Sales Consultant

A Tale of Two Merchants

2009-05-07T22:41:00.001-07:00

Manufacturing Doesn’t Make Money, Sales Does
By Antonio Graceffo

A college business professor once dazzled his class by reducing the world’s myriad businesses to a single sentence: “All companies do one of two things; they make or sell a product or service.”

For years, I thought this guy was a genius, until I started working in the financial sector. I realized right away that services are products, so I could shorten his statement to “All companies do one of two things; they make or sell a product.”

With more experience, I realized he was completely wrong. The statement should read: “All companies sell a product.”

That’s it! Simple language. Companies sell products. Making products costs money. That’s why manufacturing is on the cost side of the balance sheet. Selling products makes money.

So many people around the world are pointing at the US right now, blaming the Americans for causing the world economic tsunami. They are specifically targeting the greed of American consumers, who used credit to by products, and blame the laziness of American workers, who don’t make products anymore.

While many people are saying the Americans are now receiving their due for their greed and laziness, it is important to point out that the allegedly good and hardworking countries are also suffering too. So, producing products is not insulation against economic downturn. Next, it should be noted that those countries that built their economies on manufacturing were largely making products for the US market. The greed and excessive credit use of American consumers produced the demand for those products and created employment in those foreign countries. Finally, if the Americans did go back into the manufacturing sector, this would eliminate the need for overseas factories, which would result in widespread unemployment in the very countries who are pointing their finger at the greedy, lazy Americans who buy too many products which they refuse to make themselves.

America has become the eternal middleman. But this is not necessarily a bad thing. The golden rule of business is: you must sell products to make money. You don’t have to make products to sell them.

When I was working at a large private bank in the US, the senior vice president told me a story about the bank’s first foray into real, brick and mortar, manufacturing business. The bank invested heavily in a soap powder factory in China. The bank sent monthly checks to the local manager, who sent back reports of how soap productions was going. This was in the early days of capitalism in China and the ability to earn wages drove the Chinese laborers to work twenty hour shifts, seven days per week, with no bathroom breaks. Soap production in this factory was higher than any similar project the bank had ever undertaken anywhere else in the world. Back in New York, the bankers were congratulating themselves on their great success. After a while, however, they noticed that there was one thing missing from the manager’s reports. There were no sales. So, a representative flew from New York and took a tour of the factory.

Sure enough, there was a huge, factory, which operated like a well-oiled machine. The workers were at their places, running three shifts, twenty-four hours per day, 365 days per year. Everything seemed to be in order. The New York banker noticed there was one massive building, the biggest building in the complex, which they hadn’t toured.

“What is in that building?” he asked.
“That’s where we store the soap after we make it.” Said the factory manager. He went on to explain that every few months they had to build a larger warehouse to accommodate the growing quantity of soap.
“But aren’t you selling the soap?” asked the banker.
“Yes, we want to sell the soap, but no one ever comes here to buy it.” Said the manager.
“What is your marketing plan?” asked the banker.
“We are willing to sell soap to anyone who comes to the factory.” Answered the manager.

An employee believes that his work, his labor, somehow generates an income. This has been his working experience his whole life. Somehow, punching that clock twice each day caused a check to appear at the end of the week. An owner realizes that work, labor, and manufacturing all cost money. Only sales bring money into the company.

My experience has been that the bulk of people are employees and always will be. They do their job because someone tells them to, and they have no idea where or how their salary is generated. This is the mentality that causes factory workers to protest the closure of a factory whose products no longer have a market, or of manufacturing sector employees pointing fingers at the people who bought the products they were producing and calling them greedy.

One of my largest clients in New York was a holocaust survivor. Let’s call him David. David was a Jew, born in Poland. His parents were killed when the Germans marched in and began rounding up Jews. His Christian neighbors took pity on the fourteen year old boy and hid him in a cave in the mountains. He spent a period of years, alone, starving in this cave. When the war ended, he was so weak and malnourished he could hardly walk. He went into the city looking for work, but no one would hire him because he looked so pathetic. He saw some men moving furniture and begged them to let him help. He tried to lift a single chair, but collapsed. The men handed him some bread and sent him on his way. The same thing happened again and again, with people handing him a little food and sending him away. He became slightly stronger and sometimes was able to work for an hour or two before getting fired.

One day when he was fired, the employer handed him a bottle of vodka as payment. Not knowing what to do with the vodka he inadvertently wound up selling it to an allied solider. It was the most money he had ever seen in his life.

He used the money to buy food. Then he worked as a laborer, and used his meager laborer wages to buy vodka, which he sold to soldiers at a profit at the end of each day. Very quickly, he saw that working as a laborer made no sense, as he could sell a single bottle of vodka at a profit in the morning, walk back to the distributor, buy more vodka and sell it again in the evening and make more money than he could laboring.

Still malnourished, he found the back and forth too physically demanding, walking to and from the distributor buying single bottles of vodka. He convinced the distributor to extend him credit, to give him a whole crate of vodka, which he would sell and return that evening to pay for. He used his small vodka profits from the previous day to pay a man with a donkey cart to carry the vodka for him.

When I met David, nearly fifty years later, I asked him to tell me about his assets. We were in his plush office on the twentieth floor of a skyscraper in New York City. He took me to a massive window and began pointing at buildings.

“I own that building. That building. That building…”

“Sorry, for a moment there, I thought you pointed at the Empire State Building.”

“Yes, I did.” He said, and moved on to the really important assets.

He kept pointing. At first I was trying to write the addresses down in his balance sheet, but realized the point of the story was simply that he was really, really rich and that on any given day, his wealth could be estimated in the billions, or maybe hundreds of millions, or zero and none of it mattered. He was alive. He was healthy. His children had attended the best American universities, and he had taught them to make money. His grandchildren were attending university, and they all did their internships in his many companies. And they had learned to make money. His wealth and his knowledge was an insulation: “Never Again!” he seemed to say. Never again, would he or any member of his family suffer the way he had.

That starving little boy in Poland, fifty years earlier, never made a bottle of vodka. He certainly didn’t pick up a hammer or pour cement in the construction of the New York skyline. But he created more jobs for more people than any laborer or craftsman ever did. I could spend a lifetime following the hundreds of thousands or even millions of workers whose wealth and prosperity was derived from working on one of David’s many projects.

And while David may not have been the one who taught me golden rule of business, he was the one who drove the message home. Sales, not manufacturing makes money.

All businesses in the world do one thing. They sell a product.
Antonio Graceffo is a martial arts and adventure author living in Asia. He is the host “Martial Arts Odyssey,” a web TV show which traces his ongoing journey through Asia, learning martial arts in various countries.

His books are available on amazon.com
Contact him: Antonio@speakingadventure.com

Join him on facebook.com
His website is www.speakingadventure.com

This episode was edited by Antonio Garceffo and features the official Martial Arts Odyssey intro and outro by Andy To.

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Lies About Real Estate Investing

2008-12-29T07:19:00.000-08:00

Your home is not an investment.
By Antonio Graceffo

The current world financial tsunami started with the collapse of American mortgages. Many people who over-strapped themselves, and bankrupted their families with homes they couldn’t afford believed they were doing the right thing. Their whole lives they were told that a home is a great investment, money in the bank. Now they are learning, a bit too late, that it’s not.

Money, as in money in the bank, by definition must be devisable, portable, and universally exchangeable for the purchase of goods or services. Your home is none of these things.

If you like a home and wish to live in it, by all means buy it, but don’t kid yourself into believing it is an investment. Investments, by definition, generate income or appreciate. Investments also don’t cost you all of your income to maintain or put you into years and years of debt.

The home can be an endless money pit. Your mutual funds may go down in value, but they never ask you to repaint them, furnish or repair them, and you don’t pay annual taxes or interest for the privilege of owning them. Mutual funds, stocks and bonds, all have a ready market available for them which is a mere phone-call away. Any number of external factors may make it impossible for you to sell your home.

In bad economic times, when you have lost your job, or in the face of the current world economic tsunami, you can stop paying into your mutual fund account without any negative effects. But if you stop paying your home mortgage, you lose everything.

When I was working in New York City, a friend called me from the suburbs to tell me that a heavy wind had blown down the awning on her back porch. The damage would cost $2,000 to repair. Later, when a water leak in an upstairs bathroom caused damage to the drywall, more money went out. While the drywall was being replaced, it was discovered that the wiring was also faulty….Money out, nothing in.

On the same morning I checked my investment portfolio online. The storm hadn’t affected it.

For most Americans, their home is the largest investment they will ever make. And people are proud to tell you how much they “made” on their home. But actually, the gains are only on paper unless you sell the home, which they don’t usually do, because they want to live in it. So, it is arguable if your home is an investment at all. For financial planning purposes, it is not. Now in the face of this new financial crunch, as home prices plummet, do people who haven’t moved out of their homes say they “lost” on their investment?

Buying a home gives people the illusion of an investment.

Once, we went out on a financial planning call to a man, call him Mr. Smith, who believed he was financially ready to retire, at age 51. The minute we walked in the door, his wife begged us, “please tell him not to quit his job.” Obviously this was an argument they had been having for sometime, but the mood between them was extremely hostile, particularly since the man had already turned in his two week notice at his job.

“I don’t have to work.” Boasted the man. “I am a millionaire.”

We looked at his portfolio and it was only valued at $900,000.

“Close enough for government work.” He said.

At closer examination nearly half of his $900,000 was the estimated value of his home.

“So, where are you planning to live after retirement?” asked my partner, Steve.
“Here, of course.” Answered Mr. Smith. “The kids are close by. We love the neighborhood, and we are very attached to the house.”

“So, how will you use the value of your house to finance your retirement?” asked Steve.

Mr. Smith didn’t have an answer. That meant his total net-worth was about $450,000. Half of that was tied up in his wife’s 401K, which they couldn’t draw on until she reached the age of fifty-nine and a half.

Not only would Mr. Smith not listen to our arguments that he was in no position to retire, he actually got angry and threw us out.

Denial is a common emotion when people’s financial beliefs are challenged by experts or when undeniable reality steps in and crushes people’s dreams.

Another form of denial is the profit people claim to make on their house sale, during good markets. “I bought my house for $150,000 and sold it for $220,000, so I earned $70,000 profit.” This is what a proud Mr. Jones told me at a pool party on Long Island. Apart from the fact that he now needed to buy a comparable home in a comparable neighborhood, which would cost him the same money, he had actually lost on his home purchase. When he bought the home there were loan origination fees, closing fees, and other sundries. During the length of time that he was living in the home he was paying interest. And of course, he bought furniture and did maintenance and renovations on his home.

People will go into debt to buy a living room suite or a widescreen TV, kidding themselves into believing that anything they buy for their home is an investment because it increases the resale value of the home. But in reality, resale value is not effected by the presence or absence of a home entertainment center, unless you are planning to include it with the sale of the home.

To know what the profit is, one would need to total all of these expenses and subtract them from the sale price.

Living in an apartment, I was never tempted to buy anything. With the money any of my homeowner friends paid for furniture for a single room of their home, I paid a years rent.

When I was doing investment advisement, one of the most common reasons people gave for not wanting to invest in the stock market was that they preferred real estate. “I want something I can see and touch.” They would tell me. If they were those rare individuals who bought rental properties and collected rents, then they were right. There can be huge advantages to owning real estate. But most people aren’t collecting rent, when they claim to be investing, they just meant they were buying a home to live in.

Some of my old-school Italian clients bought a huge house, but they lived in the basement and rented out the upstairs. That qualifies as an investment. The tenant covered the mortgage while the family lived virtually rent free. Then, someday, the family could sell the house, to collect the appreciation, or could just move upstairs, in a fully paid for house.

Sadly, these people were absolute minority of homeowners. Most families chose to live in the main house and rent out the basement. This meant they were paying the bulk of their mortgage out of pocket.

Another friend of mine, Robert, had the forethought to buy a large townhouse in an undesirable section of a major American city ten years ago, when no one wanted live there. Seven years later, the house had more than doubled in value. He sold it, and cleared more than $200,000 profit.

Probably 60% of this number was real profit, over and above what he had spent on renovations, mortgage payments, and other house related expenses. Even with those deductions, his profit was way above what he would have earned if he had invested in the stock market. So, he was one of those rare Americans who actually made real money on a real-estate investment.

But, as is always the conundrum with selling the primary residence, Robert still needed a place to live. Having already done the whole, living in the crack neighborhood and waiting for it to change thing, he moved into a better neighborhood, where he bought a much nicer home, worth $1.7 million dollars. He used his entire $200,000 profit as a down payment and began paying $10,000 a month on an interest-only mortgage.

His strategy was to wait till this incredibly desirable neighborhood became even better. At that point his house would double in price, as the first one had. He would sell it at a massive profit and maybe start over again, this time, buying a castle.

That was the plan. But in 2008, the US economy slipped into a serious recession. The $1.7 million dollar homes aren’t moving as fast as they did a few years ago. Depending upon how the loan agreement is written, there may be a chance that if the home (the collateral) drops in value, the loan could be called. And he would lose everything.

