Sales Laundry

Posts Tagged ‘cost of sales’

Q&A’s are excerpts of questions I have answered as part of Sales Laundry or other forums that I am apart of. If there is a relevant sales message for the masses I post it here to share, gather feedback and discuss.

Q:  What is the interrelationship between a sales process and the sales person’s natural style?

A:  A “Sales Process” should simply be a sales tool designed to get the greatest number of potential prospects successfully converted from “leads” to “landed” in the most efficient manner possible.

A “Sales Process” becomes overbearing at the precise point that it stops being a roadmap defining the most likely path for sales success and becomes an overriding dogma that must be adhered to regardless of customer, personality, situation or circumstance. When adherence to the process becomes so important/rigid that the sales process itself becomes an impediment to the sales of the very product the process was built to serve, it is time for a change.

Conversely, a “Sales Process” becomes ineffective at the precise point that it stops being a roadmap defining the best path to sales success and becomes an exercise in “style independence” with so loosely a defined process that the process again becomes an impediment to product sales. The rigidity of the sales process needs to be tuned to the product being sold.

Very knowledgeable customers making repeat purchases of commodity items could benefit by a very clear and rigid (to the point of being automatic, even) process. The floor of the NYSE being one example. Products being sold to customers with varying depths of knowledge or with wide ranging customer specific variations and infrequent purchase patterns require a more broadly defined “guiding hand” type of sales process, where listening, asking situation specific questions and conversation become more important than blindly following a rote process.

A well defined sales process should be malleable enough to bend to the needs of the product being sold and potentially the personalities selling it, as the product moves through its life cycle, anything else adds unnecessary friction.

How much time does your sales team spend on revenue producing activities?

 According to CSO Insights in their Optimization:2007 Survey Results and Analysis report the actual amount of time a sales person is actively engaged in selling averaged just under 36%.  My own experience would suggest that sales professionals’ time spent on revenue producing activities is closer to 30%.  The best run sales organizations that I have experience with engage in revenue producing activities, at best, no more than 50% of the time.

 If you don’t know where your sales team stacks up, it is time to measure.  If you find your sales team is engaged in revenue producing activities at or below 25% of the time, then there is a distinct possibility that you could almost double your revenue producing activities and lower your Cost of Sales considerably.

 If you find you have room for improvement, here are some of the most common things that eat a sales professional’s time.

 Building Proposals/Quotes – Look to offload this function to a non-sales role or to a low cost sales role where the proposal building experience could be used as a training tool.  If that does not make sense for your business, build common templates and boilerplate text to simplify the process as much as possible.  Think about your likelihood of winning a project vs. the amount of time you are going to spend on the RFP.

 Lead Generation – The same CSO Insights survey highlighted the fact that 18% of a sales professional’s time is spent generating leads.  This subtopic is worthy of several posts in and of itself.  If leads are being generated for sales within your organization, look at the quality and quantity of those leads.  A large quantity of poor leads is almost worse than no leads at all.

 Sales Meetings – Many sales meetings continue well beyond their expiration date. Is there a defined agenda for each meeting?  What items could be better communicated in a less time consuming way?  What items could be eliminated completely?  Eliminating four hours of meetings could give you 10% of your week back.

 Managing the Internal Sales Process – In the early days of my B2B sales career I spent as much as five hours a week walking a signed proposal through our internal processes, getting items ordered, following up on backordered items the order desk failed to tell me about, making sure all of the items arrived, setting up delivery, coordinating installation, making sure we invoiced for the correct items/amounts, making sure we had applied payments correctly to make sure my commission check would be correct and assisting with collections when it became necessary.

 Map your own internal processes and look for ways to streamline your workflow and get sales disengaged as much as possible from this process.

 CRM Software Data Entry/Retrieval – CRM software, when designed well CRM can be a fantastic tool.  Designed poorly, it can be an agony inducing, time sucking vortex that is worn like a boat anchor around the entire sales teams neck.  

 Work with your sales professionals and watch how valuable data is recorded and retrieved.  Look at the areas they use most frequently and the specific steps they go through to get to that data.  Does that process make sense?  If not, do your own ROI calculation on getting customizations done vs. the sales time lost.

 One Software-as-a-Service CRM package I have personal experience with could waste as much as five or ten seconds on every click as data moved back and forth across the web.  In my own pursuit of efficiency, I found that I was losing up to half an hour a day to those delays.

