your market area.
While the figure for total sales through electrical distributors in a market provides a good starting point, what underlies that number tells the true story. One way to explore what goes into the total sales number is to look at the market in terms of the types of customers doing business there and the amounts of sales done with each type.
The proportion of electrical distributors' sales that goes to each of 14 customer groups nationwide, as well as in each of nine regions, is reported in the “Customer Mix” table on page 36.
How to use this information
You can use the customer mix percentages to estimate the dollar volume of sales that distributors in your area are getting out of each customer market.
With these percentages and the sales and employment data elsewhere in the Regional Factbook, you can create custom multipliers for your area.
By tracking the sales into each customer market over time, you can pick up on trends in your market.
Here's another invaluable view of the market: The uses to which the materials electrical distributors sell are being put. The end uses for the products tend to fluctuate more than the types of customers that buy from electrical distributors, so a sales breakdown from this perspective shows where the action awaits in the market.
The “Market Mix” table on page 37 shows distributors' “best guess” on the end-uses for the goods they sell. Distributors who answer EW's surveys know the customer they sell to, but answering these questions about what that contractor or industrial did with the material requires them to make some assumptions.
How to use this market information
With this data, you can answer questions about the real uses of product in your market and the direction that some sales may be taking. One example: A question that often comes up is, “What portion of the market is in renovation work? You can get the answer out of this table: Nationwide 14 percent goes into renovation (adding up residential, multi-unit, other private, industrial, commercial/office and nonbuilding renovation/retrofit percentages).
By studying the market mix over time, you can keep on top of changes in the market area. This mix tends to shift with the rise and fall of various markets in the area more than the customer mix does.
By multiplying a region's electrical distributor sales figure in turn by each market mix percent, you can estimate the sales for each type of end use in the region. You can compare these figures to your own sales by end-use market to see how your company is doing.
The product mix shows how electrical distributors' sales break down by product group. These percentages give yet another perspective on the market. The product breakout for full-line electrical distributors nationwide and in nine regions appears on pages 37 and 38.
How to use the product mix
You can multiply a region's electrical distributor sales figure in turn by each product mix percent to estimate the sales of each type of product in the region. (It is a very rough measure, and the process works better for some types of products than others.) Compare these figures to your own sales by product type to see how your company is doing.
By stacking your company's mix up against the ones we give, you can see whether you're in line with your area. You can also glimpse where opportunities lurk for specialization and other interesting market insights.
Maximizing Account Potential
Now that you have a fair idea of the size of the market that interests you and your share of it, it's time to drill down into your share of business at specific customers. This section will be of particular interest to salespeople, and will help them and their managers maximize customer potential.
Let's start with existing customers. Look at present accounts with an objective eye. Ask yourself, “What could I (or your company's sales force) sell to this account?” Then answer that question, calling on a combined package of supplier information, distributorship records, prior knowledge and detective work.
To make sure you're covering all the possibilities, you should estimate the available sales in various major product categories, then add these up to get an account potential. You will need to prepare a worksheet for each of your customers. On each worksheet, you will fill in some basic information about the account — like type of business. Remember that the worksheet is not an account information form; it concentrates on the dollars of business available in electrical apparatus and supplies. What you are aiming for in each product category is a justifiable, reasonable dollar figure. How do you go about getting it?
The information-gathering process might require a detailed on-site or in-plant survey (with the aid of a manufacturers' representative or salesperson). If you are going to this extent, be sure to put together enough information to sell the account later. Note the equipment in-place or specified, the manufacturer, the approximate date of installation, the condition of the equipment and its energy-efficiency, the facility's OSHA and code compliance.
Ask a friendly purchasing agent or contractor.
Company records on sales of certain products to several accounts in the same type of business. Turn this information into a multiplier to apply to your specific account. A multiplier puts sales in terms of some other factor that increases or decreases with economic conditions and applies to all firms of the same classification. It can be dollars per employee, units per square foot of construction, units per unit shipped or anything of this nature that works.
Ask your suppliers or reps of each of the product lines for their research or input. Some have already calculated multipliers; others can give you a new perspective.
