Jan 5, 2023 | Customers, Management, Sales
In almost every situation I have ever seen, ‘Sales’ includes all sales, and salespeople are often rewarded via commissions on the total of all those sales.
In many categories of B2B sales, the only time a person does a ‘Sales’ job is to gain that first transaction, after which it is all about retention, a different set of skills.
Assuming the first transaction goes well, the product was delivered on time, in specification, and did the job promised, the chances of a repeat at the appropriate interval is higher, and may not require the ‘sales’ skills of the original salesperson. Rather, it requires the interaction of operational and logistics personnel to manage the relationship, and the transactions that occur within that relationship.
If that is the case, why do we habitually reward salespeople on the total of all sales?
Salespeople are as different as any other group of people. The archetypal ‘Always be Closing’ salesman of the past has now almost disappeared, replaced by a range of people covering differing tasks. This reflects the changed role of sales with the move of information from the hands of the seller to those of the buyer.
Almost every salesperson also sees customers as ‘their’ customers.
Again, if the hypothesis is that they are only necessary for the first transaction holds, this is a mistake.
The logistics and operations people should hold the relationship, assisted by an internal ‘customer service’ person, while the salesperson goes off ‘hunting’ for the next new customer, or indeed, sales in an adjacent product or market area of a current customer not currently serviced. This would be a far better use of the time available to a salesperson than running around at the factory trying to wrangle a preferred spot in the production schedule.
A business I ran as a contractor some years ago had a specialist sales force made up of highly trained technologists. When tracking their activity, it became obvious that most of their time was consumed by tasks other than ‘sales’. These involved interaction with the customers technologists, their operational, marketing and planning personnel. Significant time was also spent at their desks dealing with the complexity of our planning and operational processes in order to meet sometimes impossible delivery promises made under pressure from customers.
This blurred the line between the tasks best undertaken by a specialist technical salesperson, dealing directly with generating more sales, and the tasks that were better done by internal customer service people. The ambiguity of responsibility for specific tasks, and our very malleable processes was hamstringing the productivity of the investment in sales.
The communication tools we have today really mean that we are now able to direct the activities of sales personnel towards where their value lies, identifying and solving customer problems. They do not have to be in the office apart from training and progress sessions. The logistics of providing the products are best managed by those who are hands on in the factory, warehouse and admin functions.
After some changes, sales went up significantly, as did the margins, as the salespeople had more time to spend identifying and solving difficult challenges that naturally brought higher margins.
As you consider the structures necessary for success as the new year opens, you might give some thought to the priorities set for the salespeople, and their support functions in your business.
Header credit: Scott Adams via Dilbert
Oct 17, 2022 | Marketing, Sales
There are many things needed to start and scale a business, the ones I bang on about all the time are cash and commitment.
There is however another.
Trial.
Without trial, there is no business.
Whether you are starting a business in a well understood and competitively supplied market, or a completely new product in a new field, the challenge is the same.
You must generate trial.
The strategies necessary are entirely different for every business, as the challenges are entirely different. However, the common feature is that you must make the value proposition attractive enough to bust the power of the status quo, and often the barriers to exit for the current customers of incumbent competitors, before you will generate trial.
Then, and only then, if the product performs, and the barriers to adoption post trial are breached in sufficient numbers, you have a chance at survival.
It seems pretty obvious, but we do not usually think about trial as the single and first essential barrier to success. Rather, we tend to think about it as just the first step in a process, not giving trial the weight it deserves.
Jul 4, 2022 | Customers, Sales
We understand that the behaviour we reward is the one we get. It is the way we train our pets.
Many also tend to overweight commissions when we pay salespeople, rewarding a set of behaviours, some of which may not be what we want.
Years ago, we learnt that paying piece rates in a factory resulted in quality problems, and myriad ways of ‘gaming’ the system to the detriment of the overall numbers.
Why have we not applied the same lessons to sales commissions?
I will not argue that the best salespeople do not deserve to earn more than the average. The question is how much more, and how do we increase the overall productivity of the investment in sales so that there is more to share?
The answer lies in the results of the enterprise, and the way the enterprise then shares those outcomes across all stakeholders.
Collaborative teams work in factories, we have used them successfully to improve productivity and quality while reducing costs for 40 years. It makes sense to deploy similar tactics in your sales force.
Sharing customer, competitor and market information, and the best practice sales techniques amongst all salespeople, learning from each other, will lift the average without compromising the best.
Not all salespeople need to be on the same salary, but they should all have a common interest in making the enterprise successful by maximising the impact of the investment made in generating revenue.