 Expense reports and other administrative paperwork – Look at all of the reports and paperwork you ask your sales professionals to create and ask yourself two questions.  Do we really need this report?  Does it make sense that our revenue producers are spending time on this as opposed to selling?  If it makes sense, great!  Carry on.  If not, look for ways to improve or eliminate the process.

 One more point before we wrap it up.  Finding, offloading or eliminating these non-revenue producing tasks is only half the battle.  Before you begin, establish a baseline of calls/meetings and other revenue producing events so you have a gauge on which to measure your progress. 

 Recovering five to ten hours a week for each sales professional to spend on revenue producing activities is only beneficial if they actually spend that time on revenue producing activities.  From my experience, you will need to break out your training hat and work with what could be up to 40% of your sales staff on the best ways to use the “extra” time.

 Every time I have done this exercise I have been amazed by some of the low value tasks that eat up enormous amounts of time and unnecessarily increasing my Cost of Sales.

 One more last, last point.  To maximize the benefits of this process, do not let this exercise turn into a micro management tool.  Remember your end objective is to increase “customer-facing revenue producing time” not “looking over my shoulder, wondering who is watching me time.”

 We have barely scratched the surface here but I hope this gets you thinking, measuring and doing.  If you have a “best practice” that helps you measure your revenue producing activity percentage or keeps you or your sales team engaged in revenue producing activities, I would love to hear about it.  As always, give me your thoughts and let’s get smarter together.

 Click here to learn more about CSOInsights and their annual studies.

Photo courtesy of http://fasteddie.wordpress.com

In training new people to become sales professionals and developing them into successful sales teams, or building sales engines as I like to call it, I have found that how you allocate your sales team is just as important as the training and development that gets them ready for a sales career in the first place.

The default way to allocate sales professionals seems to put the strongest relationship builders and highest income earners on the largest companies/named accounts in a territory, and then allocating the balance of the sales team in support of those large account representatives or scattering them across the remaining territory, engaged in outside sales, inside sales, or sales support typically based on their years of experience.

This approach can anger and annoy customers and prospects alike. This method can also be an incredibly inefficient way to field a sales team that unnecessarily raises Cost of Sales.

What if we divided sales teams not by the size of the customer but by the way a customer prefers to buy?

Your company has customers that could care less about your sales team or interacting with them because the customer knows your products and their applications as well as you do, perhaps better because they interact with your products every day. Does it make sense to deploy a “relationship building” sales professional or a dedicated sales team to this large customer and raise your Cost of Sales by providing your customer sales resources they do not want or value?

Nope.

Regardless of the client’s size, if they are ultimately only concerned about bottom line cost, then provide a method to purchase for them that meets their needs. Let them order through an inside sales representative or build a nice functional online purchasing mechanism that makes sense for you and will let them do business with you in a way they prefer.

For those clients that value the expertise of your sales professionals, big or small, deploy your relationship builders and subject matter experts, delivering the products your customer needs and the support the customer values and is willing to pay for.

If you are thinking ahead a bit, you might envision a scenario where a very expensive relationship building sales professional could be assigned to a small opportunity with a company valuing your expertise that could be as wildly unprofitable as anything we have mentioned previously.

Your right. So, don’t do that. You need more than a sledge hammer and a flyswatter in your bag of sales tools. Allocate internet sales, inside sales, junior account managers, senior account managers, Subject Matter Experts, Field Overlays and your Sales Top 10% where it makes the most sense for your customer and the most profit for you and your sales professionals.

The one guiding principle of this model that needs to be understood is that regardless of how sales people and resources are deployed, they must meet or exceed the accepted level of service the customer requires. Under deliver and you lose the customer, exceed their expectations beyond the point of where a customer cares and you are unnecessarily raising your Cost of Sales again.

Before you begin a full sales retreat and cut your head count or risk alienating your customers by trying removing some of the perks customers have come to expect from a relationship with you, I urge you to reassess how you sell your products. Is it possible to cut your Cost of Sales by reorganizing your sales team to sell the way your customer wants to buy and continue to grow your company while your competitors are running for cover? I don’t know, but I certainly hope you will tell me when you find out.

Image is the sales team for Microbizz and provided by Microbizz.

I found myself in Walmart today finishing up some pre-Easter shopping and as I was waiting behind a lady with 27 items in the 20 item checkout lane I started thinking.

 Walmart is still making money and growing when the majority of their competitors’ sales are down by double digit percentages.

 What immediately comes to mind is the fact that they are the perceived “low price leader.”  That can’t be right though, because I have long accepted as fact that a strategy of being the “low price leader” is not a strategy that can sustain a business in the long run because low price strategies only hold up until the next guy shows up with a lower price.