In the current market, where Wall Street is dropping like a stone, $200,000 would buy a lot of stock. Or, maybe better, $200,000 would buy a lot of cash, which is probably the safest thing to be invested in right now.
Antonio Graceffo is the former assistant head of Private Wealth Management for one of the largest private banks in the United States. He is now a martial arts and adventure author living in Asia. His book, The Monk from Brooklyn, is available at amazon.com. See his videos on youtube.
http://ca.youtube.com/results?search_query=antonio+graceffo&search_type=&aq=f

His website is speakingadventure.com
Join him on facebook.com
Contact Antonio: antonio@speakingadventure.com

Leveraging Main street

2008-12-21T08:08:00.000-08:00

By Antonio Graceffo

A late night TV commercial, in the 1980s, showed sad people, sitting around their kitchen, with no money to buy a new home entertainment center. Then a friend suggested, “Why not take a home equity loan?” The next scene showed the happy couple, not only enjoying their new home theater, but also fanning themselves with hundred dollar bills. The announcer came on and said, “Don’t just sit there on all that cash. Take a home equity loan and live the life you deserve.”

This commercial basically suggested that people put their home ownership at risk in order to finance the purchase of consumer goods that they didn’t absolutely need. It was just one of many easy-credit programs which used to be targeted only at the poor, but have steadily been creeping up and up the American social ladder, infected both the middle and the upper income groups.

Back in the early 1990s, when I was essentially homeless and working construction, my coworker, Red, told me about coming home and finding a check for $1,500 dollars in the mailbox. Basically, these checks were sent out by “banks,” shady credit institutions, who lured the poor into debt slavery. The back of the check, the part you had to sign in order to cash it, was actually a loan agreement, locking you into some horrible repayment plan, with high interest, origination fees and late penalties.

I think it is no longer legal for companies to send these checks out, unsolicited, to strangers. But, if these guys had already borrowed through this company, then they were considered existing customers, and it was Ok. I once borrowed from a company like this, and noticed that what I thought was a loan agreement was actually a credit account. This meant, even if I managed to pay back the principal plus interest, I could just draw it out again, without going through an application procedure. What was worse, at any time during the repayment process, you could call up, no internet in those days, and check your credit balance. Any cash in the account could be drawn out and the debt started over from zero again.

It took me three years to pay off a $3,000 loan.

“I was so tempted to cash that baby.” Said Red, a hard drinking, semi-employed brick carrier, with a wife, several children by other women, and a trailer to support.

“Why didn’t you?” asked Jason, who was probably thinking of the big meal they would eat at a Mexican chain restaurant, sharing Red’s windfall.

“Darleen said she’d leave me if’n I got further into debt. Every Friday when we get paid, I gotta go give most of it over to the Quick ‘N’ Pawn so’s’n I don’t lose the TV.”

Pawn was another scam. Red had been $30 short on the rent for the space where he parked his trailer, so he took the only thing of value he had left, his TV, down to the pawn shop. His intent had been to borrow $30 and pay it back, plus the vig, but I think they call it interest in semi-legitimate credit institutions. If he missed a payment, he would lose the TV. The strategy of the pawn shop is to try and push the guy to borrow more. This way, the guy would be more likely to miss a payment a few weeks down the road, and he would lose his TV. The pawn shop then had all of his payments, up to that point, plus they would sell the TV, price which they would make sure was higher than what they had loaned him.

The pawn shop had talked Red into borrowing $100. He paid his rent, then used the rest for a big Mexican meal, complete with nachos and beer, and invited Jason and me. The rest he used to buy an answering machine for his wife. The next week, when he couldn’t make his interest payment, he gave the pawn shop his answering machine. Now, he was in danger of losing his TV. And a check for $1,500 had arrived in the mail.

Fast forward nearly ten years:Ｉwas working as financial consultant for a European investment bank. They sent me into consumer banks to invest money for the regular banking customers. At one point, I was responsible for seven bank branches in Manhattan. Depending on which branch I was in, I handled investments for the UN, and used all my various languages in the meetings. I handled investments for politicians, entrepreneurs, mom and pop, you name it. And I saw the whole gamut of personal finance, from top to bottom, which families made good decisions and which made bad ones.

One of the branches was in the garment district, and while I was called into handle investment for factory owners, I would see the workers lined up to cash their checks. I always avoided going near that branch on the first and fifteenth of the month, because the factory workers scared me. They would be lined up around the block, hundreds of them, waiting to cash their checks, because they didn’t have bank accounts. Because it was payday, a lot of them had been drinking. Occasionally, violence would erupt. The bank actually had to hire extra security guards for those days.

At other times, I was at a branch by Wall Street, where the patrons, mostly traders, had more money and education. But, on Fridays, there was also a line out the door, and around the block, with very well dressed men, holding briefcases, waiting to cash their enormous pay checks. Unlike the factory workers, who would clear less than $200 a week, these checks were sometimes in the tens of thousands of dollars. Ten thousand dollars a week! That was more than a factory worker made all year. This branch also had to have extra security because they would have millions of dollars on hand that day.

Why were these well paid men cashing their paychecks rather than depositing them?

Because they bought stock several days earlier and had to pay for delivery of the stock on Friday. The stock they bought was speculative. In the late 1990’s it was very possible that in the three to five days it took until you absolutely had to pay for the stock, it would go up enough that you could sell it, without having paid for it, and clear a profit. Or, you could borrow money, pay for the stock, and then sell it. If the stock didn’t go up, then you needed to pay out of your pocket, and sit and wait and sell it next week. Hence, the need for tens of thousands of dollars.

But, it gets better than this. These men were also using the financial concept of leverage, whereby they could borrow money, depending on the stock, they could get credit worth several times the value of the stock. Why did they do this? To buy that much more stock, and earn more money.

If you buy 100 shares and they go up by a dollar, you made a hundred dollars. You would then sell the stock and pay for it, and pocket the difference. But wouldn’t it be better to buy 1,000 or 10,000 shares? Then, if they go up by one dollar, you made $10,000. If your friend made $10,000 and you only made $1,000 wouldn’t you feel foolish?

At that time, there were technology securities which had growth rates of 100% or even 190%. So, if you break that down to how much that was per day, it was a huge growth in the three to five days until you needed to pay for it.

It seemed at that time, that everything you bought went up. People were doing anything they could to buy stock and get in on this cash cow that all of their neighbors were doing so well with. In the commercial banks where I worked, I saw the customer come in, and take out a home equity loan, drawing every penny of available equity, and then come over to my desk to buy stock. Once, and I swear this is true, a man came in, filled out all of the necessary paperwork, told me how much and what he wanted to buy. Then, he walked over to the ATM machine and drew out a cash advance on his credit card to pay for his stock trades. As I was in a more conservative end of the business, we weren’t even allowed to accept cash. So, he wrote me a check, said, “wait a minute on that.” He walked over to the teller window and deposited his ATM cash. When he got his deposit slip, he waved and smiled at me, as if to say, “OK, go ahead and process that trade.”

He left the bank without even stopping by my desk again.

Many of my trader friends told me they used their American Express cards to buy stock. With Amex, you don’t have a credit limit, as such, and if you pay in thirty days, you don’t pay interest. So, they would buy stock, and hold it for thirty days, sell it, and pay off the bill when it came in. But because of settlement rules, it was possible to hold the position for 33 or even 35 days.

Picture using a $10,000 cash advance on a charge card to buy $50,000 worth of stock, that you can’t afford to pay for, because you are hoping that it will go up in the next 34 days. I don’t know about you, but that would be a long sleepless 35 days for me. But for these guys, this was their normal routine, month in and month out.

I heard stories, although didn’t actually see it with my own eyes, of guys taking cash advances of tens of thousands of dollars, buying hundreds of thousands of dollars worth of stock they couldn’t afford, and holding it for thirty days.

In addition to being insane about trading stock and “leveraging” their position, one commonality between all of these educated, well-off men was that they sneered at the “jerks” who fell for the home-equity credit scams on TV.

“Can you imagine someone being that stupid and using their home equity to buy a stereo?” They would say.

The late 90’s and into about 2000, Wall Street was experiencing what financial experts call a bubble. It is a time when the market goes up and up. Prices and returns inflate until, eventually, like a bubble, they burst. And then you are left with a soggy, deflated balloon, and no house.

When Charles Edward Merrill, founder of Merrill Lynch, coined the phrase, “Bringing Wall Street to Main Street,” he didn’t mean that normal people should be leveraging their kid’s college fund, their retirement monies, or their home. He was trying to level out the playing field, and give the regular Joe a chance to participate in the stock market. But somehow, the concept became perverted and blown out of proportion on a scale that would probably have sent Merrill spinning.

Everyone was focused on “let your money work for your you.” But, comedian Jerry Seinfeld pointed out, “What if my money gets fired?”

In addition to leveraging assets and salaries, people in New York, and elsewhere, decided that they, like big corporations, should hire accountants, who knew how to “work the system.”

“Why should the government be making money on your taxes?” was a common phrase that was thrown about, as people sat in Starbucks, drinking a $4 late and swapping tax avoidance strategies.

A friend of mine, a Wall Street trader, earned $800,000 in one year. His accountant used aggressive, but legal strategies to postpone ALL of his tax payment until the following year. And why did my friend want to do this? So that he could use his tax money to buy stock.

His plan was brilliant. Use the $250,000 in his tax account to buy stock, fully leveraged, of course. And when the stock went up, he would sell it, and use the profits to pay last years taxes and this years taxes. Or, maybe he would look for another loophole to push the tax debt further one more year.

Since a technology mutual fund could gain 190% per year, my friend, and others like him, saw their debts as decreasing in value at a rate of 190% per year.

Unfortunately, for my friend and others like him, a basic rule of both physics and finance is, what goes up, must come down. The bubble burst.

If you use leverage in a stock account, the stock is essentially the collateral securing the loan. This method works great in an upward market. But now, let’s say that your stock drops in value by 10%. You no longer have enough collateral to secure the loan. The loan comes due in the form of a margin call. This basically means, you have to repay the loan, or put enough money into the account to make up the shortcoming in your collateral.

But money, cash, was the one thing none of these guys had. Cash was stupid. Cash was for losers. Cash prevented you from “leveraging,” from maximizing your returns.”

So, how did they make up the deficit in the face of a margin call? They sold stock. But they were now selling it for less than what they had paid for it. So, they had to sell more than what they lost. For some of these guys, the credit card bills, home-equity loans, or whatever crazy credit bills also came due, and now they were in serious trouble.

My friend, the trader, who postponed his $250,000 income tax payment, lost everything. On Wall Street, if you wind up in trouble with the IRS or have any personal credit issues, bankruptcy or foreclosure, you generally lose your license and your job.

The tax debt which my friend believed was decreasing at a rate of 190% wasn’t. Those gains in his portfolio were “paper gains,” not real. But his tax debt was real. Suddenly, he had no money, no job, and a $250,000 tax bill staring him in the face.

Like a recovering alcoholic who could never go near a bar again, my friend needed to find the simplest, most secure, quietest job he could. He started working at the post office. His new salary was $40,000 a year. And he will be paying off his tax debt for the rest of his life.

This would be a good place to end this article. We saw how crazy the bubble was and how stupidly people used credit in America. But sadly, it doesn’t end here.

When technology stock blew up, people went to small cap. When the stock market more or less imploded, people ran to real-estate.

“I can’t believe how stupid we all were with stocks before.” A friend of mine told me. “But I learned my lesson. Real estate is the way to go. It’s safe. You can see. You can touch it. And it always goes up in value.”

This particular friend used his house as collateral to invest in as many condominiums as he could. When last I checked with him, they were still unrented. And in the face of the current trend of foreclosures and lack of consumer credit, I don’t see how he could sell them.

If I had a chance to pull him aside at a cocktail party I would tell him, “I got a hot tip for you, the new, new thing.” Then I would look over both shoulders to make sure no one is listening and tell him the financial secret handed down to me by the film, “the Graduate.”

“Plastics” I would say. “Technology didn’t work out. The market tanked. Real-estate went bust. But if you want a fool-proof investment, buy plastics.”

Antonio Graceffo is the former assistant head of Private Wealth Management for one of the largest private banks in the United States. He is now a martial arts and adventure author living in Asia. His book, The Monk from Brooklyn, is available at amazon.com. See his vieos on youtub.
http://ca.youtube.com/results?search_query=antonio+graceffo&search_type=&aq=f

His website is speakingadventure.com
Join him on facebook.com
Contact Antonio: antonio@speakingadventure.com

Bernie Madoff the New King of Ponzi

2008-12-16T07:07:00.001-08:00

Bernie Madoff the New King of Ponzi
By Antonio Graceffo

On December 11, 2008, Bernard Lawrence Madoff (born April 29, 1938) chairman of Bernard L. Madoff Investment Securities LLC was arrested by the FBI. At that moment, he moved from being a hedge fund principal with suspiciously consistent returns, to being a suspect, thought to have bilked investors out of $50 billion. So far, according to the FBI and other sources, this is the largest investment fraud ever committed by a single individual.

People all over the world read the headlines, and knew this guy must have done something bad, but a lot of people don’t know exactly what a hedge fund is, or what Madoff did wrong.

A hedge fund is a private investment company which accepts money from a limited number of investors. The reason it is called a hedge fund is that the strategic intent is to hedge or counter balance the market. In other words, hedge fund managers are hoping to use a strategy which causes their fund to go up when the market goes down. To do this, hedge funds often use investment instruments which are considered higher risk than what you might find in your 401K. These could include puts, calls, option, and exotic options, and derivatives to name a few.

Hedge funds are regulated outside of the scope of “normal” investment companies, such as mutual funds. Their shares are also not readily available to the public. Compared to the scrutiny a mutual fund is subjected to and the disclosure requirements they must meet before selling shares to the public, hedge funds are like the Wild West of the investment world.

