As your organization looks toward 2008, it is a good time to
evaluate your performance for 2007 and get ready for next year's
growth. Take the time to review where you stand and plan for the
changes your company will need to make to be in a great position to
grow your revenue.
There are three strong tools that can be used to evaluate your
business: (1) strategic thinking; (2) forecasting; and (3) sales
planning and monitoring. These tools will work for a home medical
equipment provider of any size, from a very small privately held
company to a large public firm.
- Strategic Thinking
Strategic thinking is the process in which you analyze what your
organization does well — and what it does not. There are
several areas that should be considered:
- Product Line Concentration
Many HME companies are reliant on a few core product lines,
including oxygen, sleep apnea, beds, support surfaces and
rehabilitation. While these core lines represent a great
opportunity, managers need to be cognizant of the degree of
diversification that should be maintained in the business. Is your
company too reliant on these core lines? Should you think about
expansion into other lines? Think about how you want your business
to look a year from now. Do you want more or less reliance on
oxygen? More or less reliance on sleep apnea?
The average mix of reimbursement in the HME industry includes
about 40 percent Medicare. But this segment is under siege. Should
your organization ramp down its reliance on Medicare? Should it be
closer to 20 percent? Or, do you want to continue to bet on this
segment at least through 2008 because your geographic area will not
be part of competitive bidding? Do you think that you can win a
bid?
Providers need to segment between home deliveries and shipping
through common carriers. Not every product needs to show up on the
same day.
What are those products that need to be delivered and those that
can be shipped? Has your company developed the procedures and
guidelines for the most cost-effective delivery of products? How
far can your drivers go, cost effectively, within your geographic
area? Could they go farther than you expect? Do you need to rethink
how they stock their vans? Could they be mini-delivery and
repairmen?
If you have ever had an appliance repaired by a General Electric
repairman, you will understand the key elements of distribution and
geographic service area coverage. While GE certainly has some
issues with its customer service (it is handled out of India), the
company's local repair folks are generally excellent.
When they arrive at your home, they have on board the most
common parts that may be needed to repair your appliance; your
problem has been prescreened via India. If they run into a problem
on site, they enter the parts they need into a computer system and,
in less than a minute, they can tell where the part is located and
whether they can get it here today or if it will arrive via
UPS.
The repairmen order everything online. It is automatic and
painless. Even if you have to wait for parts, they can tell you
when those parts will arrive and schedule another visit for
installation. When a part is local, they can either meet up with
another repairman to get it or have the other repairman show up at
your house.
This geographic distribution system has been well thought-out.
Think like GE.
What is your firm good at? Converting pulmonologists? Managing
primary care physicians? Working with pediatricians? Figure out
where your firm is strong, then decide whether this is how you
would like your business to look in the next year.
HME sales reps — and companies — often get into a
comfort zone. They build a business base off a few physicians and
then do not expand past them. What medical specialties do you want
to go into next year?
There is a wide range of customers that refer HME products.
These include discharge planners, hospices, dialysis units, skilled
nursing facilities, physicians, home health agencies and consumers.
Take a look at your customer concentration, especially by sales
representative. Determine how you want the business to look, and
set parameters for 2008.
Let's look at forecasting options. The following are two
forecasts for the same HME provider:
“I want my business to grow 10 percent next year;”
or
“We are forecasting a 9 percent net revenue increase in
our oxygen product line, a 6 percent net revenue increase in CPAP
and masks and an 11 percent net revenue increase in enteral
nutrition. We are forecasting an 8 percent increase in business
from our satellite store.
“We expect our hospital business to decline from 20
percent to 15 percent of our total net revenue, our primary care
physician referrals to increase from 50 to 75 percent of our
business and our referrals from pediatricians to decline from 30
percent to 10 percent of our business. We will decrease our
reliance on Medicare from 45 percent to 32 percent over the course
of the coming business year.”
The latter is obviously the more detailed forecast. With better
detail, managers and sales representatives can forecast their own
performance, and you can put important metrics into place so people
can see how they are doing.
Forecasting is both an art and a science. The science, or math
part of the equation, is analyzing where the business has been and
forecasting where it will shift. The art is figuring out how
realistic that math will be.
The next step is dividing up the forecast, not necessarily
equally, but realistically, among your sales team. Great
forecasting:
Establishes operating budgets.
Determines company performance in the marketplace.
Provides managers with a tool they can use to give raises and
bonuses.
Gives sales team quota projections.
There are two basic forecasting methods. The first is called
“top-down” forecasting, and the second is
“bottom-up” forecasting.
Top-down forecasting means that management determines the
forecasts and then spreads these forecasts across product lines,
geographic areas and sales reps. See the example of a top-down
forecast by product line that accompanies this article. This
forecast considers the growth rates historically by product line
and forecasts growth by product line for the coming year.
The primary advantage of a top-down forecast is that it is
relatively easy to implement. The problem is that these forecasts
do not necessarily take into consideration individual issues with
sales territories. So, start with a top-down forecast, and then
merge it with a bottom-up forecast.
A bottom-up forecast is one in which the sales reps look at
their individual accounts and forecast growth or decline. These
forecasts can be done by product line and/or payer mix, depending
on how detailed management wants the sales reps to be in their
analyses.