 She still has 15 items in her basket.  How did she cram so much stuff in that little carry around basket?  No barcode on the Easter apple cover looking thing… 

 Walmart uses a host of strategies to be sure, but there are at least two that came to mind that are worth copying, and neither involve cutting your prices and praying for volume sales.

 1.  Walmart puts a relentless focus on finding any efficiency they can to get a product from the manufacturer to their distribution centers and ultimately their stores.  (They forced the issue with Electronic Data Interchange, or EDI, now an industry standard, and have recently nudged cereal companies to make smaller boxes that hold the same volume to reduce shelf space and paper waste among other things.)  As a result, it costs Walmart less to get a product on their shelves than it does their competitors, so an item for sale for $9.95 at Walmart and X Brand stores will likely have a lower true cost at Walmart.

Where competitors cut their price and profit to get in line with Walmart prices, Walmart cuts their cost, sells it for less and still makes more money doing it.

 
2.  When Walmart began, Sam Walton had a radical idea of putting stores in towns that were deemed too small for other major retailers, effectively going where the national competition was not willing to go.  This strategy continues to pay off even today as major retailers fight it out in every major metropolitan market, including Walmart, but Walmart has hundreds of stores in markets where there is no real competition and where future major competition is unlikely. 

 She has 7 items left in the basket, looks like egg dye, bubbles…

 Where can your costs be cut or efficiencies found between the idea stage and final sales/delivery? 

 Can you buy from your manufacturer/distributor differently to garner some savings?  Can you consolidate to a single distributor or is it time to see how hungry your distributor’s competitors are?  Maybe join a larger buying group?  Partner up to buy bigger shipments to get to the next break in tier pricing?

How many hands have to touch the products you sell or the orders for those products?  Is there an opportunity to negotiate, automate or eliminate some duplication?

 Look at your Cost of Sales.  Without damaging customer service, what is the most efficient, least time consuming way to sell each of your products?  Now, how are you selling each of your products?  Any appreciable room for improvement?  What admin tasks could you off load from your sales team to get them more customer face time?  Click here if you would like to go a little bit deeper discussing Cost of Sales.

 2 items left.  Why do they always put the slow Checkers on the Express lane?

 How can you follow Walmart’s example of having a presence where there is no real competition? 

 Is there a niche where you can plant your flag, dominate, and protect your margins?  Can you create that niche by building a rabid referral customer base like Joe Girard did?

 She is helping the Checker sack her goodies.  Finally.  At least she is helping sack the items.  There should be a faster way to check out when you only have a handful of things.

*beep*  *beep* *beep* Scanned, paid and done.

 “Sir, next time you could use one of the self check out stations if you are in a hurry.”  My Checker said.

 Guess that is a sales lesson I won’t be blogging about.  Too busy thinking.

 “Thank you for shopping at Walmart!”

Image courtesy of RichSellsHomes

Are you swinging a sledge hammer to kill an ant in your sales organization or are you taking a fly swatter to a tank battle?

Better stated, perhaps, have you taken the time to calculate the costs of your various sales tools vs. the revenue potential of your product offerings to make sure you have a sales strategy that makes sense?

When I am evaluating sales management and their sales organizations this is one of the first key metrics I look at to determine if sales resources are allocated properly.

Let’s say you have sales representatives costing you $60,000 in base that have on target earnings at $120,000/yr.

In simple terms, assuming this sales representative is working 40 hours a week (stop laughing!), and has two weeks off a year, he is going to work an average of 2000 hours a year. Doing the simple math, $120,000/2000 hours, this sales representative costs $60 an hour before you factor in benefits, cell phone, car allowance, etc. Let’s estimate his cost at $85 an hour to execute his sales work properly.

Subject Matter Expert: (Could be an engineer, analyst, auditor, etc.) $80k/yr; $80,000/2000 = a cost of $40/hr. We will keep it simple and skip the benefits add on.

Inside sales representative: $40k/yr; $40,000/2000 = a cost of $20/hr skipping the benefits add on here as well.

So let’s look at our costs for these sales representatives and their potential sales tasks.

Site Visit: (Assuming 1 hour of prep, 30 minutes of travel, 1 hour meeting) $212.50 + plus the literature he left, lets call it a cost of $215 for that sales call.

Technical Sales Call (Assumes Subject Matter Expert and Sales Representative) $215 for the representative plus $100 for the SME or a total of $315.