Because of the perceived risk involved and the lack of regulation and investor protection, investment in hedge funds is generally only open to “accredited” investors. There are strict rules as to how much the minimum investment must be. Generally the minimums are quite high, often in the millions. Rules also stipulate that the millions you invest in a hedge fund should be no more than a certain percentage of your total net worth or total investable assets. Hedge funds are generally not allowed to advertise and are often limited in the number of investors they are allowed to accept.

The basic idea is that people investing in hedge funds are extremely wealthy. They have experience with investing, and their hedge fund investment is just a piece of their overall investment strategy. These people usually have advisors, such as brokers, planners, accountants and attorneys who should be looking out for their interests. The investors in a particular fund often know each other and know and trust the fund manager. The fund doesn’t advertise, so it acquires new investors simply through word of mouth. Someone invests, makes money, and tells two friends. They tell two friends, and so on.

Hedge funds are in no way illegal or immoral. They serve a purpose which exists outside the scope of the average person’s radar. The investors in hedge funds are often institutional investors, such as endowment funds and retirement and pension plans.

So, what did Madoff do wrong?

It was publicly known that Madoff paid brokers “for order flow.” This means giving a commission directly to a broker for buying shares. The rules on how brokers are compensated; who can pay them, and how much, are very strict. You never want to create a situation where a broker might be tempted to sell an inferior or inappropriate investment to a client, simply because he was to receive a bigger or additional commission.

While hedge funds are subjected to less stringent regulation than mutual funds, they are not completely outside of the law. These funds are required to file certain disclosure documents, showing what they were invested in. But, just before the end of each quarter, when these documents should have been prepared, Madoff’s fund sold out their investment positions. So, no one actually knew where the money was invested.

Another reason outside entities were keeping Madoff in their sites was because of his returns. Over a period of years, Madoff’s investors received a steady 10.5% return on their investment. This number is not so shocking, if we consider that small cap stocks, over a long enough time line, are expected to yield a similar return. What is strange however, is that Madoff’s returns were consistently between 12% and 13%. Normally, we would expect an investment to fluctuate much more widely over a ten year period.

Just to put this in perspective. I checked the ten year average of a technology mutual fund that I sold while I was an investment advisor, working in New York City. From 1998 – 2001 the fund experienced a growth of nearly 300%. If you had invested $10,000 in 1998, your investment would have been worth over $35,000 in 2001. Today it would be worth about $7,500. Checking a small cap mutual fund, which we would expect to be somewhat less volatile than technology, your $10,000 investment in 1998 would have hit a high of about $35,000 in 2007 and would currently be worth about $17,000.

This type of fluctuation is in sharp contrast to Madoff’s two-point swing.

The big crime that Madoff committed was Ponzi.

Ponzi is a name given to an investment scam, first popularized in the USA, in 1903, by Charles Ponzi. The idea is, you get a bunch of investors, and promise them high returns. They all give you an initial investment, let’s say 100,000 each to make the math easy. At the end of the first quarter, you pay them all their quarterly earnings. You send each investor a check for $5,000.

WOW!, Thinks the investor. I earned $5,000 in one month. That means 5% per month, or 60% per year. This is great. The bank is only paying 2.7% per year. And so, the investor invests more. And he tells his friends to do the same. As long as you keep sending checks to the investors, they will keep investing, or at the very least, not want to take their money out. As long as new investors join, you will have money to continue making payments to the old investors. They think they are earning interest, dividends, or investment returns. But in actuality, all they are getting is their own money back.

For Madoff, the final nail in the coffin came when investors demanded $7 billion of their cash back, and he didn’t have enough left to pay them. Now, he faces up to 20 years in jail. But he will always be remembered as the New King of Ponzi.

Antonio Graceffo is the former assistant head of Private Wealth Management for one of the largest private banks in the United States. He is now a martial arts and adventure author living in Asia. His book, The Monk from Brooklyn, is available at amazon.com. See his vieos on youtub.
http://ca.youtube.com/results?search_query=antonio+graceffo&search_type=&aq=f

His website is speakingadventure.com
Join him on facebook.com
Contact Antonio: antonio@speakingadventure.com

The Banking Debacle Explained

2008-12-10T07:47:00.000-08:00

By Antonio Graceffo

I did not go into banks and do an audit. Neither did I do an in-depth analysis of the current banking industry dilemma. I wrote this piece, however, just to explain in simple terms, how a bank can become insolvent because of poor credit policies and over-inflated assets.

Banks make money by making loans to people. The largest loans most consumers will ever take are home loans. The more home-loans a bank makes, the more profit they make.

When a bank loans money, for example $100,000, to a consumer to buy a home, that loan is carried as an asset on the bank’s balance sheet. The value of the loan is the loan, plus the interest. This seems simple, but there is one more fact that has to be calculated in. Not everyone is going to repay their loan. So, the value of the loan is discounted by the percentage chance that the person won’t pay it back.

Simple English: (This is a simplified example and doesn’t reflect real life numbers or factors such as the time value of money, or the rate and or schedule of repayment. It is only an illustration of how credit worthiness affects the value of a loan.)

Example:

Mr. Mork wants to buy a house. He applies to the bank for a $100,000 mortgage.
The bank evaluates Mr. Mork’s credit and deems him 80% likely to repay the loan. The bank has a policy that says they can only loan money to people who are 80% likely or more. So, Mr. Mork qualifies.

The bank loans Mr. Mork $100,000. With all of the interest that Mr. Mork will pay over the life of the loan, the loan is worth $150,000. (These are not real numbers.) The value of the loan on the balance sheet, however, has to be discounted by 20%. So, it doesn’t go on the books as $150,000. It goes as $120,000.

The bank makes a profit of $20,000.

The more loans the bank makes, the more money they make. So, it is in the bank’s interest to make more loans.

Mr. Warf and Mr. Data also apply for $100,000 bank loans. The bank does a credit check and deems them 70% likely to repay the loans. So, they are denied.

The bank CEO wants to make a larger profit. His annual bonus and compensation package is based on a percentage of the total revenue of the bank as well as his annual performance. So, he wants to loan more money. He is not permitted to loan money to people with a 70% likelihood of repayment, because this is set in the bank charter (or other public document.) he can’t change this policy because when the shareholders bought shares, they understood that this bank was only going to make loans to people who were 80% likely to repay. If the CEO started loaning money to un-creditworthy people, he would be violating that agreement.

Luckily, someone at the bank has an idea. They decide that their current credit evaluation procedures are too stringent. So, although they won’t loan money to anyone who is less than 80%, they will reduce the requirements to reach the 80% bracket. They reevaluate all of the loan applications from last year and under the new credit evaluation procedures, a number of people suddenly jumped to the 80% grid.

The CEO goes before the board and says, “My revolutionary new credit procedure will allow us to make three times the loans we made last year. So, our profit will increase 300%. And, I am happy to reassure you that we won’t be loaning money to anyone lower than 80%.”

Most of the board likes it. They don’t really understand what changes are being made behind the scenes, but they like it. A few board members have degrees in accounting. They see through this suicidal procedure and try to convince the others to block it.

The CEO or his PR people go before the shareholders. Before the meeting, they have already gone to the worst ghetto or trailer park imaginable. They come back with a poor, but honest, hard-working family, who “deserve” a place of their own.

“Would you deny Jorge and Roselda a decent house and a good school for little Pablo and Conchita? You fatcats sit back in your beautiful homes in suburban America. Your kids go to private schools. You sit back and collect dividend checks based on the sweat and labor of thousands of people like Jorge and Roselda, but now you are denying them a home.” If the shareholders are not in tears yet, he begins quoting Jimmy Stewart, from “It’s a Wonderful Life.”
“It is people like Jorge and Roselda who do most of the working, and, paying and dying in this town. Is it too much to ask that they do it in four decent rooms with a bath?”

The credit evaluation policies are changed. The bank makes three times the number of loans they did the previous year. Two thirds of those loans would not have qualified the previous year. The CEO triples the income of the bank. He gets a huge bonus. Often, new policies are accompanied by a “golden parachute.” There is a fear that a CEO is will not try anything new, because if it fails, he could be left with nothing. So, to encourage executives to think out of the box and try to pioneer new policies and lines of business, risky businesses are often accompanied by a “golden parachute.” Basically this is an incredibly lucrative compensation package paid to an executive if his “brain-child” revolutionary new idea fails.

There are other financial analysis that come into play here, but these are technical details. So far, this has been a simplified version of the problem. One more detail is this. People who default on home loan don’t usually miss their first or second monthly payment. The credit analysts would know, with some certainty, when a particular person would likely default. Maybe, for example, the average loan will default after four years or five years. So, the CEO announces that this last major program is the crowning achievement of his career. He will over see it for five years and then go into retirement. At which point, he will collect his percentages for the brilliant increase in the bank’s revenues.

The problem worsens.

What is an overvalued asset?

The banks borrow money from a central bank, in order to loan money to the public. They also sometimes sell debts to outside companies, in order to get cash to loan to other people. Banks, like everyone else, have to qualify as being credit-worthy. So, when a bank wants to borrow money, they have to show their assets listed on their balance sheet.

Now, Jorge and Rosalinda’s mortgage was $100,000 and they were meant to repay $150,000 with a 20% probability of failure to repay, so their home loan is valued at $120,000 on the bank’s balance sheets. So, they borrow money accordingly. But, according to last year’s policies. This loan would not have been made, because Jorge and Rosalina were only deemed 70% likely to repay the loan, which means the real value of the loan is only $105,000. So, the bank is over-extended. It can’t make good on the money it borrowed.

Another wrinkle.

Now, consumers are asking: “How do these guys live with themselves? It is so obvious that this is a ponsy scheme which will eventually explode.”

Well, maybe not so obvious.

One of the reasons that the bank executives were willing to lower the credit requirements of consumers was that they knew the average person wouldn’t default for five years (five years is just an example). At that time, the bank would take possession of the house, and resell it, to recoup its losses. By that time, the bank would have collected five years of mortgages plus the value of the resale of the house. So, the money could be repaid.

The bank calculated the probability of selling the house, and what the value would be, and it looked like a safe bet. If Jorge and Rosalinda defaulted, there would be 100 other buyers, willing to buy the house at its appreciated value. The banks bets were covered.

This next bit is an extremely simplified example, so if you know deeper economic theory and banking procedures, please don’t rip me apart. This is just a way of explaining it so everyone can understand it.

Five years down the road, the CEO retired, taking his millions with him. Jorge and Rosalinda defaulted on their mortgage, and the bank took control of their house. Jorge and Rosalinda lived in a housing development which was all financed under the same set of loans, with the same diluted credit policies as Jorge and Rosalinda’s house. So, the same week, 70% of the houses in the development defaulted. Now the bank is sitting on a ton of foreclosed houses.

They try to sell the houses, but in the mean time, the convenience store, the auto-repair shop, the restaurants…every business which was serving the housing development has closed because 70% of the people are gone. Prospective home buyers drive out, take one look at a deserted neighborhood, with no businesses close by, and they decide not to buy. So, the houses get harder to sell.

Let’s say that they do decide to buy anyway. They apply for a loan. Since the bank is getting slammed with foreclosures and lack of income, they decide to raise their internal credit policy back up to the previous, more stringent rules. Now, instead of 100 qualified buyers for these houses, they only find 10. So, 90 homes are now on the bank’s balance sheets. They are unsellable assets. The laws of capitalism basically say, if you can’t find buyers at $100,000 you drop the price to $90,000 and then to $80,000… The price of the house keeps dropping till it finds a market of buyers willing to buy it.

Now, remember that these houses were being carried on the bank’s balance sheet to secure major loans the bank took. But, the houses are steadily dropping in value. In a simplified example: The bank carried a house at $120,000 and borrowed $120,000. Now the house is only worth $90,000. the bank’s creditors come in and say, “You have to give us $30,000 in cash to make up for the shortfall of your collateral.” The bank doesn’t have $30,000. So, they can’t pay their creditor.

The creditor can take the house from the bank, but the creditor will now have a loss of $30,000. And remember this didn’t happen on one home loan or in one bank. It was across the industry, which means the companies who extended credit to the banks are now in danger of collapse. The banks are also in danger of collapse.

The buyout package which has been in the news, from what I can see, will be loaned to banks, to pay their creditors, so banks and their creditors can stay in business.

How does this affect you?

If you have large amounts of cash in a bank, FDIC insurance will protect up to $100,000 worth of cash. So, if the bank went belly up, your $100,000 would still be safe.
IMPORTANT! Not all money stored at banks is FDIC insured. If you have mutual funds, IRAs, or money markets they will probably not be covered. Check with your banker and make sure your money is in an FDIC insured account.

As a side note: credit unions and S and Ls are not banks. They often are not covered by banking regulations and are not FDIC insured. If you have money at those types institutions, or money in a cash account at a brokerage house, check with your representative and find out if you are covered under FDIC.

If your money is FDIC insured and the bank dies, your money should be fine. BUT if there is a credit crunch, which there is, this means that some banks are failing and others have no money to lend, this will send ripples through the whole economy. Certain types of business can only stay open if they have access to nearly unlimited credit. For example, a car dealership or a taxi company, or car rental business often does not own the cars on the lots, they are all financed. If there is no cash available in the finance system, these businesses cannot buy or lease cars, which will ultimately mean they will have to close.

