Assessing the Drivers of Sales Performance
Written By: Glen Petersen
Published On: March 20 2006
Most organizations manage business development in a context of cost containment. Metrics such as sales cost per dollar revenue are used for budgeting purposes with the intention of maintaining bottom-line profitability. This approach of managing by trend or history assumes that history is a good approximation of the future. However, these practices are the result of having little insight as to what actions actually drive results, forcing organizations to use history as the benchmark, even though history offers very little opportunity to truly manage resources.
To break this pattern, companies should start with a limited number of macro performance drivers and make an assessment of their relative importance or impact. This process will lead organizations towards establishing metrics that will reveal true cause and effect relationships, and thereby optimize these resources. Doing so may be the most important step an organization takes to achieving long-term profitability.
The Cost of the Knowledge Gap
Despite the ever increasing sophistication of information technology and analytical tools, sales functions continue to be managed as they were fifty years ago. Budgets are set based on what happened last year, and the ever elusive topic of incentives is always a point for debate. Certainly, the marketplace will never be a laboratory where one can control variables and assess changes as one does in a clinical setting, but there are true drivers of sales performance. There is a significant gap between where we are today and the potential to understand sales performance drivers—and the cost of this knowledge gap is enormous.
Published reports peg the cost of sales and marketing at 35 percent of total corporate costs. Although it is possible to ascribe a return on this investment in the aggregate, this metric affords little practical value from a true management perspective. What is needed is an ability to optimize the mix of drivers in a manner that maximizes the return. As it stands today, we have little insight as to what's working. The insight we do have tends to be drawn from historical performance that may not be predictive of future performance. Understanding and managing the drivers of sales performance could transform an organization's competitive position and its profitability.
With so much at stake, why do organizations continue to operate in this same manner? It is because sales and marketing are assumed to be an art form, and when approached as such, these actions defy objective assessment. However, when one starts with the premise that sales and marketing are a process, then with appropriate discipline, it is possible to discern the impact of the drivers of sales performance.
The cost impact alone demands that we better understand the yield of each component of this investment, and when innovation is added to these processes, the potential for a sustained competitive advantage is very real. Just consider the respective track records of Dell, Wal-Mart, and Toyota; these companies have obviously done many things very well to realize the success they have, but central to their strategy is process innovation.
Understanding process drivers is not just possible for the giants of industry. Today, tools make this within the reach of virtually any sized organization. The only requisite is the commitment and leadership to make it happen.
The Go To Market Process
Although sales activities require a certain amount of individualism and entrepreneurial spirit, sales is a team sport. The most successful sales people recognize that their success depends on their ability to make things happen within the prospect's organization, as well as their own. Yet, sometimes, making things happen within one's own organization is more difficult than that of the client's organization. It is not difficult to understand how this happens. As will be discussed later in this series, the typical organization is structured into functions that use performance criteria to create an environment of "checks and balances" environment, as opposed to one of orientation and alignment.
The go to market process involves all functions that impact the customer experience. It is the total customer experience that defines the sense of value received, which involves more than the product, service, or sales person. For this reason, each customer interaction or touch point is an opportunity to leverage this sense of value. Therefore, each touch point is a "moment of truth" relative to the contribution to customer value.
The functions that define the go to market process include
Strategic marketing. Defines product, service, value proposition, price, new product direction, channels, budgets, and marketing promotion mix.
Tactical marketing. Implements the plans of strategic marketing and handles marketplace leads.
Sales. Includes inside sales, outside sales, or sales agents.
Distributors or wholesalers. Involves partner organizations that provide a full complement of services including their own sales force.
Customer service. Encompasses the order entry and resolution of issues relating to the order, such as backorders and returns.
Help desk. Includes support of both internal staff and external customers. The help desk is common to software and hardware suppliers where it is practical to setup an escalation process.
Web site. Provides basic information and routes inquiries to a proper destination. Can also be setup as an automated order entry (e-commerce) system, or as a self-help center.
Field service. On-site product service may involve a field service. This can be a direct service or one provided by a network of service providers.
Fulfillment. For simplicity, this includes production, service delivery, and distribution.