Telephone Call: Inside Sales Representative: (est. 5 minute call) $1.68
Telephone Call: Outside Sales Representative: (est. 5 minute call) $7.10

Mail: Inside Sales Representative: (Lit cost, plus postage plus time) $3.00 for lit + $.40 for postage + $3.00 worth of time.

Etc. etc. etc. You get the picture.

Now take these costs and apply them to the products you are selling and the revenue they produce in general terms.

When I do this I am mentally asking myself what is the most cost effective method of sales for this offering (that is not going to negatively impact customer service.)

I have seen situations where entire outside sales organizations were in danger of being fired and replaced because they were not hitting their quotas. After analyzing what they were being asked to sell vs. revenues generated it became clear that the company was swinging a sledge hammer (or using their most powerful/expensive form of sales) to kill a fly (some of their least profitable more commoditized offerings.)

The obverse is true as well.  I have seen inside sales teams and telemarketers trying to sell solutions that were far too complex for the tools available to make the sale.

In many cases I have been able to lower the cost of sales by making these kinds of changes and making individual groups (inside sales, outside teams, etc.) more efficient and more profitable as a result.

On a nice evening out for dinner with my wife we were seated at a great table in an upscale Italian restaurant.  

 A manager stopped by our table and welcomed us to the restaurant and asked us if we would like to start off with a bottle of wine.  My wife was looking at the wine list and thought a bottle of her preferred wine was too expensive, so she ordered a glass.  

 The manager asked if I would like a glass, I had not thought about it, but said “Yes.”

“You might consider ordering a bottle, sir, if either of you would like a second glass the bottle would be a better value.”  The manager said.

 My wife smiled and very quickly nodded to the affirmative that ordering a bottle was a good idea.  I ordered it even though not three minutes before my wife had considered the bottle too expensive.

The price was a barrier until the value the bottle represented was elegantly explained.  With a value statement, the manager successfully bridged the gap between the perceived cost and actual cost of that bottle of wine, altering the perception and effectively closing the deal.

 The restaurant was beautiful.  The lights were dimmed a bit.  Fresh aromatic bread was on the table as was a special oil and garlic mixture for dipping.  We both ate the delicious bread, dipping it into the oil as we went over our respective menus.

 My wife decided before we had even arrived that she wanted some sort of lobster pasta dish.  Sure enough, she found what she wanted, but was put off by the price.  She decided to go with her second choice.  Seeing that we had put our menus away, our waitress stopped by asking if we were ready to order.

 I asked about a special couples promotion I had heard on the radio the restaurant was running but the waitress did not know what I was talking about.  The manager, however, just arriving with our bottle of wine overheard the conversation and verified the promotion and happened to toss in that the lobster pasta dish was part of the promotion, having no idea that was what my wife was really wanted.

 My wife, smiling ear to ear, ordered her pasta dish, I forget what I ordered.

 The restaurant was still beautiful and my wife was thrilled, which in turn made me happy.  She got a reasonable value on the wine she loved, she ordered her entre of choice, and the restaurant staff was on top of everything.

  Soon the bottle of wine was delivered and out waitress placed our empty crystal wine glasses on the table and set about opening the bottle.  She poured two glasses with a bottle roll at the end and confidently plopped the bottle on the table stating out entrées would be out in just a few moments.  A bite or two of the fantastic bread later, we picked up our wine glasses to toast the occasion.  The evening progressed with a good meal, great conversation, a nice desert, I paid and we left.  

The marketing dollars spent and the message delivered was a perfect compliment to the sales experience on the restaurant floor.  The marketing dollar found its target market in me, the message compelled me to action and the sales team at the restaurant was delivering on that implied promise, providing an experience for me and my wife I was willing to pay for.

Corporate direction, to raise average tickets by getting more couples in the restaurant, was perfectly in line with Marketing, having put together an attractive targeted promotion that got us in the restaurant, and Sales completed the trifecta by delivering quality service and tacking wine and desert on our final bill.  

This was a perfect case study in what can happen when Management, Marketing and Sales are all on the same page, out of their respective silos, and delivering a consistent message from the top down.

Look at your own company.  Does your stated corporate direction match what your Marketing department is doing?  Is the Sales department in line or are they marching to their own drum?  If not, then your company is probably paying too much for each sale.  From a numbers perspective it probably looks like there are too many sales people on the payroll for the amount of revenue being generated. 

The good news is it should be easy to find some sales improvement just by getting everyone on the same page and some additional improvement yet again,  from my experience, once you all get good at working together.