Bonuses paid to salespeople tend to be tied to volumes, and/or profitability of the sales they make. However, all sales are not equal.
Let’s assume the strategy calls for expansion into an adjacent market. There is marketing expenditure directed towards generating awareness of the enterprise, and the value it delivers in that adjacent market, but there are established competitors whose best interest is to see you fail. In that case, you need your best salespeople on the case, but they may be reluctant if most of their income is tied to commissions on the same calculation base as the easier sales. In that case, there needs to be recognition of the greater difficulty, as well as the strategic imperative.
There is no one size fits all template that will be useful to you.
However, starting by tying remuneration of the individual to the outcomes of related work groups, strategic priorities, and enterprise outcomes is a start.
Header cartoon courtesy of Scott Adams and Dilbert.
Jun 24, 2022 | Customers, Leadership, Management, Marketing, Sales
In the past, for the orderly management and convenience of organisations, Sales and Marketing have been kept by management in separate functional silos.
In a time of flattened organisation structures and the ease of communication and data sharing, this no longer makes any sense at all.
The evolution of the silos to one functional area of responsibility will remove substantial opportunity for the transaction costs incurred by turf wars, miscommunication, and unaligned objectives, to be eliminated.
From a customer’s perspective, how you are organised internally is irrelevant, they are looking for the products and services that solve their problems or address their opportunities in the most cost-effective way.
The vast majority of interactions a customer will have with a supplier will be cross functional. Over the course of a transaction, they will interact with sales, technical service, after sales service, and logistics, probably sequentially.
The power in the sales relationship has moved from the seller, who had control of the information necessary for a customer to make a purchase decision, to the buyer. In past days, the sellers only delivered the information that benefitted them, but those days are almost gone. This process has been gathering speed since the mid-nineties, and now dominates every transaction beyond small scale consumer purchases like groceries, and even there, the need to be clear about the ingredients, their sources and provenance is pervasive.
Both sales and marketing silos have the same ultimate objective: to generate a sale, and preferably a relationship that leads to a continuing flow of orders. The combination of the silos into one, Revenue Generation, makes logical organisational sense in this new environment, as well as better reflecting the way customers interact.
Sources of revenue.
Isolating the sources of revenue is a crucial component in effectively managing the revenue generation function. Luckily, the sources can be summarised into three areas.
- Customers. Which customers buy what products, in what volumes, how often?,
- Markets. There are many ways you can dissect a market. Geographically, customer type, customer purchase model, product type, depth of competitive activity, lifecycle stage, and others.
- Product. Product type, mix, price points, lifecycle stage, margin, potential, and others.
Together these three axes form a three dimensional matrix from which your revenue is derived. The task of the RevGen personnel is to maximise the revenue today, and into the future, while minimising or at least optimising the cost of generating that revenue.
Type of Revenue.
Considering not only the source of the revenue, but also the type is a crucial part of the equation that will lead to long term profitability. Again, there are three broad categories into which all revenue can fall.
- Transactional. One off sales that require little else at the point of the transaction beyond a mechanism to execute the exchange of goods for money.
- Packaged. This category is by far the biggest, as it contains all sales that come with a ‘ticket’ of some sort. That ticket may be a guarantee of service, warranty period, assurance of quality via a brand, bundled pricing, promotional support, and many others.
- Subscription. With the emergence of the internet, subscription sales are growing rapidly at the expense of the packaged sales. This exchanges the upfront revenue of a sale for an ongoing revenue stream based on use, time, or both product and service. The emergence of the ‘cloud’ has spawned a host of new business models that use subscription as their base, but it is not new. Xerox used subscription for decades by leasing their equipment, then charging for usage on top. Similarly, Goodyear moved their sales of tyres to the airline industry from a sale to a usage model in the 80’s to sidestep the simple fact that their tyres were more expensive, but lasted longer. This encapsulated the price sensitive nature of airline purchases, with the savings over time because their tyres lasted for more landings than did the opposition.
Thought about these variations all have resulted in an exploding range of business models over the last 20 years, making the task of managing the generation of revenue way more complex, and therefore also opening opportunities for those who can think creatively about the task.
When you need some creative outside experience in this complex menagerie, give me a call.
Nov 19, 2021 | Leadership, Sales
Cash is the final arbiter of commercial success. You cannot live without it, too much of it and you get lazy, too little and you are wheezing, struggling to breathe, living moment to moment.
There is a lot of advice around about how to manage your cash, reduction of debtor days, management of inventory, project progress payments, pricing structures and the ret. All are valid and should be managed explicitly.
