Taming the Volatile Sales Cycle– Roller Coaster Ride…

Many companies experience wild fluctuations in their revenues: During one quarter, products or services are selling faster than proverbial hotcakes; but in the next quarter, the sales force can’t seem to give those same products away. “It’s either feast or famine,” is the all-too-familiar refrain. To exacerbate matters, these fluctuations are often unpredictable as evidenced by the countless companies that miss their revenues projections, unleashing the wrath of Wall Street. Many corporations have watched their stock price plunge because of a missed sales target.

Of course, every sales cycle has some degree of volatility. A big customer could go bankrupt or a major deal could fall through because of management changes at the firm. Conversely, sales of a new product could suddenly skyrocket because of a serendipitous endorsement. And there are certainly seasonal fluctuations and many other factors, including customer budgets that affect the sales cycle.

Aside from these, there’s another type of volatility that many executives seem to think is some kind of natural law. At the beginning of every quarter, sales tend to falter; at the end, they often surge. This continuous roller-coaster can be a huge problem when big deals fail to materialize at the last minute (that is, near the end of the quarter), leaving a shortfall. Indeed, the fear of that happening has led many companies astray.

Sales Funnel: The typical sales process is like a “funnel” (or “pipeline” or “conduit” or “hopper”, etc.): At the bottom are the deals that are nearest to being closed; in the middle are other prospects in the works; and above the funnel are numerous promising leads that need further investigation. Each of the three stages of the funnel requires different activities… At the bottom of the funnel, the company must remove all remaining obstacles to close those deals (for example, meeting with the final decision maker and ironing out the specific financial terms of the contract).

In the middle of the funnel, it needs to do important background work (for example, identifying the people at the prospective customer who could possibly veto the deal). Above the funnel, it needs to screen the leads to identify which should be pursued (specifically, determining whether there’s a good fit between the customer’s needs and the company’s products). And, of course, it also needs to continue prospecting to ensure a healthy supply of new leads.

Now comes the tricky part. Ask any executive, including those in sales, how to prioritize these three stages of activities and the answer is likely to be that the funnel should generally be worked from the bottom up. At first glance, that strategy seems to make sense. Why not concentrate on the surest opportunities first and leave the less certain stuff for last? But this prioritization strategy is the fundamental cause of the sales roller-coaster.

Here’s what typically results from a bottom-up strategy: The sales organization closes important deals and is busy moving prospective business from middle to bottom of the funnel. This is arduous work and, pressed for time, people just do not get around to generating any new leads. At some point, though, everyone begins to realize they’re in trouble because the funnel is drying up. This then results in panic and a flurry of activity.

Unfortunately, a company can’t instantaneously move a prospect from the top to the bottom of the funnel. Especially for big-ticket products, that process could take months, if not years. Thus, the company experiences a plunge in sales until it is finally able to move the crop of new leads down the funnel, which eventually results in a sales up-tick. But then history repeats itself because, as people focus on the bottom and middle of the funnel, they again neglect to prospect and qualify new leads. And this is why many firms experience the wild ups and downs of the sales roller-coaster.

Ideally, a company should have a continuous flow through its sales funnel, and the surest way to achieve that is to prioritize the three stages of the funnel in the following way: bottom, above and then middle. Note that the highest priority is to still attend to the deals that are nearest to being closed because they offer the quickest return on the future expenditure of a company’s time and resources.

And given the investment that a company has already made to move a potential customer from the top to the bottom of the funnel, it would be foolish to leave that prospective business vulnerable to poaching by a competitor. But the only way to ensure that activity above the funnel receives the attention it deserves is to prioritize it ahead of the work that needs to be done in the middle.

But that’s not to say that any company can afford to neglect working the funnel’s middle. Prospects there must still be shepherded toward the bottom so that those deals can eventually be closed. Somehow, though, people will find the time to work on customer prospects in the middle of the funnel (even when other activities might have a higher official priority as decreed by their company), whereas they always seem to be much too busy to concentrate on finding and qualifying leads above the funnel unless they’re absolutely forced to do so.