The employees will lose their jobs. So, if you are an employee of these types of firms you will be directly effected. If you work for a company which sells services to these types of firms, you will eventually be effected, because your company will lose its customers.

Construction, real-estate, and land development is another sector which is completely dependent on the availability of credit. If credit dries up, all of these employees stand to lose their jobs. People who sell good and services to these industries or their employees will lose their customers and possibly have to close.

All of these employees will suddenly lose their income, which will mean defaulting on their personal debt and home mortgages…..

On a global note: The US is one of the largest consumer nations in the world. If millions of Americans lose their jobs and lose their access to credit, they will stop their consumer spending. There are entire manufacturing companies in China, for example, who only sell products to Wallmart. Any foreign country with a positive trade balance with the US (meaning countries selling products to the US) will lose their customers, and eventually have to close.

The flutter of a butterflies wings in New York becomes a typhoon in Asia.

Antonio Garceffo is a martial arts and adventure author living in Asia. His book, The Monk from Brooklyn, is available at amazon.com. See his vieos on youtub.
http://ca.youtube.com/results?search_query=antonio+graceffo&search_type=&aq=f

His website is speakingadventure.com
Join him on facebook.com
Contact Antonio: antonio@speakingadventure.com

Tomorrow’s Spending Today

2008-12-10T07:35:00.000-08:00

More on the Global Financial Crisis
By Antonio Graceffo

Even if you haven’t been to business school, at is base, business is pretty simple.

Step 1: Buy a widget for a dollar and sell it for a dollar ten.

Now it starts getting technical.

Step 2: If you sell more widgets, you make more money.

As a business owner, selling more products is better than selling less. Wow, so far this is making my head spin.

So, how can you get people to buy more widgets?

Step 3: The obvious way to get people to buy more widgets is to lower the price of your widget. You can do this by employing Mexican or Uzbek children in your factories, or by instigating a war and capturing the necessary raw materials.

But at some point, the widget is as cheap as it is going to get. Walmart came up with an interesting business strategy. Every other company in the world was trying to increase profit margins (the difference between your cost and the price you sell at). Walmart, on the other hand, was trying to decrease this number. The idea was to strip the costs down to nothing, then keep reducing the profit percentage, but increase the number of widgets sold.

Selling a million widgets, with a 2% profit makes you more money than selling 100,000 widgets with a 3% profit.

This method worked for a while, and the US consumer market just kept growing and growing.

Super stores, warehouse marts, and large box stores were popping up everywhere. When I was living in Europe I tried to buy a five pound box of my favorite breakfast cereal, “Chocolate Super Bombs.” The clerk looked at me and said, “But you are only one person. Why do you need five pounds of cereal?”

Americans owned significantly more products than people in other developed countries. When my sister told her European boyfriend she was going shoe shopping, he answered, “But you already have shoes.”

When I was teaching English in overseas, students often asked me, “Teacher, on TV we see many American movies, and there are always monsters in the basement. What is a basement?”

“It is a place to store things you purchased but never use.” I answered.

The follow up question would inevitably be. “In some movies, the monster is in the attic. What is an attic?”

“An attic is also a place to store things we bought but don’t use. But an attic is above the house, instead of under it.”

Did buying a lot of products increase the frequency of monsters?

“Teacher, in American movies, when people want to commit suicide they drive their car in the garage and turn on the car engine. What is a garage?”

“It is a place where you store one of your automobiles.”

“But some garages look so messy, and some people still park on the street.”

“That is because Americans also store unused products in their garage.”

Some American homes had three or more rooms designated as depositories for products that they had purchased but didn’t use.

Step 4: If low profit margins and low cost weren’t enough to move products off of the shelves, sellers could use sales and coupons to entice buyers. In some cases, products were sold at a loss. These products were called “lost leaders.” The thinking is, you come in the shop to buy a lost leaser and hopefully make ten other compulsion purchases while you are there.

When I was a student in Germany, I discovered that Germany had very strict rules against sales. And lost leaders were actually illegal. You couldn’t sell a product below cost. The German rational was that by selling low cost products, large stores had an advantage over small stores and this was in detrimental to a free market.

My American classmate, John-the-Republican would get angry. “Having the government tell you what price to charge for your products is detrimental to a free market.” He would complain. One day, he came back from a shopping excursion to Stuttgart, where he had just bought a new album. “Do you know why this CD was $30? Because I am paying for some old guy’s retirement.”

At that time, Germans were taking early retirement in their mid fifties. The unions were pushing for a four day work week. Women (or men) could collect three years of maternity leave benefits from the government. An advocacy group in support of unemployed people was complaining that with recent government benefit cuts, “many unemployed people earn less than those who are working.”

Germany had one of the lowest unemployment rates in western Europe and yet it was more than double US unemployment.

In the face of so much money going out and so little coming in, the government still put money and resources into campaigns, telling people not to consume.

We American students all said that selling more products was better for the economy. It created jobs and created financial movement. We suggested lifting bans on sales and lost leaders.

The German’s rebuttal was telling of the differences between the two countries/cultures. My Germans classmate said, “Each week, people will buy the products they need. If you decrease the price, people will still buy the same number of products, because they don’t need more products. And you will earn less money.”

“But when they are in the store, won’t they suddenly see other products that they needed or wanted?” We asked. “For example, in America we have end displays at the ends of the aisles, which feature a different product each week. Or we have compulsion purchase products near the registers.”

“That should be illegal.” Retorted our colleague. “You are making people buy things they don’t need.”

Then I pointed out that making people buy things they don’t need isn’t as bad as packing them in trains and shipping them off to concentration camps. And the conversation pretty much deteriorated from there.

One interesting point that the Germans made was that, if you decreased the price of product, lets say cans of tuna, German consumers would still buy exactly the same amount. If they normally bought two cans a week, and you decreased the price, they might buy eight cans. But they wouldn’t consume eight cans. They would just be buying a month’s supply in one day. So, while your sales would spike during the week of the sale, they would slump, and average back out for the rest of the month. But your profits would be lower.

In sales, we call this shifting tomorrow’s spending to today. In America too, sales we walk a thin line in developing sales strategies. The question comes up, “how can I get people to buy more today, but still buy again next week?”

This is why American producers keep developing new types and brands of products. In the former East Germany, if you were lucky, and if you had connections, and if you had foreign exchange coupons, you could go in a shop and purchase a brown box, marked with a black stamp, which read, “COOKIES.”

In the new Germany, you go in the supermarket and there is about half an aisle dedicated to cookies, candies, chocolates, breakfast cereal and a number of other products. Most grocery stores in Germany only carry about six or eight flavors breakfast cereal and they are all the same size.

There are also very strict rules in Germany about how these products are marketed. In general, advertising which targets children is discouraged, if not illegal.

Big grocery stores in the US have an entire aisle dedicated to breakfast cereal. There are thousands of brands, most of which are tied to cartoon commercials and memorable characters or movies. Tony the Tiger, Dig’em the frog, the Roce Crispy Guys, Count Chocula, Boo Berry, Frankenberry, Fruit brute, Lucky the Leprechaun, and my all time favorite, Captain Crunch.

Inside of each brand are numerous varieties. Captain Crunch comes in regular (which cuts the inside of your mouth, peanut butter, Captain Crunch with Crunch Berries, and new, Choco Donut Captain Crunch. And each flavor comes in a variety of sizes.

If one brand, flavor or size in on sale today, you buy more. But next week, you also but, because you want a flavor or brand. The same is true for consumer goods, such as TVs, DVD machines, computers, clothing, cars, and even houses… By creating so many new choices and types, the manufacturers guarantee that a decrease in prices this week causes a spike in sales this week, but by releasing a new product next week, they can also expect a spike in sales next week.

The spike became the norm.

This strategy has gone on and one for years. At some point, even the US consumer ran out of money. You can only take advantage of sales if you have cash.

Step 5: Extend liberal lines of credit to your customers.

From the 1950s to the 1970s you to had show income, savings, and credit history to obtain credit cards. Buy the 1980s college students and unemployed people could obtain cards simply by filling out the application form. By the 1990s, unwanted credit cards actually arrived in the mail. You had to simply call to activate them.

Now, you had spikes in sales, driven by the invention of new models and brands. You kept your profit margin low, so your end product was low, but your overall product was high because your sales were high.

The US had the lowest inflation, lowest unemployment, and one of the highest qualities of life of developed countries. This last claim is more of an opinion, but we definitely owned more stuff than anyone else.

The Germans argued that our low unemployment rate was artificial because it included low paid workers who were below the poverty line. In Germany, less people had jobs, but everyone who had a job could afford to eat and live. They also argued that our sales figures were artificial because they were built on an ever growing consumer debt, which would eventually have to be repaid.

I personally know a couple whose credit card debt had reached one year’s salary. That will never be paid off.

Companies who cut their profit margins to almost nothing also used debt to expand and sell more products. They were functioning on such a narrow shoestring, that as soon as the hint of this financial tsunami hit and consumer spending dropped by a small percentage, the shops collapsed into bankruptcy.

Many economists predicted that the system couldn’t go on forever, and that the whole economy would eventually blow up.

I guess they got it right. And now, we will be paying for yesterday’s spending tomorrow.

Antonio Graceffo is a martial arts and adventure author living in Asia. His book, The Monk from Brooklyn, is available at amazon.com. See his vieos on youtub.
http://ca.youtube.com/results?search_query=antonio+graceffo&search_type=&aq=f

His website is speakingadventure.com
Join him on facebook.com
Contact Antonio: antonio@speakingadventure.com

The Science of Selling

2007-01-30T20:51:00.000-08:00

Who is a Salesman?
When we talk about being a salesman, many people think of the people who were in a local shop, selling small retail products. Many university students are studying to be professionals, business executives, accountants, managers, and financial controllers of companies. So, they feel that they don’t need to learn about selling. They see sales as beneath them, a job which makes them loose face.
But, university graduates can be salespeople too. We don’t call them sellers or peddlers. We usually call them sales executives, sales consultants, or white-collar (professional) salesmen. They wear a suit and tie and sell very high price professional good and service like satellite communications systems, or oil and natural gas contracts. They sell computer systems and telephone services to offices, security systems to large warehouses, and fleets of cars to car rental companies.
A salesman from Japan sold three high speed train lines to the city of New York.
Do you believe this job is beneath you? Would you look down on that salesman? The bill for these trains ran into millions of dollars. If his commission (the percentage of the sale, which the salesman gets to keep) is only 1%, that salesman will never have to work again in his life. In fact, his children will probably never have to work again.
If you are thinking about a career in finance, stocks, bonds, mutual funds, and investment banking, a stockbroker and an investment banker are both just salesmen. They sell financial products and they sell funding to companies. But they are all just salesmen.
Sales can be an incredibly lucrative (profitable) career. It is the only job at the company with no limit to the amount you can earn. When Lee Iacocca was head of Chrysler corporation, he said that the top salesmen earned much more than he did. He was talking about care salesmen, not satellite phone systems.
Employee or salesman
If you look at all of the employees at a company: executives, administration, secretary, supervisors, manufacturing, drivers, and cleaners.
They all earn a salary, which is listed on the Cost side of an accounting ledger (the book where financial records are kept). If a company had only costs, it couldn’t stay in business very long. So, costs must be offset (balanced) with income. And, who are the only people who bring income into the firm? The sales force.
The idea that we have been repeating, again and again, in this course is that all business is selling. Manufacturing is not business. No one makes money by manufacturing products. They make money by selling products. Money isn’t made by providing services. Money is made by selling services.
The salespeople are the only employees who bring money in to the company. Everyone else takes money out.
Sales Science
Since the beginning of time, companies have done selling. In the last two hundred years, companies first began building a sales force, a group of employees whose only job was to sell. The US was the first country to turn sales into a science. Countless books have been written in the US on the subject of selling. In the US, some universities even offer a university degree in selling, (the study is often called Salesmanship).
One reason for sales developing into a science in the USA is because of the Industrial Revolution, when manufacturing changed from handwork to machine production. Before the industrial revolution people who made products by hand were called artisans, skilled craftsmen who were proud of the products they made. Selling was something which the craftsmen did themselves. But, they saw selling as
In the late eighteen hundreds very large corporations were developed. The jobs had to be specialized. And so, the traveling salesman was born. Early salespeople were men when they would meet on the road (during a trip) or after, they would talk about what techniques worked and what techniques didn’t work. Eventually, some salesmen began writing down these ideas, and slowly, sales books, and sales manuals were written. Eventually, through the experience of thousands of salespeople, sales became a science.
Sales science depends a great deal on psychology and statistics. Psychology was used to understand the behavior of the buyer and the salesman. And, statistics was used to measure which techniques were most effective, and the probability (likelihood) of success.
A Salesman’s Job
Before a salesman can begin selling, he must first know everything about his product. One of the more effective types of selling is consultative selling (selling by consulting). The salesman has to be a consultant, an expert, who gives advice to customers. His advice helps them to choose the right product.
A salesman who sells paper products to restaurants must be an expert on both paper products and restaurants. When he walks into a restaurant, he should be able to count the number of chairs, and based on the location, menu, reputation, marketing and PR of the restaurant, he should be able to predict the number of customers the restaurant will have in a day.
Know your customer!
Based on his predictions, he should recommend to the owner, the right amount of paper products, napkins, table coverings, paper towels, and toilet paper, which he will need. If the restaurant sells take-out food (food which people take home to eat) the paper salesman should be able to look at the menu, and recommend the best types of containers, boxes and bags for each food item.
Restaurant owners may not know this information. And, they may waist money, purchasing the wrong products. A good salesman can help a business owner save money.
Some salesmen are very proud of their ability to do consultative selling. When you ask them what they sell, they will answer “I sell solutions to problems.”
People don’t buy products, they but solutions.
Time Management
Sales is lucrative, but it is also the hardest job at the company. A good salesman has to think of himself as a business owner, not as an employee. His business is selling the company’s products. If he sells well, he earns well. If he sells poorly, he earns poorly. An employee can come in at 9:00 and go home at 5:00, and take weekends, holidays, and sick days off. But, a salesman can’t afford to do this. He only earns money when h is working. He doesn’t earn any money by sitting in his office. He earns money by successfully selling products, getting customers to sign the contract and hand-over their money.
Green time- the time when we can call, visit, or meet with customers. In most countries, this is from eight or nine in the morning until about seven o’clock at night, Monday through Saturday.
If a salesman only worked during green time, he would be working sixty-six hours per week. But, green time is only used for client contact. So, all of the other tasks of a salesman, research, educating himself on his markets, eating, sleeping, and relaxing have to be done outside of green time. A good salesman uses his lat nights, early mornings, and Sundays for research and education.
Research and education means learning all about your competitors and their products. It also means learning more about the business which most of your customers do. If your customers are restaurants, study about restaurants. If your customers are shipping firms, learn about shipping.
Planning Your Day
Before green time even begin, the salesman should have a plan of who he will contact that that day, how many people he will contact, in what order he will contact them, and how best to contact them. Some people will need a phone call. Others will need a visit. It is usually best to get all of your phone calls finished first thing in the morning. Next, begin your visits. Plan your visits on a map, so that you don’t wait too much time traveling. If you have to go far form the office, try to see more than one person on each trip.
After your final visit, go back to your office and make a record of your activity for the day. Remind yourself of whom you have to call and visit the next day. Always follow-up with (contact again) the people you had meetings with. You have to decide if that customer is worth visiting again, because the customer could buy a lot of product from you, or maybe you just want to make a phone call or send email.