One item not often considered in the context of cash is the sales process, the pre-order or sales pipeline, time and resources consumed in that process.
The Cash Conversion Cycle is usually started at the point where there is a direct cost to filling an order, or buying materials for inventory.
It is a small leap to extend it to a point at the beginning of the sales process. That might be at the point where a lead becomes a sales qualified prospect, whatever nomenclature you use. The point at which the odds of closing the sale increase past an inflection point of some sort.
Many sales pipelines I have seen are long, torturous, ambiguous, and subject to gaming by sales people to make their ‘numbers’. The advent of CRM systems, and the logging of prospects and the expected conversion rates to generate revenue forecasts has made fools of many senior executives.
In the absence of a disciplined and regular review of the numbers, they always tend to be optimistic, until the crunch comes, then it is a nasty surprise.
Sales, like everything else in a business that is repeated, is a process that can be broken down to its component bits, systematised and optimised. While normally hidden in the fixed costs of a business, the expenses incurred in generating sales consumes working capital. Any reduction in the working capital required to run a business, increases the value and profitability of the business. Therefore, treating the sales pipeline as a process to be optimised makes both financial and strategic sense.
Ask yourself how any sporting team that is successful over a period of time does it. The personnel changes, the opposition changes, but the success stays. An exemplar is the Melbourne Storm rugby league team. Few believed they could continue their long-term success in the absence of their three superstars, Slater, Cronk, and Smith, but they defied the expectations. How? I bet coach Bellamy has a playbook that contains all their standard plays leveraging the skills of the individuals in every position, which are practised and practised over and over until they are second nature. There will also be a set of plays tailored to the weekly opposition, and the individuals they expect to meet on the field, which are run over and over in the week leading to the game, so they are also second nature. In the heat of the game, nobody has to wonder what to do next, they have practised it.
How many businesses practice their sales game? Mapping out each stage, looking for the friction points and practising how they will be addressed, workshopping the best responses to all possible objections, and ways to smoothly move to the next ‘mini-close’ in the process.
Very few.
If you were to practice and practise while optimising, do you think the sales cycle would shorten?
Clearly it would, and it would also confirm those who are likely to become a customer earlier, and probably increase the net price at which they were converted.
Together that would shorten the lead time and optimise the leverage from the resources committed, leveraging the relationship between sales and financial outcomes.
As the old saying goes, ‘More sweat in training means less blood in battle’
Nov 3, 2021 | Sales, Strategy
Your pricing architecture should be driven by your business model.
Your tactical pricing decisions should be driven by the immediate competitive and market pressures.
They are different, and while not mutually exclusive, are, or should be, largely separate.
Business models generally evolve slowly, so pricing architecture changes slowly with them, but the tactical needs can vary daily.
Get the two mixed up at your peril.
Years ago I was in a meeting with the MD of the business I was working for, the GM of sales, and a senior manager of one of the retail gorillas, who was trying to extract substantial trading term concessions from us. The sales personnel had been under extreme pressure for some time, but had resisted successfully. The MD was ‘summonsed’ as a last resort by the retailer. Towards what became the end of the meeting, the retailer played the ‘ego card’. He observed that he had thought the MD had the authority to make decisions, but it seemed he had been wrong. The MD, sensitive to challenges to his ego, responded that he was indeed the man who had the veto authority, and proceeded to agree with some face saving but essentially useless caveats. This changed in a moment the pricing architecture of the business for the worse.
It proved to be a profound strategic mistake.
Sales people are often given the authority to vary prices tactically, but should never be given the authority over the architecture. Not because they cannot negotiate, but because they should be kept entirely separate to maintain the integrity of the pricing architecture and the connection to strategy.
In the story related above, the Sales manager had been explicitly denied the right to offer changes to the architecture without agreement of others in the senior management group, but retained complete tactical authority. This meant that there were agreed limits and trade-offs that he, and those who reported to him could make during a negotiation. This tended to hamper potential (read ‘promised’ by the retailer) volumes, but cushioned margin and ensured similar customers were receiving the same terms, within which the sales force was able to vary tactically to leverage our position as best they could. The MD by contrast had the power over the architecture, and the concession on the architecture completely moved the tactical ‘needle’ against us.
It is very hard in a highly contested market to move prices up, and very easy to move them down. The change in architecture moved the whole field for negotiation down which substantially impacted on long term margins. In addition, it also confirmed in the retailers mind that the ‘bottom line’ for the sales force could be further moved by challenging the architecture.
That business, sadly, no longer exists.