Better Funnel Management: And that brings us to the basic problem: Telling salespeople how to manage their individual funnels is one thing; getting them to do so is an entirely different matter. To accomplish that a company must implement various organizational measures. For starters, it needs to have salespeople regularly monitor and track the activity in their individual sales funnels. For instance, one salesperson might be spending 60% of her time at the bottom of the funnel, 20% in the middle and 20% above the funnel, while another salesperson might have a completely different breakdown.

Neither is inherently better than the other and, in fact, the two salespeople could have entirely different ratios for the following week. It is important to remember that the desired prioritization (that is, working the funnel from bottom, above and then middle) is just the static overall goal. Companies have to keep in mind that each salesperson’s time should be allocated in dynamic fashion, given the particular status of that person’s different customer prospects

That said, a company can uncover a number of problems by tracking the overall, combined funnel of its sales force. For example, a general lack of movement through the funnel suggests that people might be incorrectly classifying the different sales prospects (for example, thinking that a potential customer is in the middle of the funnel when it’s actually above it). Or if very few prospects are making it into the funnel, the firm might be having difficulty using initial data to predict whether there’s a match between its products and potential customers’ needs, and the company might do well to consider devoting more resources to above-the-funnel activities.

Institutionalizing better funnel management is admittedly a difficult task.  But such a disciplined process is crucial, especially when a company absolutely needs to have a more predictable sales cycle. The simple truth is that the sales function is a definable, repeatable process that can be tracked, planned and managed, and those that believe otherwise will continue to suffer the many volatile ups and downs of the sales roller-coaster.

Strategic Accounts– Yikes: BIG Trouble without these Customers

In many companies today 80 percent of revenue/profits come from only 20 percent of their customers, and other benchmarks show that 50 percent of a company’s revenue comes from 5 percent of its customers. Whichever the measure, it’s clear that a small and disproportionate number of customers are responsible for a large percentage of a company’s revenue. In fact, these strategic accounts (unique customers) are critically important to a company and must be carefully managed as a valued company asset.

Competitive pressure on companies has never been greater. Sluggish economy, globalization, mergers and acquisition, eroding margins, out-sourcing, the technological revolution, shrinking customer bases; these and other developments are creating unprecedented challenges for business executives, especially for those who manage strategic accounts.  More than ever, maintaining and building relationships with existing key customers has become essential to sustaining the P&L profile that is needed to survive and grow.

There are two approaches to maintaining a healthy P&L. Cut costs or improve revenue. (Ideally, of course, you do both.) By now the first approach, which dominated the last 10 years, is approaching the stage of limited returns, as organizations realize that there’s only so much ‘excess’ any company can eliminate.  As a result the second approach, revenue improvement, is fast becoming a universal imperative. Recognizing that revenue is the lifeblood of their organizations, executives are increasingly following the mantra “back to growth”.

There are two approaches for business intent on growing revenue. Expand into new markets and new customer bases, or optimize the business you have in your existing accounts. These approaches are meant to be complementary, but with global competition severely limiting market expansion, leading firms are focusing on the second option, seeking to develop untapped potential in their existing customer bases.

There are two approaches to improving business with your strategic or large accounts. The old-fashioned methods of try and sell them more and bill them accordingly. Or, a more enlightened method with focus on the development of a long-term, profitable relationship by delivering significant value that improves the customer’s business. In fact the “secret” for business success in the twenty-first century is exactly that; make significant and valued-contributions that ensure the success of your key customers/accounts.

The need for a reliable account management process is more urgent today than it has ever been. If you doubt that, try to find an institutional banker with less than a 30 percent churn rate or a telecom that doesn’t worry about customer retention.

And this brings up a whole new topic: What does it costs to acquire or lose a customer? This is a highly debated subject with answers that vary from; “it depends” to “3 times” to “10 times” to “it doesn’t matter”.  Here are a several opinions:

Calculate the customer life-time value. Calculate the customer asset-replacement cost. Would you be able to replace this account with another of equal value? What is the acquisition cost? Is there 5% or 10% or 20% rule for acquisition: If a customer is worth $10 million annually is the firm willing to invest $500K or $1 Million annually to keep it or to acquire it? What is the return-on-investment (ROI)? Go through a lifetime customer-value exercise. Consider the value you deliver to the account, the replacement cost, and the investment you need to make in the relationship.”