Learning to Speak Pays Big Dividends

2006-09-02T06:35:00.000-07:00

They say that the single most common fear which people have is public speaking. At the same time, being able to speak effectively is the single most important business skill that you can have. Whether you work in sales, marketing, PR, auto-mechanics, or medicine, improving your public speaking will jumpstart your career. Being from an Italian family, I could also say that having a good command of English results in a lower chance of conviction and a lighter sentence.

In my case, public speaking is allowing me to transition from being an author, to being a TV, radio, and film personality. Since my main goal is selling books, the exposure I get from the big media put dollars in my pocket.

We have all heard that the best things in life are free. And in my experience, they are. Working as a martial arts and adventure author, I found that I got the best martial arts training, which resulted in the best books and stories, living in temples in Asia, where I was never asked to pay a penny. The same goes for public speaking. Most people don’t know, but they can get top notch training for a few dollars a month.

Recently when I was in the USA for a seven month speaking tour, I discovered Toastmasters International, a non-profit organization dedicated to teaching public speaking and leadership to adults. The annual dues vary from club to club, but for about $60 a year you can participate in their educational program, giving a series of speeches, before a live audience. Each speech is evaluated by trained club members, and you will get extremely useful feedback on how to improve your technique. Clubs meet two to four times per month, and there are thousands of clubs in the USA. If you go on toastmasters.org you may be surprised to find there are multiple clubs within walking distance of your home or office.

Before I joined Toastmasters I already had no fear of public speaking. I had worked as a teacher for abut ten years and had a lifetime of sales experience. I had already done a slue of radio interviews and a few movies and TV shows. But the training I received from Toastmasters was priceless, and has had a major impact on the future of my career.

As a writer, I have learned that a book is the easiest piece to write, because I can ramble, unconcerned about limitations of length and word count. Magazine articles are harder, because they have strict rules about how many words can used. Newspapers are the hardest. I was once asked to write 250 words on the life of an activist I had met living in the jungles of northern Thailand among the tribes for thirteen years. He was a controversial character who had been marked for death by the Thai government, Shan State army, and Burmese warlords. How do you reduce that story to 250 words?

The timed speeches at Toastmasters forced me to learn the same economy with the spoken word which I have learned with the written word. Toastmasters speeches are generally only seven minutes, with time limits strictly enforced. Now, because of Toastmasters, when I am paid to do a 45 minute or one hour motivational speaking engagement, I simply break it into seven minute units in my head. Each seven minute unit is solid, concise, and powerful.

In addition to attracting people who need help with their public speaking techniques,

Toastmasters also attracts sales professionals, communications teachers, and radio and TV hosts. As a result, Toastmasters provides you with great networking opportunities.

While I was in USA, a number of Toastmasters friends arranged paid speaking engagements for me. One friend arrange for me to appear on a couple of talk shows. On talk shows, you speak in tight bursts, when your time comes. You never want to talk more than two minutes, and you don’t want to dominate other people’s talk time. A talk show is similar to a Toastmasters exercise called table topics, where members are given a topic and required to deliver a one and a half minute speech, with no preparation. I did about twenty or thirty radio interviews while I was in the States. Once again, you are forced to speak in one to three minute bursts, each of which must sound brilliant.

I met two Toastmasters members who both had their own radio show. They taught me about new media, web radio, web TV, internet audio and video techniques. Another Toastmasters taught me the importance of having audio and video clips readily accessible when applying for speaking engagements. Catherine Franz, a Toastmaster who does coaching for marketing professionals, taught me to use a digital recorder during business meetings. These raw audio clips can later be used to make CDs which could be sold as part of a marketing course. They could also be transposed into pamphlets of books which could be marketed on the internet.

Because of the press that I have received for my various adventures throughout Asia, BBC and Discovery both asked me to write proposals for a TV show I would be hosting, about martial arts in Asia. Because of my Toastmaster friends, I already had audio on my website. I also had audio and video CDs which I had recorded while giving Toastmaster speeches. I used these audio and video clips as demos, accompanying my proposal.

In the end, the major networks paid me a consulting fee, but passed on the show. Luckily, because of the lessons I learned from Toastmasters, I decided to hire a local film crew in Asia, and produce the show myself, with the help of a web radio and web TV network. Now, thanks to Toastmasters, my show, “Martial Arts Odyssey will begin shooting in Cambodia in October. It will be airing on web TV, around the world, in November.

Public speaking helps me produce products like DVDs and CDs which I sell, at a profit. public speaking allows me to speak well on my book tours, and radio and TV interviews. Public speaking gives me the ability to sell my ideas to others.

Public speaking is the cornerstone of any career. Improve your public speaking, and you will improve your income.

Setting Goals

2006-08-20T01:18:00.000-07:00

"I believe in setting some easily attainable goals. Then, once I have achieved them, I can move on to harder and harder goals.” Said Steve Martin. “First I want to become the master of time space and dimension. Then, I want to go to Europe.”

We all know that the only way to get anything done in life is by setting goals. But setting goals can be a tricky business. What if you set a goal of earning one million dollars this week? You probably won’t reach that goal. And if you fail, this will discourage you from trying next week. In fact, if the goal we set is too high, we won’t even begin to try and reach it.

So, in setting goals, we have to be realistic.

“My goal this week is to lay on the couch.”

Yipee! By Sunday afternoon, after the Jets game, you were a success.

This goal is attainable, but not particularly challenging. Achieving this goal won’t necessarily lead us to success.

When setting goals, use the acronym SMACT.

Goals should be Specific, Measurable, Attainable, Challenging and must include a time limit.

SMAC

Specific: “I want to do really well” is not a good goal. How are you defining “really well?” I want to get rich” is not a specific goal. How are you defining rich? A specific goal could mean the exact dollar amount you hope to earn for the week, month, or year. Or, it could be the number of sales you hope to make, or the number of calls, presentations, or doors you want to do. If you don’t set a specific goal, how will you know weather or not you have achieved it?

Measurable: Goals must be measurable. “I want to make more phone calls.” Is not enough. You must state the number of calls you wish to make. Setting your goals as numbers allows you to measure and monitor. You can track your progress. You can compare yesterday to today. And you can measure your percentage increase and improvement. Set goals as measurable parameters and you will feel a great sense of satisfaction when you achieve them.

Attainable: your goals must be attainable. If your goal is too high, you will fail. You will be discouraged from trying next time. By setting a series of attainable goals, you build your self-confidence and your self-esteem. Each time you set a new goal, you can make it slightly higher than the previous goal. This way, you are always striving for an attainable win.

Challenging: Goals must be challenging. You are setting goals to help motivate yourself to succeed and improve. If your goals are all things you have already done. Then you are not challenging yourself to improve to go the extra mile. Each time you achieve a goal, set the next goal slightly higher. Challenge yourself to fulfill your full potential.

Time limit: Goals must have time limits. It is not enough to say that you will do this or that, because then it is not a goal, it is a dream. And ten years later of you still haven’t achieved this goal, you can kid yourself into believing you will achieve it next year. By setting a time limit for your goal, you allow yourself to see the finish line. You will be able to pour on that extra burst of speed and energy to reach your deadline. Also you force yourself to admit that you have failed if you don’t meet a deadline.

If you fail to meet a deadline, you can reassess your goals and see if they were too challenging or if the deadline was too tight. Or maybe the problem was that you were too lazy or unfocused. Find out why you failed, reassess your goals and your behavior, and start all over again.

Remember in sales, it doesn’t matter what you did on your biggest day. It matters what you do on your average day.

Working the Impulse Curve

2006-08-06T04:43:00.000-07:00

By Antonio Graceffo

I walked into a grocery store in order to buy a can of coffee for $6.00. I left with two bags of groceries I didn’t need. I spent $40.00 and worst of all, I forgot the coffee.
Why do you find chewing gum, batteries, magazines, candy, crossword puzzles, and really bad books at the checkout counter of the grocery store? The reason is impulse purchasing. No one makes a special trip to the store to buy any of these items. But when you are in the process of paying for your milk and eggs, you may grab some of these items, without really knowing why.
Impulse selling is a technique used by merchants. They know how to lay out their shops or layout their wares in such a way that customers will see a product and purchase it, as an unplanned event. A salesman doesn’t have the luxury of waiting for impulse to strike a customer. Salespeople have to build impulse, create the desire to buy.
Behavioral psychology teaches us that our prospects, potential customers, exist on an impulse curve. They range from “not interested,” to “I’ll buy that,” to “I’ll buy that and what else have you got?”
Your job, as salesperson, is to take the prospect from ground zero “not interested,” through the impulse curve, to “I’ll buy that,” and if possible, to “What else have you got?”
So, how do we do this?
Within seconds of meeting a prospect you have to win them over. The most powerful weapon you have in your arsenal of influence is a smile. Smile at your prospect. Next, make eye contact. And of course, project an emotional state of excitement. You are excited about the offer you are going to make to your prospect. Excitement is contagious, make your prospect become excited about it too.
Once you have caught your prospect’s eye, you can begin speaking. Before launching into a sales pitch, you need an icebreaker. Look around his office and find something pleasant to say. It could be something as simple as, “I see you play golf. I am golfer myself.” Or, “What a fine looking family. I have two children of my own.”
Once a commonality has been established, and the ice is broken, you should introduce yourself. Keep it short, people are busy, and you are eating into their time. Your introduction should include your name and company name. Next, you need a short story. Information of any kind is easier to swallow if it is attached to a good story. It is easier to remember and more persuasive.
“A customer of mine had his car broken into last week. He called his insurance company, and found out that he was only covered for the damage to the windows and doors, but not for the stereo and other items stolen. That’s why he came to us, to get an umbrella policy, which would help cover those situations not covered by his regular insurance.”
Now you have contextualized your product. You have hopefully caught the prospect’s interest, and helped him to understand how you can help him. If the story is told right, the prospect will suddenly feel a need to buy a product that he didn’t even know existed ten minutes before you entered his office.
You are ready to go into your sales presentation.
Don’t be a robot. And don’t ignore your prospect. If you see that he expressed interest in the story, pause, and let him talk. When you said, “My client had his car broken into.” Maybe he nodded his head or registered emotion on his face. Stop, and ask, “have you ever had this happen to you?” If the client says “yes,” this is a signal of buy in, meaning he understands and believes what you are saying. This is the first of the buying signals. Stop, and let him tell his story.
The basic sales law always applies, ABC: Always Be Closing. Always be aware of the prospect, look for buying signs and changes in emotional state.
Don’t be a slave to your presentation. Go for the close when you think the prospect is ready. This can be before, during, or after the presentation. If at the end of the presentation the prospect isn’t ready for the close, bring him back to the story, or another story, or remind him of his bad experience in the past. Take him through a mini-presentation, hitting the highlights, reminding him of why he needs your product.
After the close, you are not done. Now, you go for the close on additional products, features, or service packages. For each additional product, go back to the presentation phase. Present the new product, and assume the close. The prospect is an intelligent person who sees the value of your products and services. He already trusts you. He just bought one product. Clearly he will buy more. Rehash, rehash, rehash, until the prospect stops buying.
When I was working in financial planning, a young planner, went to a very experienced and successful senior planner and asked her how much of a commission split she would require to help him close a $100,000 deal. She said, “I will help you close that deal. And you can keep 100% of that commission. But I want 50% of any additional products or services we sell.” Sure enough, she pumped the deal up to several million dollars. And both she and the junior rep were very happy with the outcome.
The customer who buys one, could buy two, or three, or additional features and services. So, re-hash, rehash, rehash.
Steps to working the impulse
1. Smile, eye-contact, enthusiasm
2. Break the ice
3. Tell a short story
4. Watch for reactions
5. Presentation
6. Close when prospect is ready
7. Re-hash, look for additional sales
8. Return to step 3 and work through the curve again and again, until you run out of products or the prospect runs out of money.
Checkout Antonio뭩 website http://speakingadventure.com/
Get Antonio뭩 books at amazon.com
The Monk from Brooklyn
Bikes, Boats, and Boxing Gloves
The Desert of Death on Three Wheels
Adventures in Formosa

Success Through Sales Activity Analysis

2006-07-08T23:15:00.000-07:00

When I was ten years old I failed a math test. Actually, I always failed math tests, but what made this instance unique was that I had actually studied. I went to my teacher and explained. “I have no idea how I did so badly on this test. I studied for twenty hours. I must have read chapter eight, ten times.” The teacher shook her head and said. “The test was over chapter nine.”