Make a custom multipliers, as described earlier in this article.
You will probably end up with a jumbled list of product multipliers for any account — $3 in lamps per employee, one foot of wire for each square foot of construction, one fuse for each unit shipped. The combinations are endless. Of course, a multiplier works along with some factor — employment, units produced, square feet to be constructed, etc. — that rises and falls with the customer's business. Every time you select a multiplier, you have to find out the corresponding “factor” information for the customer.
With the work in this section, you will accomplish two things at once: Assess the dollars of business available from each of your customers and develop a data bank of multipliers applicable to each of many types of business.
Getting the full picture on a market area is not that difficult. Over the years, Electrical Wholesaling has published numerous articles on market planning. Many of these articles are available on the magazine's Web site at www.ewweb.com. The magazine has also published a useful compendium of these articles along with handy worksheets in “The Electrical Marketer's Survival Guide,” which is available for $29.95 by calling (800) 543-7771.
|Contractors||Number of electrical contractor employees*||$36,513|
|Commercial/Institutional||Number of people employed in retail trade, finance, insurance, real estate and services**||$100|
|Industrial MRO||Number of manufacturing employees**||$658|
|Factory automation||Number of manufacturing employees**||$175|
|Utilities||Number of metered customers||$56|
|Retailers (for resale)||Number of employees in hardware stores and in lumber and other building material stores***||$1,064|
|Government||Number of state and local government employees in the local area**||$82|
|General public (retail)||Number of households||$18|
|Wholesalers||Number of employees among electrical-goods wholesalers, hardware wholesalers and plumbing and heating wholesalers***||$1,253|
|Mining||Number of employees among mining companies**||$655|
|*Based on March 1999 data. |
Source: U.S. Census Bureau
|**Based on June 2001 data. |
Source: Bureau of Labor Statistics
***Based on 1997 Economic Census data.
Source: U.S. Census Bureau
Top-50 MSAs for Electrical Contractor Sales Potential
|Metropolitan Area (MSA or PMSA)||Electrical Contractor Employment||MSA Sales potential estimate|
|1||New York PMSA||25,860||$944,226,180|
|4||Los Angeles-Long Beach PMSA||16,696||$609,621,048|
|11||Minneapolis-St. Paul MSA||8,983||$327,996,279|
|15||Tampa-St. Petersburg-Clearwater MSA||7,858||$286,919,154|
|16||Las Vegas MSA||7,474||$272,898,162|
|18||St. Louis MSA||7,232||$264,062,016|
|19||San Jose PMSA||7,211||$263,295,243|
|20||Riverside-San Bernardino PMSA||7,150||$261,067,950|
|23||San Diego MSA||6,877||$251,099,901|
|30||Charlotte-Gastonia-Rock Hill MSA||5,191||$189,538,983|
|33||Fort Worth-Arlington PMSA||4,932||$180,082,116|
|34||San Francisco PMSA||4,834||$176,503,842|
|36||Salt Lake City-Ogden MSA||4,788||$174,824,244|
|37||Greensboro-High Point-Winston-Salem MSA||4,594||$167,740,722|
|38||Austin-San Marcos MSA||4,530||$165,403,890|
|39||Fort Lauderdale PMSA||4,407||$160,912,791|
|41||San Antonio MSA||4,235||$154,632,555|
|42||West Palm Beach-Boca Raton MSA||4,156||$151,748,028|
|44||New Haven-Meriden PMSA||4,047||$147,768,111|
|46||Grand Rapids-Muskegon-Holland MSA||3,826||$139,698,738|
|47||Norfolk-Virginia Beach-Newport News MSA||3,594||$131,227,722|
|Employee figures from 1999 County Business Patterns, U.S. Census Bureau|
|Sales estimate = 1999 employment figure multiplied by a $36,513 sales-per-employee multiplier.|
Data Goals: Marketing Information you should develop
- A definition of your territory
- The size of the total market in your territory
- Your company's share of the total market
- The trend in your market share over time
- The size of local markets by customer type
- The size of local markets by end-use
- The size of local markets for products
- The forecast for electrical distributors' sales in your territory