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“There is a spurious “fact” that circulates widely alleging that “it costs five times as much to acquire a new customer as it does to retain an existing one,” although sometimes people say it is seven times as much or ten times as much. This fact originated with a Harvard Business Review article a couple of decades ago, which was the result of a general study of retention policies compared to acquisition policies across a range of businesses in different (consumer) categories.”

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“The idea that “it costs X times more to acquire a customer than retain one” is an urban myth.  First off, acquisition costs vary by industry. The auto industry needs to spend a whole lot more to acquire a customer than, say, ING Direct who can jack up their interest rates on CDs and acquire a lot of new customers. Second, costs to both acquire and retain customers ebb and flow with economic cycles. In good times, acquisition costs decline.  Third — and most importantly — retention costs are INCALCULABLE. A firm has to first determine what it includes and excludes in the definition of retention costs.

Do you include all the costs associated with providing customer service to customers in your retention calculations? After all, if you don’t service them, you will have less chance of retaining them.  Do you allocate all IT application maintenance and enhancements to your retention calculations? If you don’t continually improve your transaction and interaction service capabilities, your ability to retain customers diminishes. The reality is that no one has the slightest clue what it costs to retain a customer, because no one has defined a standard for what costs to include and which ones to exclude.”

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And, the debate continues.

Clearly, maintaining what market analyst Frederick Reichheld calls the “The Loyalty Effect” has become a make-or-break proposition for business today.  Whatever their size and whatever their markets, companies everywhere need to protect their key strategic customers as important business “assets”. They need to deliver real customer value or risk being “re-positioned” as a commodity supplier. They need to invest appropriately in the strategic relationship and safeguard against account erosion.

Learning or Forgeting: What’s more important?

One of the key issues facing business isn’t learning, it’s forgetting, according to some experts. Organizational “learning” (i.e., executive management programs, selling techniques and processes, technical skills, and team building, etc.) is one of the hottest management topics, but some say that “forgetting” (i.e., the old traditional ways of doing things) is far more important. “You can’t live without an eraser”.

“The problem is never how to get new, innovative thoughts into your mind, but how to get old (traditional) ones out.” – Dee Hock… “The greatest difficulty in the world is not for people to accept new ideas, but to make them forget about old (traditional) ideas”. –John Maynard Keynes

The old (traditional) image of the salesperson was a mere glad-hander, someone whose only skill is “knowing how to talk to folks”. Think of the phases that come to mind when you think of selling. “A good salesperson is born, not made”, “Selling is 90% luck”, “A real salesperson can sell ice to an Eskimos”. Underlying all these adages is the view that it’s personality, not understanding; temperament, not training; magic, not skill that make the top salespersons what they are. For many people in the sales field, Horatio Alger’s old “luck and pluck” is still the talisman to which we attribute the salesperson success.

In business-to-business selling, the traditional method or old way involves two false assumptions. It assumes, first, that all potential buyers can use your product or service… and second, that if you only “show and tell” the customer about it, they’ll appreciate the “obvious” benefits and rush to buy from you. These assumptions violate a central principle of business interaction: People buy for their own reasons, not yours. Traditional, product-focused selling ignores that fact…

“Strategic Selling”, on the other hand, acknowledges this fact as central, and puts the burden for making the sale on both buyer and seller (it’s a joint-venture). It’s up to both the buyer and seller to move the process forward by mutually encouraging positive information flow. There’s no assumption suggesting that the customer already has a need for the seller’s product or service. On the contrary, the entire interactive process is geared to determine, up front, whether or not there really is a need.

Thus Strategic Selling follows the natural order of decision-making and involves three distinct but interrelated thinking processes beginning with “cognitive thinking” which is understanding the customer’s concept/need, then “divergent thinking” regarding the available options to satisfy the need, and finally “convergent thinking” which is the selection of the best solution. This realization was developed by J.P. Guilford through his extensive clinical research and documented in his book Nature of Human Intelligence.