In life, it is not how hard we work that makes us success, but rather, how much time we spend, engaged in those activities that bring us closer to our desired result, which make us successful.

We all agree that hard work is necessary for success in sales but consistency and focus are also important. You could work 100 hours per week and earn nothing if you are working at the wrong tasks. Many salespeople who are failing will draw a line in the sand and say, “After this, I am not going home. I won’t see my family. I will work a million hours per week, and not stop till I’ve made it.” They become a stranger to their family, get fat, and give up all the things that make life living. But, in the end they don’t make anymore money than before. These people will eventually quit the sales profession, and walk away shaking their heads. “What does it take to make it?” They wonder.

The reason these salespeople can’t get their careers going, and the reason other salespeople can’t seem to make it to the next level, is because they don’t know what to do to make more money.

The key to increasing your sales revenues is to take stock of all of your activity. Increase those activities which generate income, and decrease or eliminate those that do not. People who fail in the business will often find that they just haven’t put in the hours. But for otherwise successful salespeople, who are trying to take it to the next level, the problem is normally that they need to reapportion the hours they work. Time is like money, you need to spend it wisely. Once you have a good program in place, once you are working smarter, you may even find that you can work less hours, but still increase your income.

To find the areas where you need to improve, you need to analyze your sales activity. To do this, of course you must first keep an active record of your activity. There is an entire science devoted to the documentation and tracking of sales activity. But briefly, keep a written record of the following items.

1. Calls: Calls made, people reached, appointments made (or sales made if you sell on the phone).

2. Appointments made, appointments kept

3. Deals closed

4. Deals that stick (sometimes we close the deal but the client cancels the sale or, in the case of insurance, or credit products, the company may cancel the sale because the customer is deemed unqualified.)

5. Commissions earned

Obviously if your prospecting method includes sending direct mail, networking, knocking on doors, you would track these activities in the same way as you track phone calls.

Your tracking should be done as accurately as possible. Obviously it should be done in writing, with activity recorded on a per day basis. You should also calculate monthly, quarterly, and annual totals. Keep calling sheets next to you while you are on the phone and write down the result of each call as you go. Many salespeople use symbols such an X for hang up, or P for pitched, or an N for no answer. Carry a notebook and record the outcome of each face to face meeting.

RECORD EVERYTHING! Acts of God, natural disasters, wars, pestilence, out of body experiences and space aliens can often interfere with your sales. Record them. No matter how unusual the event which decreased your activity in a given time period, you must record it. You will also have lucky streaks and windfalls, which pump your numbers up. In the end it will all average out. And remember, you should base all of your decisions on your average day, week, month or year, not your best or worst.

Once you have calculated your activity averages for a period of a week, a month, or longer, then we can apply a basic analysis to see where you need to apply more energy.

1. Calls

a. If your total call volume is low, you simply need to make more calls.

b. If your call volume is high, but your “decision makers reached” is low, then making more calls won’t help. Maybe you need to improve your phone technique, if you are not getting past the gatekeepers. Or, you may need to change the day or time of day that you are calling this particular market segment. For example, if you sell to restaurants, don’t call during meal time. If you are selling to stockbrokers, don’t call while the market is open. Doctors are often swamped on Mondays, so shift your calling to Tuesday. Retailers get their deliveries in the early morning, so this might not be the best time to call them.

2. Appointments

a. If your appointments made is low, but your “decision makers reached” is high, then you need to improve your phone technique.

b. If your appointments made is high, but your appointments kept is low, then you need to make sure you are closing the appointment on the phone. Make sure the prospect knows you are coming in for an appointment, not just stopping by to drop off literature. Make sure he or she knows that your time is valuable, and this appointment is just like any other business appointment and it needs to be kept.

c. Many sales people are taught “never take no for an answer.” They are taught to hang on and hang on, fighting for the appointment, no matter how many times the customer says “no.” The danger with this strategy is that the customer may say “yes” to an appointment just to get you off the phone, but in reality, he or she has no interest in seeing you, and the appointment will not stick.

3. If your appointments kept is high, but your closes are low, you need to work on closing technique.

4. If your deals closed is high, but your cancellations are high you need to do one of two things. If the customers are being rejected by your firm, then you need to do a better job of prescreening or pre-qualifying the customer. We all want to make sales. But it is a waste of time to close an unqualified customer. If you see that the client is poor, or will be overburdened with payments, obviously, your credit department will kill the sale. If the sales aren’t sticking because the clients are canceling, then you need to improve your closing skills. Make sure the deal is really closed before you leave. Create a sense of need and urgency in the client, so he wouldn’t even dream of canceling. Also, don’t “hit them over the head to make the sale.” Once again, we don’t want to take no for an answer, but if the customer is only buying to get rid of us, they will cancel the sale as soon as we leave the office. REMEMBER, all buyers go through buyer’s remorse. Your job, as a sales therapist, is to prevent the syndrome from setting in and to help the client through it when it hits. If not, you will lose the sale.

5. Commissions earned: If all of your other activity numbers are high, but your average commission is low, this means that you need to increase the size of your sale. If you are selling high involvement, high price products like cars or houses, you may want to focus on a higher income prospect base, and sell them the higher priced products. If you are selling low involvement, low priced products, then you will need to become a master of rehash, this means once you have closed for one item, say a shirt, then try to sell the customer the matching pants. After the pants, you will want to go the shoes, the tie, the jewelry, and finally, the second outfit. You keep rehashing until the client cannot or will not buy anything else.

The Steps to achieving success through sales activity analysis

1. track your activity

2. Analyze your activity

3. Increase your activity in those areas that need it.

You may find that by improving your phone technique, you can make more appointments with less phone calls made, and so you can work less hours per week. If you improve your closing ratio, you can go on less appointments. If you increase you appointments kept, you can decrease your time consuming wild goose chases, where the client stands you up. And if you increase your average commissions, you may be able to decrease the number of sales made, and still make more money.

In sales it isn’t about how hard you worked to get there. It is only about getting there. Focus your energy on making the most money with the least wasted energy.

Give Yourself a Raise

2006-06-26T18:29:00.000-07:00

This is from a motivational speech I gave to group of salespeople. Management wanted a 10% increase in sales. My solution was to teach the sales staff how to increase their income by 10% while only increasing their activity by 2%.

Give Yourself a Raise
By Antonio Graceffo

Before I begin I would like to tell you a little story. It is a story about courage, a story about advancing, a story about conquering. Most importantly, it is a story about never giving up.

I don’t like to name drop, but I have a cousin named William Flugelhoffen. William, we called him Billy at home, actually we called him Little Billy, Little Billy was different than other boys. He was driven. He had a mission. He wanted to invent the best recipe for fried chicken that anyone had ever eaten. And while the other kids were out playing baseball and football, Billy was in the kitchen, cooking fried chicken.

As you could imagine Billy took some ribbing for that. The other kids made fun of him. But he said, “I have a mission. I have a dream. And I will see my dream become a reality. I will make the world’s best fried chicken. The whole world will have clogged arteries, and they will know it is from me, William Flugelhoffen.”

As an adult, Billy had the option of attending university. But he said, “No, I am not going to university. Instead, I am going to follow my dream.”

So, he took the money his parents had saved for his education and he used that money to start his business. Everyday, he got up. He put on a suit and tie, and he marched into the city. He walked into every single restaurant, and demanded, not asked, not begged, he demanded that they buy his chicken recipe from him.

“I am not going to sell it for a thousand dollars, or ten thousand, a hundred thousand, or even a million dollars.” He told them. “Because this is the greatest recipe in the world.” Instead, Billy told them, “What I am going to do is, I am going to give you the recipe for free. And in return, you are going to give me ten percent of all your chicken sales for the rest of your life.”

People thought Billy’s plan was crazy. But the second half was even more outrageous. “After I sell you my recipe, then I am going to help you go national, and then I am going to help you go global.”

The first place he walked into said, “That’s great! We have been waiting for you.”

No, actually, they said “NO!”

The next place also said “NO!” as did, the next, and the next and the next.

Undiscouraged, Billy still got up, everyday, took a shower, shaved his face, put on his suit and tie, and believed in himself. He stood in front of a mirror and did affirmations. He looked himself right in the eye and said, “I am a sexy beast!” He pumped himself up. He marched into the city, with his chest proud, a big bag of chicken in one hand and a recipe in the other. He walked into restaurants, and although he had heard “NO!” so many times, each time he walked into a restaurant he demanded that they buy his chicken recipe. Rather than showing the fatigue that constant rejection brought him, he made it sound like the first time he ever said it.

He started from scratch, and he said “I am here to make a you a lot of money. Billy knew that people are not motivated by helping others. They are most strongly motivated by helping themselves. Consequently, instead of going in and asking them to help Billy become a success, he went in and told them he was going to make them more successful. And that is the kind of talk that gets people’s attention.

But still, they said “NO!”

Finally, after eight months, all of Billy’s money was gone. He was borrowing from his parents, borrowing from his friends, and selling his possessions to get money for carfare into the city each day. People began to say to him, “Billy, maybe it’s not going to happen for you. Maybe you should just take NO and stop.”

But Billy said, “I will not stop, until in have heard NO! one-thousand times.”

Ladies and gentlemen I ask you, how many of you would have quit when you had heard nine-hundred NO’s?

More about Billy in a moment. Let’s talk about you. Let’s talk about sales, the greatest profession in the world.

According to recent reports, the inflation in the USA is about 3%. Government workers can look forward to about a 2-3% cost of living adjustment.

But for you, SALESPEOPLE, you can chose to give yourselves whatever size salary increase you want.

How would you like to give yourself a 10% increase in salary, but only have to increase your work by 2%?

If you are currently working fifty hours per week, a 2% increase is only going to be one extra hour per week.

Think about your weekly salary. What is 10% of that number? That is the amount you will earn for one extra hour of work.

If one additional hour of work gives you an extra ten percent of salary, then it must follow that an additional five hours gives you and extra fifty percent of salary.

How do we do this? How do we increase our work by only two percent but increase earnings by ten percent?

The answer lies in your activity.

During the course of the day, do you ever do anything that doesn’t generate an income? Of course you do. Do you answer the phone, file paperwork, think about your family, drink coffee, fill in forms, make copies, write reports, eat lunch, go to meetings, or use the toilet?

None of those activities generate an income. But there is a certain amount of that stuff which is necessary just to stay in business. We call this overhead activity.

In truth, the only activity that generates income is getting new clients.

If we analyse the day of most sales people, working forty to fifty hours per week, we will find that they spend less than 20% of their day looking for new clients. So, if we increase that activity by 10%, we increase our income by 10%.

But your workweek will only increase by two percent.

My father told me that when he was a boy there was a machine to roll cigarettes. When you turned it once, it measured the tobacco. You turned it again, and it poured the tobacco. The next turn rolled the paper and sealed it. The final turn dropped the finished cigarette into your hand. To get the first cigarette you had to turn the handle five times. But once the first one was done, one turn equaled one cigarette.

The same goes for your work. All those first forty to fifty hours you put in are overhead, priming the pump. Every hour you put in beyond that pays off tremendously.

Let me finish telling you about my cousin William Flugelhoffen. Little Billy heard nine-hundred and ninety-nine “NO’s.” But, when he went on the one-thousandth call, the one none of us would have gone on, do you know what the restaurant owner said?

He also said “NO!”

True to his word, Billy quit when he heard “NO!” one thousand times.” Now he parks cars out in Vegas.

He quit. Not a very inspiring story. But there is another man who had a dream for fried chicken. What was his name?

Colonel sanders.

Do you know how old Colonel Sanders was when he started KFC? He was 62 years old. He started the company with his first social security check, which was only $100. To make matters worse, he was living in his car. He used the check to buy gas, so he could drive from city to city, asking restaurants to buy his chicken recipe.

Do you know how many times he heard “NO!”?

He heard “NO!” one thousand and ten times.

I am going to ask you to work like the colonel. What does a colonel do on the battlefield? Go forth, advance, and conquer.

Colonel Sanders had a much greater success than my cousin Billy Flugelhoffen, simply because the Colonel knocked on ten more doors than Billy.

