Marketing Expert's Corner
This article written in 2003
Breakthrough Sales Performance
It's the end of the Sales quarter and the end of the regular baseball season. So forgive me for stretching a metaphor, but I think there are some parallels between these two performance-oriented sports. Even if you don't like baseball, there are things to learn from its top performers.
Most sales reps are proud of their individual performance. They're measured by it, and they own their success or failure personally. There are superstars, but sales is really a team sport. Most effective sales VPs do as much coaching as they do in the major leagues.
How would you react to the news that there's a baseball team that's been near the top of its league for years at a time, yet had costs less than half the league average, and only 25% of the most expensive team's cost structure? What if you found out that the way they increased their performance (and price-performance) was not by hiring star sluggers, but through measurement, statistics and tight management? Maybe the parallels to your sales organization would be more interesting.
I'm going to borrow liberally from Moneyball: The Art of Winning an Unfair Game, which profiles how the Oakland Athletics have been able to clobber their competition by doing things differently. The common wisdom of major league baseball is to focus on hiring hitters with star power and high batting averages, pitchers with high won/loss averages and low earned-run averages. Teams want players who look good, swing hard, and run fast. That conventional wisdom has become a formula for runaway costs but only average performance.
The Oakland A's decided to go back to first principles: focusing on the final objective and working backwards from there. The ultimate goal is to win games -- and all it takes to win games is to score runs. A team that scores runs will win games and will be profitable even if it has ugly players who run slowly. The A's coaching staff examined the conventional baseball statistics and found that they didn't have a whole lot to do with scoring runs -- or winning games. Instead, they found that the highest correlation with winning a baseball game was with the following averages:
- On-base percentage -- what percentage of the time does a batter get on base?
- Slugging percentage -- for each time a player is at bat, how many bases does he achieve?
- For pitchers -- how many home runs, walks and strikeouts happen for each inning pitched?
These metrics are directly under a player's control and are the things that really matter in getting better scores. Following these metrics has lead to some unusual behaviors: batters are more willing to let marginal pitches go by and get higher "ball" counts. Focusing this way lets management ignore issues that don't make a statistical difference (such as defensive statistics or running speed) and makes them cheerfully lose overpaid players.
Once the Oakland A's understood the metrics, they started to enforce new behaviors all across their organization. They manage their minor league "feeder" teams along the same lines as the major league team, and they provide consistent incentives for all players and coaches. They manage to results -- consistently and thoroughly.
Want to improve your Sales team's price/performance by 400%?
What can you learn from the A's? In the flush years, there was nothing for us in high tech to learn. But now that demand is uncertain, price/performance of the sales team and the predictability of results are critical to profitability. Star power, looks, and sales methodologies don't matter unless they lead to repeatable and profitable results.
Focus on what drives profitability. The ultimate driver of your company's profitability is closing the right customers who yield profitable revenues. In thinking about profitable revenues, most management teams think about the length of the sales cycle. But the calendar time of a sales cycle by itself isn't important -- any more than the length of an inning is. Further, the length of a sales cycle is subject to too much interpretation and is out of your direct control.
Instead, focus on the customer acquisition cost (CAC) that is the driving factor of profitability. The cost of acquiring a customer can be objectively and accurately measured, and it's directly under the control of Sales and Marketing. Measuring and lowering your CAC should be fundamental no matter how big your company is.
Instead of swinging for the fences, concentrate on getting to first base. If starting the close cycle is your sales rep's "being at bat," the key objective is to get to first base: close an order, any order. Of course a large order would be nice, but larger deals have a lower probability. Be willing to do a small order (even if it's a consulting contract or a discounted pilot project) if you can do it with little sales effort. Let telesales take the first order. The Oakland A's don't find it embarrassing to "take a walk" to first base because statistically that gets them closer to the runs that win games. Be willing to do the same in your sales team: an upsell after an initial beachhead deal is statistically 1/3 to 1/10 the cost of trying to do it all at once.
Increase your "slugging percentage." The other driver of company profitability is to maximize the lifetime revenue per customer. This is very easily measured, and gets all of management focused on the repeat business that by any measure is the most profitable kind of revenue. By thinking about lifetime revenue, customer satisfaction and referencability are automatically taken into account. Further, focusing on lifetime revenue discourages "Hail Mary" deals and "hit and run" sales behaviors.
