Managing customer behavior will give companies a better understanding of the market, and in turn, will allow them to properly create strategies and allocate resources. By understanding these drivers, organizations will be able to establish true metrics that can better gauge cause and effect relationships in the market.
The following description of potential drivers is intended to cross industry lines; as such, some of the items may not apply to a particular company or industry. In these cases, the item should be simply disregarded. Similarly, since this discussion is targeted at the macro level, the level of detail is kept at the summary level. Each potential driver will be given a name and a brief description to organize and define the drivers.
Go to Market Process Alignment. The sales function does not operate in a vacuum. Other functions comprise the go to market process and contribute to the customer experience and therefore impact customer behavior both positive and negative. If the sales function has to gain new customers to replace lost customers, this action will dilute sales productivity and the productivity of the organization at-large. Therefore, this driver requires the organization to assess the level of effort that is required to create a customer experience that generates customer behaviors that enhance customer profitability.
Clarity of the Organization's Value Proposition. This driver really addresses two issues: (1) Does the organization have a well articulated and understood value proposition, and (2) Is the value proposition translated into a coherent strategy by customer segment according to customer needs? The absence of these conditions will cause confusion about the desired organizational direction and dilute sales productivity due to a lack of focus. Think about it, if the organization is selling on the basis of value, what is the message delivered by the organization if it is not clear or appropriate?
Product and Service Delivery. This driver simply challenges the organization as to whether it is truly delivering its promises and if the promises consistent with customer needs. A classic example of this is where production ships according to its promise date, but the delivery is not tracked or is unknown. Does shipping on time translate to the desired customer experience? Note that this item may relate to alignment or it may be an overlooked customer need.
The Customer Buy Process. For years now, software vendors have positioned sales force automation (SFA) as a means to shorten the sales cycle. Although it is true that SFA can introduce mechanisms that encourage follow-through on deals, it is absolutely ridiculous to assume that software alone is going to somehow magically reduce the length of the sales cycle. For every purchase decision there is a corresponding buy decision on the part of the customer. The most effective way to shorten the sales cycle is to reduce the buy cycle. Understanding the customer's buy cycle is fundamental. Once this is understood, there are ways to leverage technology to reduce the duration of this process. This involves sales "tools" that aid customer decision-making. Configurators are common tools that allow the sales person or customer to configure a product to their needs or desires. This technology is used on some auto manufacturing web sites, and by companies like Dell. Other examples include return on investment (ROI) calculators which helps the customer justify the purchase, as well as conversion tables that reference products against competitive designations, thereby simplifying the purchase process.
A Defined Sales Process. The issue here is not whether one is using spin selling, consultative selling, powerbase selling, etc. These are techniques to be used within the call. The sales process defines the conduct of the sales person as he or she manages his or her territory. Thus, it starts with the territory plan and defines the steps required to move suspects to prospects to customer status and then move on to build the business within the customer base. Without a defined sales process, how does one coach sales people and communicate sales process support needs with the rest of the organization?
Mix and Quality of Sales Resources. A fundamental issue for the sales function is whether the structure reflects an effective and productive manner to meet the value needs of the customer segments? For example, the use of inside sales staff can often increase the productivity of the sales force; in some cases, customers prefer to have access to an inside sales person. Likewise, there may be insufficient technical or specialty resources to support organizational strategies and the customer segments involved. The result can be reduced product and service penetration or reduced customer satisfaction or retention.
Sales Management Practices. This driver is highly correlated with motivation and quality issues (sales person behavior). The question here is the degree to which sales management is hiring the right resources, and retaining, training, and coaching them for promotion and overall effectiveness. An extension of this question of course is how well the managers are being trained and motivated to perform this task.
Product and Service Training. This involves addressing questions such as, how well does the sales organization know its products, competitive products, and how the customer that uses the product? Does the customer view the sales organization as a resource or simply as a service?
Industry Knowledge and Training. This includes addressing questions such as how knowledgeable are the sales people and to what degree do they add value to customers in terms of helping the customer to be successful.
Tools. The sales function is often chartered with the challenge of managing territories as though it were a business, demonstrating products, conducting assessments, etc., with limited to nonexistent tools to facilitate efforts. Examples of such tools are territory and account plans, account management systems, ROI calculators, product configurators, etc.
Quality of Sales Effort. Quality of effort is often viewed by management as the domain of manufacturing, but the customer is constantly evaluating the quality of the interface in terms of the
- Value of sales calls and response to questions
- Response time to messages
- Follow-up time to answer questions, complete quotes, complete evaluations, supply samples, etc.
- Aid in selecting the correct product or service
- Ensure satisfaction with the product or service provided.
Productivity. This includes standard productivity metrics such as the number of calls, cold calls, or coverage metrics where the pattern of call or frequency of calls are the focus.
Partner Support. The sales function often is responsible for supporting partner organizations, such as distributors, retailers, wholesalers, etc. This support often involves training, joint calls, etc. The question posed by this driver pertains to the quantity and quality of support and its impact on partner performance.
Coordination and Collaboration. This topic is often difficult to separate from the go to market process in that collaboration is frequently associated with other functions. Sometimes, the collaboration pertains to linking sales people together in terms of sales teams or simply learning what others have done under similar circumstances.