In the example shown of a bottom-up forecast, the sales
representative has analyzed his territory and has worked through
the revenue expectations he perceives he will put into place over
the coming year.
The primary advantage of this method is that it allows each
sales team member to make a commitment to the specific revenue he
or she will see from particular customers. These forecasts serve as
goals for the sales representatives to follow each year. Bottom-up
forecasts are the most accurate form as they consider specific
account losses and gains in territories.
Ideally, managers should use a combination of top-down and
bottom-up forecasting in their business. These two should be merged
into a forecast that can be used to guide the business. The first
time you do these forecasts will be the most difficult. The second
year will be a lot easier because the sales team will have the
experience to move forward with their forecasts.
To see how the team is doing, monitor the business monthly vs.
the forecasts that are put into place and determine if specific
performance is either above or below the forecasts. Make sure the
sales team knows how they are doing so they can improve their
performance each month against their forecast.
The best-performing sales teams are the ones that are
well-versed in their numbers. They know what they need to produce
to meet their forecasts and how they are doing against them. The
more information you share with sales reps, the better educated
they will be and the better they will perform for your
organization.
Sales planning tools include individual budgets for each sales
team, reporting systems and incentive payout systems. Each of these
tools is necessary for sales teams to plan their territories and
monitor their performance.
Most salespeople are disorganized. They need tools to help. The
typical sales rep starts work Monday morning by visiting his
comfort-zone accounts. You know, the ones that love him and give
him business. Often, this activity continues throughout the week
with perhaps a few cold calls and some time resolving operational
problems.
The purpose of a sales manager is to look at the sales reps'
activities and help them get and stay organized during the week.
The first tool that is useful for both the sales manager and the
sales rep is a territory budget. This budget should include total
revenue expectation by product line, reimbursement category,
customer type, medical specialty and geographic area.
Ideally, your reps should be able to see how they are doing
daily, or at least weekly, in their territory. They need to
understand not only the number of referrals that come in each day
but also the numbers and types of referrals that are lost “no
gos.” Then they can determine the necessary action steps for
reducing the number of patients that do not come onto service.
Your reps also need to keep track of the number of patients
coming off of service because it is the total census in the
business that drives revenue, not just the number of patients who
come in the front door. Sales reps need to have a pulse on their
business. They need to work closely with the operational teams to
make sure they know what the activity is in their territories.
Sales reporting systems are another useful tool. Reps need to
use weekly reports to record their activities and results. They
also need to plan how they will spend their time during the
upcoming week. Have your reps turn in their activity reports each
week by the end of the day Friday so you can review these
activities each Monday and keep them focused.
Accounts need to have either paper or electronic account records
in place. These records should include everything that is necessary
to know about a particular account. They should be comprehensive
enough so that another rep coming into the territory would know
enough about the account to step in and take over. Toss out those
old handwritten notebooks that many reps have and go
electronic.
The next tool that is important for planning is an
“opportunity list.” An opportunity list is a tool where
the rep lists the name of the account, the product line opportunity
and the strategy for generating business. Your reps should be able
to quantify what they are going after. That means they must be able
to quantify the business that they have currently and determine how
they will get more business into their territory.
These lists should be running tools for your sales reps; they
should turn these in each week, and you should review them with
your reps to make sure they are focused on their business. The goal
of sales management is to minimize the time with current accounts
and maximize the time reps spend building business either with
current accounts or new accounts.
Keep in mind that sales reps are typically only as good as the
tools they have in place. If your reps are chasing around trying to
find information, it means they are not spending efficient time in
the field. It is possible to turn average sales reps into business
managers. Teach reps about the revenue in the business and how they
can increase it to meet your growth projections.
Alison Cherney is president of Cherney & Associates
Inc., a Brentwood, Tenn.-based marketing and sales consulting firm,
and is the producer of Homecare Power Selling, a sales training
program for home care sales reps. She can be reached at
615/776-3399 or through www.cherneyandassociates.com.
Example of a Top-Down Forecast
| Product Line | 2006 Revenue | 2007 Revenue | Growth Rate | 2008 Forecast | Growth Rate |
|---|---|---|---|---|---|
| Vanilla HME | $1.0 million | $1.1 million | 10% | $1.26 million | 15% |
| Rehab | $0.5 million | $1.5 million | 300% | $1.65 million | 10% |
| Respiratory | $1.7 million | $2.5 million | 47% | $3.75 million | 50% |
| Beds/Support | $1.0 million | $1.3 million | 30% | $ 1.7 million | 31% |
| Total | $4.2 million | $6.4 million | 34% | $8.36 million | 31% |
Example of a Bottom-Up Forecast
| Account | 2006 Revenue | 2007 Revenue | Difference |
|---|---|---|---|
| Dr. Jones | $100,000 | $150,000 | +$50,000 |
| Dr. Brown | $70,000 | $110,000 | +$40,000 |
| Dr. Green | $60,000 | $30,000 | - $30,000 |
| ABC Hospital | $50,000 | $50,000 | 0 |
| CEF Hospital | $40,000 | $50,000 | +$10,000 |
| Dr. Pink | $10,000 | $15,000 | +$ 5,000 |
| A's Rehab | $10,000 | $10,000 | 0 |
| B's Rehab | 0 | $20,000 | +$20,000 |
| Total | $340,000 | $435,000 | +$95,000 |