Win as a team. Your revenue-generation team includes Marketing, Telemarketing, Telesales, Sales Engineers, and Sales Reps. In most companies, these organizations do not behave like a team: the first step is to give them consistent goals and measurements. They must also have the same agenda and run on the same calendar (the quarterly cycle). They need to communicate frequently about the things that matter in customer acquisition (such as campaign targets, lead cultivation, and account plans). They need to collaborate on sales tools so that they will actually be used.
Sales and marketing need to be learning organizations. All versions of sales tools need to be on a shared server area. Every RFI or RFQ response and customer letter needs to be there as well. Use a wiki. Every rep and every marketer needs to hear lessons learned from key sales visits: in the early stages, have a 5-minute debrief call from every customer meeting, and have a debriefing on why every deal was won or lost.
Run by the right numbers. To optimize your team's efforts and progress, everyone must be working with meaningful data. If you don't have a Sales Force Automation system, get one (Salesforce.com is the obvious place to start). More important, make sure that everyone is using the tool to consistently record all customer interactions:
- Accurately record the lead source for any new contact. Create a "pull-down" for this item, and make it mandatory for any new name. If your do a lot of web-based lead gen, get the "SOAP-enabled" option for your SFA to increase the automation of recording data.
- Record the amount of effort expended on each customer interaction: create your own "pull-down" field for "time spent this visit," and make the field mandatory for all calls, events, or tasks. Don't be surprised if the hours directly attributable to customer interactions is a less than 20% of the sales reps' overall day.
- Very tightly define "stage of sales cycle" and "likelihood of close" and have them as mandatory pull-downs for each opportunity. Review each of these on at least a monthly basis.
- Develop SFA reports that identify exceptions and bring the meaningful measures into focus.
- Enforce SFA usage by making sales commissions contingent on good account data.
If you haven't been measuring CAC, you'll need to establish a baseline. Start with the last 10 or 20 new customers the company has won, and find out:
- Where did the leads for those customers came from (don't be surprised if less than 10% came from marketing campaigns)?
- Which marketing "deliverables" were used in the sales cycle?
- How many hours of sales and SE calls, visits, and email interactions were required for the win?
- What were the travel and miscellaneous expenses?
Understand each phase of your sales cycle, the cost structure and the conversion rates. Create a model of the entire cycle, and analyze your SFA data to quantify the model. Unless you're overloaded with MBAs, get a college intern who's taking business statistics and finance to crunch the CAC numbers.
What to watch out for: expensive customer acquisitions. For all your "times at bat" -- a prospect expressing interest and actively evaluating you -- what's the cost and revenue? Poorly qualified prospects lead to lots of "strike outs." An unwarranted attempt at upselling or site licenses to a new customer is a "pop fly" that is caught and prevents the player from getting on base. A poor product fit leads to excessive SE and consulting costs, like making second base at the cost of two "outs."
What to understand better: the ingredients of your least expensive customer acquisitions. What makes for a "cheap win?" Would you be better off with 10 more of them, or with one big deal? What affects the probability of a successful close? The numbers will guide you. Expect to find that repeat business is significantly less expensive than new customer acquisition. Incent your people accordingly.
Make sure incentives are properly aligned. Every team member needs to have a monetary incentive to capture new customers and to lower the cost of doing so.
Marketing measurements are often focused on "deliverables" such as new presentations or press releases. The number of mailers sent, the number of brochures printed, even the cost per lead and response rates by themselves are meaningless measures. What matters is the marketing that resulted in a deal. Once you have a grip on your CAC, make at least 50% of marketeer's bonuses dependent on improving CAC and deal revenues.
Since sales reps are coin-operated, so you have to make sure they're getting coins for the right things. Make your comp plan channel neutral, so that reps get compensated even when they use a VAR. A deal that is properly handled through a VAR can create more margin than a direct deal. Make sure that repeat / upsell business gets the same quota and comp credit as getting into a totally new account. Make sure that the compensation plans of your telesales and outside sales reps aren't subtly conflicting. It doesn't make any difference to customer satisfaction who closes a deal, but it makes a huge difference to CAC if a direct sales rep spends time on a deal that could have been closed by telesales. Also watch out for over-compensating (such as double-commissions or accelerators for large deals) when it distorts intended behaviors.
Play for the long term. Of course, changes of this magnitude doesn't come quickly. Start now, and implement in phases. But you must start in order to become one of the top teams in your league.
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