What do you do now to get new clients? If you use cold calling, increase your calls by ten percent. So, if you do a hundred calls a day, increase it to a hundred and ten. Ten phone calls will probably only cost you three minutes. If you use direct mail, increase the number of letters by ten percent. Ten letters won’t cost you any extra time. If you are canvassing, knock on ten extra doors per day. If you are going to networking events, getting business cards from people, and then going back and trying to sell to them, I am going to ask you to pick up ten percent more cards.

People often ask me, “Antonio if we increase our activity by ten percent this year, will we be required to increase by ten percent again next year?”

If I can restate that question, what they are asking is, “if we achieve excellence this year, would it be ok if we achieved mediocrity next year?”

You can answer that question yourself.

People are afraid that you will keep asking, and asking for increased activity. But remember this is not just an increase in activity. This is an increase in salary. The normal way for humans is that we are lazy. But, we are also greedy. If you find that increasing your work by an hour increases your income by ten percent, then why not two hours, and twenty percent, or three hours…or more?

A friend of mine had been fretting about his weight for years. Then, he went on a diet and exercise program. In the first month he lost ten pounds.

“You must be happy.” I said.

He said, “I feel like a jerk. Why didn’t I do this a year ago?”

It is the same way when you get your first salary increase. You will look at the check and think of all the things you could have bought, for yourself or your family, if you had just worked an extra one or two hours per week.

A very great and wise philosopher once said, “Anything is possible, if you wish hard enough.”

Do you know who said that? Sometimes, my audience believes it was Thomas Edison, or Henry Ford, once, they thought I had said that. While I was flattered, the real answer is, this was said by Peter Pan.

Thus, the best prescription to success is to work like Colonel Sanders, and to think like Peter Pan.

Breaking it Down to the Ridiculous

2006-06-18T12:20:00.000-07:00

My Uncle Carmine always said, “If you want to walk back from the market with money, first you have to walk to the market with olives.” The trip, from his little village, to the market in Favara took four and a half hours, and he only made a few dollars profit on each round trip. So, I asked him once, “But Uncle Carmine, how did you get so rich?” He answered, “I made a lot of trips.”

“A journey of a thousand miles begins with a single step.”

We have all heard this expression so many times, in so many motivational speeches, that it has lost its power. This is unfortunate, however, because this statement demonstrates what is arguably the most important concept in the world of sales.

Picture your life as a path, with a starting and ending point. You begin a sales career with no money, no income, no customers, and no business. At the end, you want to have a ton of customers, a huge business, employees, a house, money in the bank, your family taken care of, and your retirement provided for.

The task of getting from the starting point to the finish line, the task of succeeding in a sales career, can seem so daunting, that you won’t even want to begin.

When I climbed San Cha Shan, the second largest mountain in Taiwan, standing at the bottom, I couldn’t even see the summit, some 4,000 meters above me. It took a lot of motivation to will my body to take even the first step. Along the way, the jungle was so dense, I could barely see two steps in front of me, much less, all the way to the top. Thoughts of quitting entered my head every step of the way. On muddy slopes, my legs flew out from under me, and I slid back down, losing precious ground, which I would have to climb again. Dense foliage ripped at my skin and held me back. At other times, we were faced with a shortage of water. When it rained, we were soaked through and freezing cold.

We pushed on and on, and two and half days later, I was standing on the roof of Taiwan. Although I had wanted nothing more than to quit, while we were en route, once I was standing on that mist covered pinnacle gazing down at the natural wonders below me, I didn’t experience even an ounce of regret. I had done!

But how do we do it? How do we motivate ourselves to do the seemingly impossible?

When you want people to perform you “dangle the carrot in front of them,” or you “show them the money.” But how do you motivate yourself when the carrot is so far off and you can’t see the money?

Remember that motivation, whether your are motivating yourself or others, is just a form of negotiation. When I was working in China, I learned that the Chinese would never walk in, on the first day, and ask for the world. Instead, they would only ask for an inch, which you would gladly give them. Then, the next day, they would ask for another inch. And when they got that, they would ask for another inch…and so on, until they gained the entire world.

When the Chinese negotiator asked for that first inch, he wouldn’t divulge that his plan was to conquer the whole world. Instead, he would break his request into smaller and smaller pieces, until they were ridiculous. “We are old friends.” He would say. “You want to maintain good relationships with your friends don’t you? So, why not give me just one inch? Is one inch too much? Surely a man in your position could afford to give up one inch to preserve a good relationship.”

I have seen Chinese business men who seem to operate on a one thousand year timeline, returning to the negotiating table, over and over again, asking for the smallest, stupidest concession. When the negotiations were finally done, the other party left the table wearing nothing but a barrel and a pair of suspenders.

By breaking it down to the ridiculous, you can gain anything. Break your request down to such an infinitesimally small unit, that the person you are negotiating with can’t say “NO.”

So, how does the concept of breaking it down to the ridiculous relate to your personal motivation?

When you are standing at the beginning of that thirty year time line, where you are starting with nothing, and hoping to end with millions, don’t ask yourself to do thirty years worth of work. And don’t ask yourself to earn millions. Break your request down. Break your goal down into sub goals, smaller goals, partial goals and series of goals. Break your goals down until they become ridiculous.

Breaking it down to the ridiculous, just like any other sales strategy, will only work if you are doing excellent tracking of your activity. You must employ a system of accurate record keeping, documenting your sales efforts: calls made, door knocked on, referrals asked for, mail sent, email sent, presentations attempted, presentations made, cases opened, cases closed, and average commissions earned. And of course, to monitor your progress toward your goal, you need to know what your goal is. Make your goals stated, attainable, timely, and challenging

Start with your final salary goal for the year. Let’s say it is $100,000. Next, let’s assume your average commission is $200. You need to make 500 sales in order to reach your annual salary goal.

Don’t ask yourself to make 500 sales on the first day. BREAK IT DOWN!

There are 50 working weeks in a year. So, you need 10 sales per week. So, on the first Monday of your new life, only ask yourself to make 10 sales that week.

If this number seems to daunting, then break it down further. Ask your self to make two sales per day. Still too much? Ask yourself to make one sale before lunch and one after.

Look at your activity. How many calls do you need to make one sale? Is it 200? Then ask yourself to only make 200 calls before lunch. If this seems too much, break it down, ask yourself to make fifty calls in one hour.

Surely 50 calls in one hour isn’t too much. Probably two-thirds of the people you call won’t even be there. So, all you are asking yourself to do is to talk to about 15 people per hour. Is fifteen too many? Ask yourself to call 25 people in a half hour, and talk to 8.

Twenty-five calls per half hour, that equals one call per minute. One call per minute is not so bad. Every call you make, where you don’t reach someone or where you get hung up on, puts you ahead of schedule. If you track your dials closely, you can get excited. “I have only been on the phone fifteen minutes but I have already made twenty calls. I am way ahead of the game.”

Remember that sales is a marathon, not a sprint. The activity you do today gets you that much closer to the house, the money, the retirement, the airplane, whatever it is that you want. Hang pictures of the dream house, the plane, and the money over your desk. Every time you feel call reluctance or activity laziness, just ask yourself. “Twenty-five calls in thirty minutes, is that too much to ask in order to get my beach house and my Porsche?”

Break it down to the ridiculous, and your sales day will be easier to swallow.

Cold Canvassing, The Way It Was Done by Antonio Graceffo

2006-06-11T11:16:00.000-07:00

Learning a Lesson from the Old Guys

A travelling salesman’s car broke down and he had to sleep at a farmer’s house. The farmer invited the salesman to have dinner with him. The salesman, however, was appalled at how dirty the dishes were. Afraid to eat, but not wanting to sound rude, the salesman asked, “Are you sure these dishes are clean?”

“They’re as clean as Cold Water can get them.” Answered the farmer.

“When in Rome.” Thought the salesman, as he began to eat, in spite of the filth.

The farmer’s dog came in through an open door. Seeing the salesman, he began barking ferociously. The farmer shouted at the dog, calling him by name. “Cold Water! Stop barking or I won’t let you clean the dishes.”

We have all heard thousands of jokes about the travelling salesman. But have you actually known a travelling salesman? I had the good fortune of reading the memoirs of an uncle, by marriage, who had been a real travelling salesman, in the days just before World War Two. He drove from town to town, calling on factories, without an appointment, selling burglar alarms.

As you can imagine, it was a tough job. He had to pay all of his travel expenses, fuel, food, and hotel bills. He had to carry product samples in his car. And of course, he got a lot of doors slammed in his face. He was also bitten by dogs and occasionally rough-handled by security guards. The sale required a lot of trust because many companies at that time paid in cash. And, of course, there were any number of fake salesmen ready to bilk the customers out of their money.

The job did have a bright side, however. With cold canvassing, calling on businesses without an appointment, the salesman had the opportunity to make a face-to-face impression on the prospect. In a cold call, on the phone, you have about three to five seconds to peak a prospect’s interest. In cold canvassing, face-to-face, you have more like 15 seconds to hook them. On your second round of cold-calling, it is very likely that a prospect will not remember you. But on a second round of cold canvassing, there is a good chance that the client will remember you. Hopefully the client will warm to you, and by the third time through the area, he may reward your persistence by giving you a brief meeting to present your products.

Although you may not want to become the proverbial travelling salesman, you may want to incorporate cold canvassing into your business model. You could devote one day a week to cold canvassing. Chose a geographical area, part of your town or neighborhood and begin knocking on doors. The effectiveness ratios in cold canvassing, at least on the first pass, are very similar to those of cold calling. You will be stymied by gatekeepers, business owners who are out of town, or too busy to speak with you, all of the same issues you encounter in cold calling. So, it is a numbers game. Challenge yourself to hit 80-100 doors per day.

On the first round through an area, cold canvassing may just be a welcome diversion from being on the phone all day. On the second and third rounds, however, the effectiveness will increase dramatically.

If you space out your visits you may get some of the prospects who initially said “no” because they didn’t need your product or service at that time. Now they are ready to buy, and it is easier for them to buy from you, who has just walked into their office, rather than to go to the store and buy. Additionally, you will have an advantage of the person who is cold calling the same business, offering the same product, because the customer feels he knows you now and can trust you more than a voice on the phone.

If you are in relationship sales, where you would be both opening and maintaining the account. A good selling point would be, “Mr. Jones you aren’t even my client yet, and I came to see you three times. Can you imagine how much better I will take care of you once you become a client?” Or, “I can assure you that you will get excellent service. As you see, I am on a regular schedule where I come through this area every second Wednesday. So, I will stop in and help you with any problems you have.”

Recently, in New York, I had the good fortune to be able to go into the field with a sales outsourcing company, called Unlimited, whose entire business model is built around cold canvassing. Unlimited outsources sales for Fortune Five Hundred companies. It is cheaper for these companies to use Unlimited than to hire their own sales people. Unlimited has thousands of salespeople in the field, in various cities, selling everything from long distance services and office supplies, to credit card processing systems and time card machines.

The sales reps have a long day. They attend a one hour training session, beginning at 7:45 in the morning. They canvass from 9:00 to 5:00, with the goal of hitting 60-100 businesses per day. The company maintains sales statistics, which state, for every 100 doors, the salesman will get in front of 12 decision makers, and close 3-4 sales per day. Closing 4-5 deals out of 100 doors means that by the end of the day, each of the sales people has had 95 doors slammed in his face. It is a lot of rejection for a commission-only salesperson. At the end of the day, they return to the office and have a two-hour training session. The sales manager, Hector, is a master of motivation. He uses humor and energy to keep his people UP.

To keep from saturating an area, but to avoid missing selling opportunities, each rep is assigned two territories, which he works for a period of two months. He works one week in territory A, followed by a week in territory B. the next week, he is back in territory A. By the end of two months, he should mean that he has seen every account three times. This gives ample opportunity for decision makers who are away on business, too busy or who are legitimately interested, but had just placed an order with another firm. As for the others, once they have said “NO” on three occasions, it is a good bet that fourth visit wouldn’t be productive.

At the end of two months, the reps get a new set of two territories.

The company uses a proprietary sales system, with has structures and procedures for everything. This is an important lesson for salespeople. Many salespeople work independently, and so they lack structure. The most successful salespeople are the ones who impose strict rules and rigid schedules on themselves.

Several of the big hitters in the company told me that the bulk of their sales came at the end of the day, after 80 or more doors, when most people would already have quit. One big seller, Yancey, told me he made four of his five sales on his last four doors.

No matter what sales techniques you use, sales is a numbers game. The more people you call, see, visit, or mail, the more sales you will make. You have to keep your energy up and move forward with a positive attitude. The cold-canvas salespeople had an expression, they said, “Treat every door the same.” This means treat the potentially big customer the same as the potentially small customer, because you never actually know the size of the order until you close the deal. Also, you don’t know what you may close on a given day. I would rather close a small one, than close nothing.

“Treat every door the same” has a second meaning: When you knock on your one-thousandth door, you must pretend it is the first door of the day. No matter how many times you have heard “NO” that day, the chance of hearing “YES” at this door will increase if you smile, projecting confidence and energy.

Audio: The Greatest insurance Salesman

2006-06-04T12:45:00.000-07:00

Salesman Photo

2006-06-04T10:08:00.000-07:00

Active Prospecting

2006-06-03T20:49:00.000-07:00

An investment bank I was working for put up millions of dollars to build a soap factory in China. Bank representatives flew over to China several times to oversee the construction of the facility. Once the factory was open, they kept close tabs on the production, and were amazed at how hard-working the Chinese employees were, doing shifts around the clock, seven days a week, producing several times more soap than the bank had ever dreamed of.