Regain Lost Customers. This refers to a program that is targeted at regaining customers that have decided to use a competitive product or service. The intention is to regain them as a customer and retain them. Experience with this driver can lead the organization to be pre-emptive by identifying customers at risk of defection. This avoids costly programs and lost productivity.
Other drivers which constitute any other factor that does not appear to be explicitly inferred by the above items should also be considered.
The purpose of the assessment is to challenge the organization to quantify its assumptions regarding the real drivers of sales performance. The driver categories outlined in the previous section merely identify potential issues that impact performance, the assessment requires the organization to estimate an order of magnitude about its current level of performance and the financial impact on the organization. At this stage, it is likely that the assessment will involve a fair amount of guess work. This may engender some discomfort within the organization, but this condition reflects an inability to evaluate cause and effect. The focus moving forward should be to improve this understanding.
For each driver, the assessment will require a gap score. The gap score is based on a five-point system where 5 represents perfect compliance with the sense of the ideal versus a 1 which suggests that compliance is extremely weak to non-existent. Thus, if the organization does not have a defined and documented sales process, the score is a one even though the overall performance of the sales force is considered good to excellent. The impact of improving the gap score will be considered in the context of moving performance or compliance from its current level, to something very close to a five. This impact will be estimated in the context of incremental revenue (%), incremental improvement in average margin (%), and improvement in sales productivity (%) as measured by sales cost as applied to the current revenue base. In the aggregate, these estimates will indicate the total potential for improvement; however, as importantly, the value of the individual drivers will provide a reference in terms of prioritizing areas in need of improvement.
Define the base numbers. These should not be "pie in the sky numbers", but rather reasonable expectations given current performance levels. For purposes of illustration, assume that the figures are as follows:
|Revenue = $100 million
Ave. Margin = 30 percent
|Revenue = $10 million
Ave. Margin = 10 percent
|Sales Productivity = 5 percent
||Sales Productivity = 2 percent
For simplicity, assume that the improvements only pertain to the direct sales portion of the business; so we will only use the figures on the left side of the table. Assume that the estimated improvement in direct sales revenue is 10 percent. This means that the potential is to create an incremental $10 million in revenue.
$100 million x.10 = $10 million
Next, assume that a five percent increase in direct sales average margin is estimated. This means that average margin increases by 1.5 percent (.3x.05). Also note that this improvement is applied to the base revenue plus the incremental improvement, so the net impact is as follows:
$10 million x .30 = $3 million
$110 million x .015 = $1.65 million
$3 million + $1.65 million = $4.65 million (margin)
Next, assume that direct sales productivity improves by five percent. This results in a .25 percent improvement in sales cost that would be applied to the base and incremental revenue.
$110 million x .0025 = $.275 million
Thus, the potential improvement for direct sales would be $4.65 million plus the $.275 million equal to a total of $4.925 million. This figure represents profit contribution, not a net or after tax number. From a percentage standpoint, the impact will most likely be greater when taken to the net profit line item level due to the impact of fixed costs.
The same approach would be used to calculate the impact on partner sales.
An assessment worksheet is provided at the end of this article.
These calculations using the worksheet format are provided below for reference:
(click here for larger verison)
Note that the symbol Δ refers to net change or improvement. This change is expressed as a percent but for the purposes of the calculation one must covert these numbers to a decimal equivalent; so 1% is equivalent to .01. Also note that with a gap score of 2.0, each point in reduction in gap score improves profit contribution by $1.64 million ($4.925÷3.0).
Creating an Improvement Strategy
It is always difficult to generalize regarding strategy. However, a good starting place is to map out the impact of the drivers versus the perceived difficulty of implementing the change necessary to create the benefit as referenced below:
||Time Complexity Investment
Quadrant 3 is often referred to as "low hanging fruit" where benefits are more easily seen and attained, whereas quadrant 4 represents longer term investments. Initiatives that address the various drivers are not going to be mutually exclusive and therefore it may be desirable to plot the initiatives in a similar format to prioritize their implementation. In doing so, one should be cautious regarding paying attention to foundational issues, such as customer profitability and go to market process alignment. These issues may require more time but they are fundamental to long-term profitability.
Setting the Strategy
It would be a rare organization that does not generate a very large estimate for profit contribution potential. Likewise, the organization may be somewhat overwhelmed by the complexity of the challenge. As with any major initiative, the strategy has to embrace an approach that breaks the various components into digestible, bite size chunks. The first task is to assign overall responsibility for the initiative to a senior executive with a mandate for success that includes a definition for success that is defined by relevant metrics. The senior executive must have a stake in the success of the initiative and results must be included as an integral part of that person's compensation package. The senior executive must have an adequate budget and access to quality resources.
Next, the potential for each driver must be converted into an action plan with a corresponding budget, resources, time table, success metrics, and assessment of benefits. The reason for establishing an action plan for each driver is that it may be desirable to work on some action items in parallel. Further, it is also possible that some of the action items will either be common to several drivers or there may be dependencies.
The final strategy must be integrated into an overall plan with budgets, success metrics etc. Progress reviews must be a topic at all senior management performance review meetings (must become core to running the business).
This concludes Part three of the three-part Assessing the Drivers of Sales Performance series.
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