July 29, 2014
Annual plan; three-year outlook, LRP … August starts the planning season.
About this time every year, distributors and suppliers engage in the time-consuming ritual of setting sales goals and profit expectations.
Later, when they miss these targets, many revert to the traditional approaches to improving sales performance: changing the compensation plan, investing in the latest CRM technology or even bringing in a motivational speaker. Others blame the economy, the competition or even their customers for these shortcomings.
Sales force performance is usually measured in terms of productivity — the dollars brought in per salesperson compared to the cost of supporting that salesperson. While productivity is important, it does not tell the whole story. In fact, productivity numbers can create a false sense of security by masking ineffective sales force utilization.
Your sales productivity might look good, but you have no way of knowing if your salespeople could be doing better.
For a sales force to reach peak performance, we must look at sales force utilization.
Utilization is traditionally associated with tangible assets, such as plants and equipment. It measures what an asset currently produces, compared to what it is capable of producing.
But if your sales force is already ‘giving 100 percent,’ how can you possibly expect more? The truth is, your sales organization can do more, a lot more, and they won’t even have to work longer or harder.
By improving utilization, management can close this gap and improve productivity and profitability. This same approach to measurement can, and should, be applied to a sales force.
What exactly are sales guys doing?
Recent research of more than 1,000 industrial sales forces shows the average salesperson is grossly underutilized. While salespeople work an average of 50 hours per week, most of their time is consumed by activities that do not generate revenue, including travel and a multitude of administrative tasks.
Other established research (and common sense) gives us a good benchmark for the optimal use of a salesperson’s time. Peak sales performers devote 85 percent of their time to specific revenue-generating activities; they use the remaining 15 percent for day-to-day operation and management of their sales territories.
A personal survey of factory and distributor field sales activity shows the average salesperson only spends about 40 percent of his or her time on revenue-generating activities — well below optimal utilization.
More troubling is that average salespeople spend nearly a quarter of their time dealing with problems and mistakes, looking for information and expediting orders. To put this in perspective, think of the additional sales volume you could gain if your salespeople spent nearly an additional one-fourth of their time selling.
After a career of looking at this under-use of human capital, there appear to be five common situations that keep teams from achieving peak levels of sales performance.
The key lies in overcoming these reoccurring disconnects:
Too Little or Too Much Information
Almost all problems and mistakes in the sales/distribution channel can be traced to inadequate or inaccurate information. When these problems occur, salespeople are forced to stop selling and find out why the right product did not make it to the right place at the right time with the right paperwork.
But has more communication technology made it easier for salespeople to focus on their primary function: acquiring and keeping customers? Research shows salespeople spend an average of 15 percent of their time searching for information and responding to email and other text messages. While this may not seem like an unusually large amount of time, it represents more than twice the amount of time they spend prospecting for and qualifying potential new customers.
And while today’s salespeople are much more connected, they still don’t necessarily have the crucial information they need. Salespeople often have difficulty finding basic information, such as demand forecasting data, product availability, pricing, delivery dates and order tracking information.
To correct this systemic waste:
Lack of Focus
Most manufacturers and distributors would agree that a business must grow to remain healthy and viable. Peak sales performers focus like a laser on acquiring new customers, spending 45 percent of their time prospecting. That’s right 45 percent of their time is spent cold calling, networking and identifying new companies and contacts. They know that no matter how successful they become, they can never stop prospecting.
Peak sales performers also average 30 percent of their time working to understand the needs of customers and prospects, developing solutions and presenting those solutions to decision makers.
Unfortunately, most salespeople are not nearly focused enough on either of these activities. In fact, our research shows average salespeople spend less than a quarter of their time prospecting and qualifying potential new customers — and working to understand the needs of customers and prospects, developing solutions and presenting to decision makers — combined!
To overcome these bad habits, try to:
Inefficient and Outdated Work Processes
All work in the sales/distribution channel is completed through work processes. A work process is a set of tasks that produces an outcome: an order, pick slip, delivery schedule, invoice, etc. A company may perform hundreds of work processes as a product moves from its point of creation to final customers.
But over time, work processes tend to become inefficient and outdated. While conditions change, the process stays the same. Inefficient work processes result in problems, mistakes and unnecessary work.
Some may claim that one of the salesperson’s primary roles is to deal with these issues. It’s true that, in its own strange way, all that heroic “firefighting” can build customer loyalty.
But imagine how much better your sales force’s time would be spent if they could build relationships by addressing the customer’s own problems, rather than solving problems and mistakes caused by the very company whose products they’re trying sell.
To overcome this barrier:
Today’s customers are more price-sensitive than ever before. In this price-focused environment, salespeople must justify — in terms of dollars and cents — the economic value customers will derive from their product offer. If salespeople lack this ability, they leave the customer no choice but to view their product as just another commodity.
Without a clear understanding of the true value of your product, customers will demand lower pricing, choose an alternative offer or decide not to purchase at all. The sad reality is many salespeople cannot justify a higher asking price simply because they don’t know how. To find out if this is the case with your sales force, review how many sales during the past six months were taken at a discount or included some form of extra incentive, such as extended terms or a freight allowance.
Salespeople are not to blame. Though manufacturers and distributors provide each salesperson with an average of 60 hours per year of product training, this training generally does not include the selling skills needed to compete in today’s price-focused marketplace.
The good news, for those who choose to not compete on price, is that almost every product offer has some economic value above and beyond its asking price. Your salespeople must have the knowledge and skills necessary to respond when customers ask for a lower price.
Inability to Execute
Maybe the biggest barrier to peak sales performance is an organization’s inability to turn great intentions into day-to-day action. Manufacturers and distributors are experts at talking about their plans for improving sales performance. But at the end of the year, there is usually a large gap between expectations and results delivered. Missed targets are a major source of frustration for both parties.
At the heart of this inability to execute lies a way of thinking called “swinging for the fences.” We have an instinctive disdain for slow, deliberate solutions that produce results somewhere in the future. We’re biased towards quick fixes, and at many companies, this mentality is further fueled by intense pressure for quarterly results.
Managers prefer to think of sales performance in terms of home runs, big-dollar breakthroughs, mega-mergers or the next world-changing technology. But as the perceived reward increases, so does the risk. Home runs might provide those elusive big sales numbers, but they’re rare and unpredictable. When you swing for the fences, you tend to strike out a lot and after a while, you stop swinging altogether because the risk is too great.
Instead of thinking about growth in terms of mega-results, recognize the value of small projects and ideas that free up your salespeople, one hour at a time. These realistic, manageable improvements can cumulate in growth beyond your wildest expectations.
Bill Wade is a partner at Wade & Partners and a heavy-duty aftermarket veteran. He is the author of Aftermarket Innovations. He can be reached at email@example.com.