The immediate benefit of this approach is an alignment between the salesperson and the customer’s decision-making process and gives the salesperson greater control and more flexibility by facilitating the customer’s natural way of thinking and decision-making.  And, in the longer-term, by establishing this constructive dialogue with the customer it enables the concept of No-Sell Selling and a Win-Win outcome. Win-Win means a highly valued and effective solution for the customer, and a long-term, profitable, and reference-able account for the salesperson…

Innovation– Relentless Pursuit of Inefficiency: Waste is Very Important for Innovation

Mess is the message! Mess is quintessentially American. Mess is not inefficiency… According to George Will; it’s productive “yeastiness and creative fermentation.” Mess is important! Inefficiency is important! Waste is important! The objective of growth companies and the whole concept of entrepreneurial work are to negate painstaking, decades-long pursuit of efficiency by creating exceptional customer value through innovation. The objective is to leapfrog what’s already there, and gain a significant business advantage through improved customer value.

A business process based approach to organizational change and innovation keeps your focus on the customer. Whereas, searching for waste and inefficiency looks inwardly and misses the point of why your organization exists… Your organization does not exist to become more efficient. Strange; most organizational interventions focus on efficiency; doing things better, faster, cheaper. Sometimes, they may even focus on effectiveness, doing the right thing.

And that is why the vast majority of interventions fail. Most interventions confuse the means with the end, with the means becoming the end because means are more easily measurable. So efficiency becomes the goal… Your customers receive improved value through innovation, and creating value for your customers means putting your customers at the core of your business analysis.

Creating efficiency within your organization is much simpler, just do-work that creates no-value for your customer. Did you know that 60% or more of all work done in service organizations add-no-value for your customer? Eliminating non-value-adding work means changing the way you do business: Innovate… Doing it right the first time is impossible. Nobody does anything “innovative” right the first time. Innovation means messing around; trying things, and messing things up, again and again and again. That is “waste”, but “good waste”.

Strategic Selling: Successful Selling in a World of Constant Change (Legend/Myth of King Minos & Minotaur)

An old Greek legend/myth tell how the ruler of Crete, King Minos, had an underground maze, the Labyrinth, constructed near his palace to serve as an escape-proof prison for the infamous Minotaur – a ravenous monster who is half-man and half-bull. Anyone who enters the maze becomes hopelessly lost, and once that happen the Minotaur finds and devours him/her. This gruesome scenario repeats itself again and again until the young hero Theseus, with the assistance of the princess Ariadne, devises a strategy to kill the monster and get out of the maze.

Killing the monster is the easy part. Theseus is a hero, after all; killing is his business. The problem is finding a way out of the maze. Realizing this, Ariadne ties a long thread to Theseus’ waist as he enters the Labyrinth while she holds the other end tightly in her hand. It’s a simple but effective solution. Deep in the cavern, Theseus dispatches the monster, and then retraces his circuitous route back up to daylight. He and Ariadne are married, and the people rejoice.

What is the name of Zeus, does this ancient legend/myth have to do with selling?

Actually, quite a lot. If you suspend your disbelief just long enough to imagine Theseus as a modern sales professional we think you’ll readily see the analogy that is being developed. In selling today, especially at the corporate level, you have to contend every day with organizational labyrinths. A hundred years ago – even twenty or thirty years ago – it was possible, if not always easy, to close major business by calling on and satisfying one key decision-maker. Those days are gone. Today, in the era of what is called the Complex Sale, every major piece of business entails multiple decisions, and those decisions are made by multiple decision-makers.

Not only do you have to contend with the multiple decision-makers, but they all may be located in diverse and distant geographic locations. To make things even more challenging you can’t be sure that the same people, who said yes on one deal, will have the same authority in two weeks or even two days later for a second deal to the same company.

In an era of downsizing, nonstop mergers, and executive musical chairs, selling has become so complicated, and so fraught with unknowns, that the labyrinth metaphor may even be a little too conservative.

