Promotional Products Distributor Benchmarks: Two Types of Growth
Kevin Kelly is a radical futurist. He co-founded Wired magazine in 1993, and in 2021, over two million people watched his Ted Talk, “The Future Will Be Shaped by Optimists.”
His forward-thinking optimism led to creative insight in “The Matrix” (his book was required reading for the cast), and he consulted for the movie “Minority Report.” His writing has appeared in every respectable publication in the world: New York Times, The Economist, Time, Harpers, Science, GQ, Wall Street Journal, and Esquire.
So, if there’s anyone who knows, thinks, and dreams about future growth, it’s Kevin Kelly.
Kelly’s futuristic street cred is why a recent comment from him made us rethink how we view growth in the promotional products industry.
Two Types of Growth
Kelly stated (in an interview with Noah Smith) that we often conflate “growth” with two different meanings. “The most immediate meaning is to increase in size … to add numbers, to get bigger. In short, growth means ‘more.’” This is what Kelly calls “type 1 growth.”
But he stated, “There is another equally valid and common use of the word ‘growth’” which means “to develop … mature, to ripen, to evolve.” Kelly said that this kind of growth is not about adding but about betterment. “It is what we might call developmental… growth.” In other words, type 2 growth. “It’s about using the same ingredients in better ways.”
His example: “Standard economic growth aims to get consumers to drink more wine. Type 2 growth aims to get them to not drink more wine, but better wine.”
In our industry, distributors, and suppliers also have two distinct types of growth, and both are a requisite for future-proofing a thriving business. And since Q4 is well underway, many of us are beginning to think about 2024 business planning and benchmarking, we wanted to share a few ideas from our numerous interviews with leaders on how to create benchmarks for both type 1 and type 2 growth.
Aim for 20% YOY Growth
Let’s start with Type 1 growth: While total average industry growth hovers around 5%, commonsku distributors average 20% in annual growth. And in PPAI’s first-ever ranking of the top 100 suppliers and distributors, the distributor median percentage of revenue growth over a 3-year period was 17% (note: this was the median percentage for the industry’s top 100 distributors as listed by PPAI).
As a former distributor, I could never get a handle on growth expectations for my business; most of my aspirations were wishes, not goals set with any reasonable exactitude. Knowing industry benchmarks, like that of over 750 commonsku distributors, helps you know which target to set your sights on. One of the most powerful ways to achieve annual growth goals is to reverse-engineer your goals by backing into an overall growth target.
How? By setting quarterly client growth goals.
Quarterly Benchmarks for Client Growth
Recently on the skucast, Stephen Musgrave, Vice President of Genumark, one of the largest distributors in North America with over 100 employees, shared how to take an unwieldy annual sales goal aspiration and break it down into something practical and tactical that you can do each quarter to achieve your goals: set quarterly client growth goals.
In the interview, Stephen said, “Right now, I'm pushing us towards a cycle where we have quarterly client growth plans that are stored right in the client profile in commonsku. It's like a mission statement for the quarter, [its] where we want to see the relationship get [to]…. And then we have a section with some proactive things that we want [each rep] to do in the next quarter, and we status them as growth plans. [This way, the rep can be] accountable to themselves and can go to work on those growth plans.”
By setting quarterly growth goals for each client, you help insure against reactive selling, and make proactive client growth a priority.
Stephen continued, “We're trying to set them quarterly, and review them sporadically throughout the quarter, and then tie these into annual plans. I'm big at setting sales targets for clients, but these are relationship plans that tie back to how to hit the numbers we want to hit, and how those two things work together.”
A visual from commonsku’s client reporting analytics.
Stephen shared an example of how he helped one colleague determine that she wanted to increase her client’s sales from $70k to $130k. “I don't want her coming into January thinking, ‘All right, let's go get 130,000!’ I want her to go into the quarter thinking, ‘What small things do I need to do that make a difference? How can I make this bite-size so it's not overwhelming and I'm not scrambling and dropping the ball?’”
Setting quarterly growth targets by client forces you to think about each client like its own business unit. Doing so helps you start with potential, which is a rational way to unlock a target figure per client (rather than an average annual target goal for all clients).
Remember, goals are different than benchmarks. Goals are what you want to achieve; benchmarks compare your performance against a company average or an industry average. And if you don’t yet have a client benchmark, setting quarterly client goals will help you and your team determine an average benchmark for growth.