But as the months wore on, the bank was concerned that sales figures were incredibly low. Thinking that they may have been cheated, the bank sent auditors to China. When the auditors arrived, they saw the factory dwarfed by an enormous warehouse. “What is that?” they asked.

“That is where we keep all the soap we have been making.” Answered the factory owner.

“But don’t you have any plans to sell the soap?” Asked the auditors.

“Yes we do.” Answered the owner. “Any customers who come to the factory are welcome to buy the soap. So far, not many have come.”

Needless today, the bank cut their losses on the soap factory. They were hoping to find another investment opportunity, one with a more proactive marketing scheme.

Salespeople and shopkeepers both sell. But there is a fundamental difference. Shopkeepers depend heavily on advertising and promotions. They can sit back and wait for customers to come in and buy. They also get a great deal of walk-ins, customers who were passing by and either realized that they needed something, or were attracted by an item in the window.

Salespeople, on the other hand, must go out and find their own customers. Sitting in your office, waiting for people to buy, you could starve to death.

The process of finding customers is called prospecting. Prospecting can take many forms, each of which has its advantages and disadvantages: Cold calling, direct mail, referred lead prospecting, networking, and cold canvassing.

Cold calling has been the traditional means for most salespeople to obtain customers. Cold calling can serve two purposes. For simple products, low involvement, low price products cold calling can be a means of selling. In other words, the products can actually be sold on the phone. For higher involvement, high cost, or complicated products, cold calling is normally used to setup appointments for sales presentations.

Cold calling is strictly a numbers game. The more you call, the higher the probability of making one sale or setting one appointment. In general, private homes are so saturated with telemarketing calls that people hang up instantly, resulting in a dramatic drop in the efficacy of cold calling in consumer sales. In business to business sales cold calling may still be effective, particularly if you are calling to set an appointment, rather than selling a product. In general, in business to business sales, you could expect to set three appointments per hundred calls. With consumers, the number increases dramatically.

Stockbrokers who sell financial products to customers over the phone expect to make thousands of calls before making a single sale.

Generally 50% of appointments made over the phone, from a cold call, will cancel, no show, or re-schedule. So you need to make nearly double as many appointments as you need to fill up your week.

Direct mail is the junk mail we receive daily. Most of us throw this mail away without even opening it. In the past, it was believed that direct mail had a 1% effectiveness. Recently, a statistic was published stating that the effectiveness of direct mail was half of one percent.

If you need to make three sales per week, you will need to send 600 pieces of mail. In my own business, including advertising materials and postage, one direct mail piece costs me about $2.50. So, 600 pieces would run me $1,500. Even if you can keep your cost down to .80 per piece, you are still looking at a cost of $480 per week to close three sales. Your average commission better be extremely high if you are going to depend exclusively on direct mail.

Direct email is free and easy to send. The only major draw back is that the effectiveness is infinitesimal.

Referred lead prospecting: Asking friends, family, or existing customers for referrals. A potential problem is that people are afraid that if they give a name and you try to sell insurance or Amway to that person, that the friendship will be lost. This method works best for business to business sales, as business people are more apt to give up the names of other business people, than they would be to give up names of friends and relatives.

Most insurance sales jobs begin by having the new salesperson make a list of friends and family. The average person knows about 200 people. If you can get one third of them, about 70 people, to give you ten referrals each, then you will be starting off with a list of 700 names to call. From that list, you should get appointments with thirty percent, about 170 people, and be able to close a sale with thirty percent, about 55 sales.

An extremely successful insurance agent makes 100 sales per year. Where do the other 45 sales come from? You get the 55 new clients to give you three names each, 165 names, and you close thirty percent, 55 more sales. This gives you more than 100 for the year.

Although you should definitely employ this strategy, and constantly ask for referrals, at every step of the sales process, don’t count on these numbers holding up. They rarely do. Most insurance salespeople start out with a bang, selling to friends, family, and close referrals. Two months later, they are out of names.

Unless your parents are super-wealthy business people or politicians, your family probably doesn’t have enough contacts you need to make it in sales.

Once, when I was a temp at a brokerage firm, the top salesman said to me. “I never even ask the new guys about their friends and family. No matter who you are, your contacts are this much.” He measured out about two inches with his fingers. “But you need this much.” This time he measured out two feet.

For many novice salespeople, their career ends when they have sold to everyone they know. Some will then try another product, and another, with the same results, until their family and friends are saturated with insurance, vacuum cleaners, cutlery, or whatever other products they have tried to sell.

Networking is an extremely effective way to market. Make sure you always carry fifty to a hundred business cards to each networking event you attend. Try to meet and get a business card from every single person in the room. Talk to each person for no more than two minutes. Focus on them! A quick icebreaker is to ask “What is the biggest challenge you face in your field?” This is much better than the mundane “What do you do for a living?” Also, “Tell me about the challenges you face,” requires an essay type answer. The question shows you are interested in the person, and it opens up an opportunity for them to talk about themselves.

People love to talk about themselves. Listen intently and you decide where the synergy lays. Your challenge is to uncover the potential need for your product or service. Write significant data on the back of the person’s business card, such as “unhappy with his current service provider,” or “ships fifty metric tons per month.” The next morning you won’t remember which person gave you which card. Write a brief description of the person on the card, “fifties, fat, with glasses, looks like Uncle Schlomo.” If the first name is not gender revealing, write the person’s sex on the back of the card as well.

Networking is, by far, my favorite means of prospecting, and the way that I have built every business I have ever run. One major disadvantage of networking is that it is easy to get sidetracked, and to forget why you are attending the cocktail party or event. Networking is also very time consuming. It often costs money for these events and you get fat eating all those finger foods. Also, most networking opportunities are in the evenings, so it means late nights.

Being a salesman, as you know, means working a 24 hour day. If you are married or have children you may want to get home before your kids go to bed or your spouse forgets what you look like. Going home early can adversely impact your ability to build a client base.

Another method of prospecting is called, cold canvassing. This means stopping into companies and asking to see the owner. The effectiveness ratio is similar to that of cold calling. To be successful you will need to knock on 60 to 100 doors per day. It is time consuming, exhausting, and of course, you are out in the weather. Often, you won’t meet a decision-maker. An aggressive sales company in New York, who depends exclusively on cold canvassing, said that their effectiveness ratio ran like this: 80 doors, will give you 12 decision makers, and you will make 3-4 sales.

Are you depressed yet? Sales is a tough racket, but it is the only career with unlimited earning potential.

A wise man once said “The harder I work, the luckier I get.” The odds of selling anything by sitting back, listening to music and popping a beer are minimal. But by working you can increase your odds.

Since we have already established that a salesman can’t sell anything to himself, sitting in a room alone. Then the obvious answer is that a salesman should spend his day in front of people, selling to them, or, trying to get in front of people so you could sell to them.

To be successful, it would be best to use a mix of prospecting methods. For example:

1. You should definitely start by making a list of friends, family, and customers, and get as many referrals from them as possible. You should revisit this list approximately every three to six months and see if they have more names for you.

2. Remember to ask for the referral at every step of the sales process. When you initially call to set an appointment ask for a referral. At the first meeting ask for a referral. At the point of sale ask for a referral. At the time of delivery ask for a referral. When you do your service calls or follow up visits, ask for referrals.

3. Since you have to eat meals anyway, look for networking events held at meal times. Many organizations offer early morning breakfast events for business people. Wouldn’t it be nice to arrive at the office with the business cards of ten new prospects in your pocket? Attend another networking event at lunch, and again at dinner. BUT! Remember, networking is not a job. You are there to get business cards, get face time, and make appointments for sales.

4. You could schedule one or two canvassing days per week. Also, every time you leave the office, you go out to get coffee, or visit a client, you should stop into businesses on the way and introduce yourself.

5. Use cold calling to round out your week or fill in the gaps in your schedule.

6. Think of targeted direct mail programs you can do which will give you the most bang for the buck. At the end of every month I used to send one piece of mail to each business card I had collected during the month who didn’t become a client. Since I already had the card, this meant I had already met the person at least once, called them, and now this piece of mail would be at least a third contact. Always follow up with a phone call.

You can make the money. People are going to spend it anyway. You might as well get your cut. But sales is a job, you have to work. Put in the hours, and good things will come to you.

If this article makes sense to you, and you would like to hire me to teach sales training workshops at your company, contact me.

Activity, not Talent, Will Make You a Success

2006-05-29T06:54:00.000-07:00

My Uncle Corragio wanted to be the greatest insurance salesman in the world. But, the first three hundred people he called on all said “no.”
His friends told him, Corragio, you will never make it, you should quit. But Corragio stuck to his guns. He said, “No! No! No! I will not quit till I am the greatest salesman in the world.”

After five hundred calls he finally made one sale. He called me up and said, “Antonio, you know about sales. Help me.”

I said, “Corragio, let’s look at what you did right on this sale, and then we will just repeat that on the next sale, and you will get wealthy.” So I asked Corragio, “Tell me exactly, word for word what you said to close this sale, and we will say that on the next one.”

Corragio told me, “I was at the clients house. I kneeled down on the floor crying. Finally I put my hands together and begged, Mama, please, you have to buy the insurance.”

I advised Corragio to find a new line of wok.

When I am doing sales consulting, the most frequent problem that salespeople tell me they are experiencing in their career is that they aren’t making enough money. When I ask them why they think that is, they often say, “I just can’t seem to close.”
We all agree that closing is important. And the basic rule ABC, always be closing, applies from the fist telephone contact with the client, when you begin laying ground work for the close, straight on through the delivery of the product, when you are laying ground work for the next sale. BUT! Closing ratio is not what separates the wealthy salesperson from the one who has to borrow money form his or her mother to pay the rent.
The one aspect of a salesperson’s behavior that ill immediately make or break him, is ACTIVITY. Here, activity is defined as the time spent prospecting, looking for new clients. If you lose one sale, and you definitely will, it won’t matter to you if you have ten more prospects lined up.
How many times have you found yourself at the end of the month, staring at an abysmal sales sheet, which is going to result in an abysmal paycheck? If the rent is due, the credit card bills are in, and you are making car payments, you feel a pressure in your chest. You want to get out of sales. You panic. Then, you decided to focus on the next prospect. “This sale is make-or-break.” You tell yourself. Actually, that sale is not make or break. An you wouldn’t believe that it was make or break if you had ten, rather than one more prospect lined up. That single meeting is no different than any other sale. But because you are in such dire financial straights, you will treat it differently. You will want it to much, and you ill blow it.
You are a professional. You know the steps and phases you need to go through to close the deal. But you are going to skip steps, get out of your rhythm and lose the sale, because you didn’t have enough other business. You will lose your best prospect an be back to zero.
Let’s say you get lucky and close that one deal, and somehow mange to save your month. First of all, do you want to live by luck? You became a salesperson, because salespeople, as opposed to employees, are complete in control of their own destiny. Closing the deal gives you a boost of confidence, and falsely leads you to believe that you are handling your business well. Remember that every time you close a deal, you still lose your best prospect, because that prospect becomes a client.
Once you close the deal, you have to line up another prospect to take the one who you just lost. The inability to find that next client accounts for the boom-and-but cycle that most sales people go through.
The point this is leading to I that whether you are a good closer or a bad closer, you have to have a lot of prospects lined up, or you will starve.
The number one “secret” people ask me is, “How do I close?” Closing is an art, and on some level it can be taught and learned. On some level, I believe it is a talent, like playing music, some people have it and some people don’t. Does that mean that some people are destined to be more successful salespeople? Absolutely not! Sales figures have proven, time and time again, that talent doesn’t make you rich. Education doesn’t make you rich. Even being a good closer doesn’t make you rich. The thing that makes you rich is activity, getting on the phone, or out on the street and pulling in prospects. No amount of talent can replace good old-fashioned hard work.
Before we talk about closing ratio or activity we have to stress the importance of tracking, quantifying your sales activity. You should keep detailed record of how many people you called, how many you spoke to, how many you sat with, and how many you closed. Once we have these kinds of numbers then we can analyze and determine where a salesperson can improve. If you have a high number of appointments, but sales, then your closing ration may be the problem. Low appointments and low income, obviously you need more appointments. Lots of appointments set, but few meetings kept, means that you aren’t effectively closing the appointments before hanging up the phone.
At a company where I worked once, there were three star salesmen. Brent and Jason were nearly identical twins. They were both six feet tall, good looking, all-American kids, who had pledged a fraternity in college. People took an instant liking to them. They couldn’t be bothered to actually learn anything about the product, but just on the strength of their personality, they were able to close 60% of their sales. Most sales people are in the 30-50% range. They would each schedule three to four meetings a week, close two, and make it onto the sales board, where most people were struggling to close one. The were notoriously lazy. They never showed up at sales meetings, and stayed out all day, shopping and visiting friends.
The other star salesman, Michael, was a notoriously bad closer. His closing ratio ran about 20%. BUT, Michael worked hard, ten or twelve hours a day. He schedules 18 meetings a week, and closed three to four of them.
Brent and Jason were shocked when Michael won the award for highest sales of the year. Michale proved that hard work, not talent make the salesman successful.
Look at your own sales numbers. If your closing ratio stayed exactly as it is, how many meetings would you need to make the income you want? Once you have that number, pick up the phone and start prospecting.