Admittedly, the type of monster you usually encounter in the business maze is not exactly the hungry Minotaur variety. But figuratively: It happens every day. And there’s absolutely no way to prevent a tragic ending unless you have a strategy. Just like Theseus, you need a plan of action, and you need a “safety line” to keep you properly oriented through the maze of your sales opportunities. To demonstrate the critical difference between having and not having a strategy, here is a story about a corporate client.

Not long ago, a major manufacturer of information systems – a company that does hundreds of millions of dollars’ worth of business a year – was about to close the sale of a sophisticated computer system to a potential huge new account. The sales representative who was handling the negotiations, a man we’ll call Ray, seemed to have every reason to be confident. He had been talking to the client’s top management for months and as the deal moved closer to signing, he knew he was firmly entrenched.  The department head that would use the new equipment, the purchasing agent who would sign for it, the data-processing people – all of them were delighted with his proposal. Ray even belonged to the same club as the company’s CEO, and he knew that this executive too was behind the deal. With a five-figure commission practically in his pocket, Ray was already shopping for a new car.

Ray’s company wasn’t the only one with its eye on this account. A smaller firm had also approached the customer, and Ray was aware of the potential competition. Judging from the general receptivity to his proposal, he figured he had nothing to worry about. The smaller firm had half the market share of his own, and no matter how good its product might be, Ray was way ahead on reputation points alone. Rumor had it; he congratulated himself, that the salesman for the other side hadn’t even met the CEO.

What Ray didn’t know was that the rival firm had one major advantage. Many of its best salespeople, including an eager young lion named Greg had acquired a whole new perspective on selling. He had learned how to identify the critical Buying Influences in a sale, how to minimize his uncertainties about a customer’s receptivity, how to avoid internal sabotage, and how to leverage from his own strengths to maximize competitive advantage… He had a detailed, pragmatic system that allowed him to analyze components of the pending sale far more effectively than Ray could ever hope to.  Armed with his understanding of these components, and of how they all fit together in the sale, he was about to take a win from the market “leader”.

It was true that Greg hadn’t met CEO. But thanks to the Strategic Selling program he had attended, he didn’t have to. While Ray was congratulating himself for knowing customer’s senior management, Greg was quietly finding out who the real decision-makers were for this sale, and uncovering other information that could help him close the deal. Specifically, he wanted to know who would have to give final approval for the sale. He found what he was looking for in Jeff, an outside consultant whom Ray had entirely overlooked. Jeff was able to give Greg two valuable pieces of information.

First, he explained that for this specific sale, it was the division general manager, not the CEO, who had to give final approval; Ray’s connection to the CEO was thus ego-gratifying but irrelevant. Second, if Greg wanted to sell this critical decision-maker, he could do no better than to go through Jeff himself. Prior to becoming a consultant, he had been a valued senior member of the buying organization, and division general manager had routinely relied on him for information about state-of-the-art technology.

What Greg did, therefore, was to show Jeff the match between the buying firm’s need and his computer solution – and then let Jeff demonstrate it to the general manager. Soon all the parties involved in the purchase decision were sold on his proposal. He was the one who got the new care, while Ray, who supposedly had the sale tied up, was left wondering what had gone wrong.

Anybody who sells for a living can tell you similar stories about a “locked in” deal that fell through because a salesperson in charge had failed to cover-all-the-bases, or pitched the proposal to the wrong person(s) at the wrong time, or over-looked a crucial signal that the sale was in trouble. No matter how expert or experienced you are, you have probably felt the pain of disappointment that comes when your competition unseats you form a totally “secure” position.

What you may not realize is that there is always a specific, clearly identifiable reason that such a sale is lost, even though you may not know what it is.  That reason never involves merely “luck” or “timing” or “hard work”. When you lose a done deal at the last minute, it’s always because you failed to bring to the sale what Greg brought to his deal; a clearly defined, consistent, and reliable “process” for success that takes into account all the elements of the pending transaction, no matter obscure or trivial they might appear.

Subtle Shifts in Business, Leadership, Management, Organization, Strategy, Innovation– Bring Big Results…

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