Pro-tip: One way to create your own benchmarks for your company is to take your top 10 fastest-growing clients and create an average to compare against. For example, if your top 10 clients grew an average of 23% from 2022 to 2023, then you have a reasonable benchmark to set against your client growth goals for 2024.
This brings us to one tiny little pro tip from another pro: benchmarking leading vs. lagging indicators.
Benchmarks Using Leading Indicators
Kirby Hasseman might be known for his inspirational show Delivering Marketing Joy or his five published books (including the recent Hit the Target) but for nearly 20 years, he’s led a successful distributorship in Ohio with a passion for radical improvement.
In a recent interview, we asked Kirby how he creates benchmarks for success, and he shared a pro tip that only a seasoned vet could come up with, which has to do with leading vs. lagging measures. For a quick definition:
Leading measures precede trends and predict change.
Lagging measures gauge the current state, or rather, the current score.
Kirby said, “One of the challenges [for our industry] is understanding specifically what to track, the difference between lead measures and lag measures. In the promotional products industry, if I want to sell $10,000 this week, that's great. That is something that you should be tracking. But at the end of the week on Friday, you either did it or you didn't do it. You can't affect it at that moment. So that's one example of a lag measure.”
“Another one might be invoicing. How much did we invoice this week? How much did we sell this week? Those are great measures,” Kirby continues, “but again, they are lag measures. What we like to focus on [instead] is lead measures. Lead measures are the things that you have complete control over.”
Kirby and his team looked for years to try and figure out exactly what those lead measures were. “Is it the number of calls? Is it the number of meetings?” They discovered something “very specific to commonsku,” he added, a key leading measure for sales success: The person who is the most successful in sales also sends the most presentations.
How to track numer of presentations using commonsku’s robust reporting analytics.
Maybe that’s not rocket science, but here’s the kicker: most distributors aren’t measuring it.
If it isn’t being measured, then no possible benchmark for success can exist except for a lagging measure (like sales).
One of the key reasons a lead measure like presentations creates a magic effect on future growth is that it is a predictive indicator of future sales and one of the few factors in B2B sales that you can control.
Kirby continued with an example, “In our first five months this year, we were killing it. And then, in June and July, we slowed down. And as I went back and looked at our numbers, [I noticed] our presentations fell. Our [client] touches fell down while we were busy, which makes sense. But had we [noticed and] pulled on that lever earlier, maybe we would have pulled out of it faster. During July, I asked, ‘What can we control? We can control presentations and reaching out to people.’
An example of commonsku’s sales leaderboard.
Pro-tip: Do you and your team have a benchmark for number of presentations? One way to create your own benchmarks is to take your top 10 fastest-growing clients list from above and estimate how many presentations were sent as a percentage of sales growth.
Aim for 18% New Logo Growth
One of the most surprising benchmarks to emerge from the PPAI 100 list was the percentage of new client revenue, or new logo growth. In all my years as a distributor, I’ve never known a benchmark to measure against new logo growth. I’ve assumed, wished, hoped, and made plenty of wild guesses as to what our new client growth should be, but I never had a reliable benchmark to measure against.
Of the top 100 distributors ranked in PPAI’s report, the average new client revenue growth was 20%, the median (once you’ve removed the outliers on the high-end and low-end) was 18%.
What was your new logo growth for 2023 and how does it compare to 2022? And now that you have a reasonable benchmark, what’s your goal for new logo growth in 2024?
Type 1 vs. Type 2 Growth
We recently had the experience of hosting two back-to-back CEO Summits with commonsku customers and leaders in our industry. We talked openly about subjects related to growth in an intimate setting (see Summit one summary here and Summit two summary here).
From the CEO Summit survey of most important topics.
During our candid and transparent talks, it was clear that scaling and growth were the two most pressing topics. Kelly’s comments helped me understand that there is more depth to idea of growth.
Without Type 1 growth —adding more— you risk an inevitable decline in clients (businesses merge, sell, or move on, and new business growth is a requisite for survival). But without Type 2 growth, you risk destabilizing your business; as important, without Type 2 growth, it is impossible to scale.
Stay tuned for our next article as we unpack Type 2 growth benchmarks for betterment, profit, and business health!
An example of commonsku’s Management Analytics.