Product development. Responsible for the incremental improvement of existing product, research and the creation of new products, and often is the final level of escalation for help desk issues.
The go to market process can be illustrated graphically (see figure 1). Although this graphic is simplified, it demonstrates that the marketplace is impacted by messages and interactions from a diverse set of functions and partner organizations. In addition, each of these functions tend to operate with a unique set of performance metrics and a separate operating system.
Given this environment, how does the organization manage the quality of the customer experience? If your believe the answer is to ensure customer satisfaction, then you should be aware that studies have demonstrated that customer retention is not correlated with customer satisfaction. Therefore, customer behavior may not be predicted by the results of customer satisfaction surveys.
Figure 1: The Go to Market Process.
The Go To Market Process is a high level schematic of the connection of the various functions involved in creating, delivering, and servicing products/services in the marketplace.
For the purposes of this discussion, the marketplace is characterized as consisting of the following entities:
Suspects. Contacts or accounts that possess the desired characteristics of customers, but no validation of interest or potential has occurred to date.
Prospects. Former suspects where interest or potential has been validated.
Customers. Currently active contacts or accounts.
Former customers. Formerly active contacts or accounts that have defected to the competition.
The go to market process interfaces with these groups as a mechanism to retain the current base of business, gain new business, and regain lost business.
Given the go to market process is important in the creation of consistent, value based experience for the customer, it should be obvious that the behavior of each function must be consistent and complementary. However, behaviors are also driven by the performance metrics established for each function.
Current performance metrics form a check and balance mentality as opposed to a value delivery orientation. To demonstrate this incongruity, consider the following metrics that are common to the functions that comprise the go to market process:
Marketing metrics tend to follow program and product responsibilities, so success for the individual reflect results, such as how many programs were generated, leads produced, or products sold. It is common that even when an organization positions itself as a solution provider, its marketing materials will solely consist of product sheets with feature or function detail.
Sales metrics commonly consist of a revenue target combined with an expense budget. This approach generates a predictable sales cost per dollar of revenue, but it does not focus sales efforts on the quality of the customer or his or her profitability.
Distributors or wholesalers metrics often concentrate on revenue and product mix as a reflection of "mind share", but offers nothing regarding targeting of the right customers with the right value proposition.
Customer service, help desk, web site, and field service functions are often regarded by senior management as "necessary" costs. Therefore, functions are managed with a cost and risk containment mindset that may not be complementary to the customer experience. Often, the metrics will revolve around productivity (e.g., calls handled per hour) as opposed to metrics (e.g., the time to resolve problems, or problems resolved during the first call).
Fulfillment is really an aggregation for manufacturing, warehousing, distribution, or other delivery functions. Most of these functions operate with a productivity metric that is subject to some service level target. In concept, this may not be bad; however, the service level metric may not reflect customer needs or the needs of specific customer segments.
Product development metrics concentrate on development costs and timetables. These metrics provide an essential perspective, but they may drive behaviors and trade-offs that are inconsistent with customer needs or priorities.
In summary, customers impute value based on the total experience with the supplier. The total experience is delivered through a series of processes that collectively have been labeled the go to market process. The go to market process is not managed as an integrated set of activities. The only barometer of its effectiveness is in terms of aggregate revenue, margin, and profit. It does not provide a window as to what is working in the marketplace and it certainly reveals little that is predictive of the future. Despite this, the go to market process is this same perspective that is used for planning.
Tomorrow: What drives profitability?
This concludes Part One of a three-part series. Part Two will describe what drives profitability. Part Three will discuss sales force performance.
About The Author
Glen S. Petersen is an internationally recognized speaker, writer, practitioner, and thought leader in the CRM and e-business industries. As a visionary and early adopter of sales force automation (SFA), in 1986, Petersen led one of the first successful national implementations of SFA in the United States. He has held senior level management positions with system integration and end user organizations. As a consultant, he developed a number of proprietary facilitation techniques to help organizations to better understand technology, and how to rally around a single threaded, phased implementation approach. Prior to founding GSP & Associates, Petersen was senior vice president at ONE, Inc. and Ameridata. He has authored six books including Making CRM an Operational Reality and ROI: Building the CRM Business Case.
Glen Petersen can be reached at email@example.com.