Train Your Sales Team: Sales Cost Control

This article is based on a conversation with Donal Daly, CEO of The TAS Group, which helps sales organizations adopt proven sales methodologies. He is the author of four books, including the Select Selling Sales Fieldbook. He can be reached at The TAS Group, 1st Floor Harmony Court, Harmony Row, Dublin 2, Ireland.  Phone: +353-1-631-6140 or (US) 866-570-3836.  Web: www.TheTASGroup.com.

All sales costs are based on two things: whom you call on, and what you do after you’ve called on them. If you’re calling on the wrong people, you’ll spend time and money on false opportunities that never had a chance of generating revenue or profit. If you’re calling on the right people and you do or say the wrong things, you’ll spend time and money on opportunities that might have paid off, but didn’t. Within those parameters, there are four primary strategies for reducing sales costs:

Strategy #1: Increase the average quality of the leads.

A high-quality lead, by definition, is one that’s likely to become a customer. While many sales groups consider it the marketing group’s responsibility to provide them with a list of qualified leads, the marketing group cannot do this effectively without the active participation of the sales group. Without direct input from sales about who’s interested, who’s buying, and specific details such as a prospect’s job title, industry, or typical organizational structure, there’s no way for the marketing group to triangulate on the kinds of prospects that are most likely to become customers.

It is therefore the job of the sales group to meet regularly with the marketing group to discuss the nature of the customer base in order to help hone the lead generation activity. The sales group can also help influence lead generation by participating wholeheartedly in keeping the CRM database current and accurate. Because the CRM system tracks sales efforts, it provides a treasure trove of statistical data defining the current customer base and how effective the sales organization has been when selling to various demographics.

If the marketing group is unable or unwilling to provide lists of qualified leads, then the sales group must take responsibility for winnowing out prospects that aren’t likely to buy. While this is extra effort, it reduces the cost of sales because less time is wasted pursuing false opportunities. The best way to accomplish this is to ask questions during the initial customer call that would disqualify the prospect as a potential customer. For example, a question such as, “How would you handle this problem if you didn’t have a solution like ours?” might elicit this response: “We’d probably struggle along for a few more years.” In this case, the prospect may not be serious about buying.

Strategy #2: Increase the number of leads that are converted into customers.

Time spent selling to prospects that don’t buy from your company is time wasted – and a major waste of money. If a lead is completely qualified, then the prospect is going to buy, either from you or your competitor. Therefore, increasing your “conversion rate” for a fully qualified lead is always a matter of outselling the competition. Doing this is not complicated, but it does require a commitment to details, especially when it comes to reaching the real decision makers in the account.

The most frequent reason that sales reps are outsold is that they didn’t talk to the right people – and the competitor did. In many cases, the failing sales rep did not research and completely understand the actually process by which the decision would be made and who would play what role in that decision-making process.

For example, it’s common practice for a sales rep to communicate with a senior decision maker at the beginning of the sales cycle, and then revisit that connection at the end of the sales cycle in order get final approval. However, unless you’re in regular communication with decision makers, there are likely to be long periods of time where you don’t know what’s going on or what’s changing inside the customer account. If your contacts are limited during the middle of the sales cycle, you’re probably not going to know what your competitor is doing and who your competitor is calling on. So there’s a high likelihood that you’ll be outflanked.

Strategy #3: Increase the average dollar value of the typical completed sale.

There are fixed costs connected to every sales effort, regardless of the amount of revenue generated by that sale. While it may take more effort to cut a $1 million deal, it’s usually not 10 times as much effort as cutting a $100,000 deal. Therefore, the more money you can make on any one sales opportunity, the lower the overall cost of sales. There are two strategies to ensure that you don’t leave money on the table.

The first strategy is to use discounts as sparingly as possible, especially discounts that are unusual for that type of account. While there’s no question that discounts can be a tool in the sales cycle, they add to the cost of sales by reducing the profit. In the case of standard discounts, that drop in margin is already reflected in the business model. However, extraordinary discounts offered merely to secure the sale can not only make the deal unprofitable, but can result in a demand for similar discounts from current and future customers.

The second strategy is to fully develop the customer account during the sales process. To do this, you should research the prospect thoroughly prior to your first sales call, and then continue to research and probe during the sales cycle in order to continue to uncover additional ways your firm can help that customer. If this is done with the proper attitude – with the intent to truly be of service to the customer – it can result in a proactive collaboration between you and your customer to make sure that the (mutually advantageous) deal is as large as possible.

Strategy #4: Decrease the time it takes to convert a lead to a customer.

Time is money; therefore, the more time you spend on an opportunity the greater the cost of sales. There are two concepts here that are important. The first concept is the elapsed time it takes to move a prospect from initial contact to closing the deal. The second concept is the amount of work hours you actually spend on that opportunity.

Some sales reps focus on the elapsed time, believing that they can influence the customer to buy more quickly. However, in most cases, the customer already has a time frame in which he or she intend to buy. Because of this, efforts to speed the process along are usually a waste of time. As such, they add to the number of work hours the rep spends on the account with no particular payback.

Instead, sales reps must find out the customer’s “compelling event” which will actually trigger the buying process. For example, a prospect might have a certain amount of budget to spend in the current quarter, in which case the compelling event would be the end of the quarter, after which the money will disappear. Similarly, a prospect might be waiting for an order from a large customer before making a purchase of additional components. In that case, the compelling event would be the order from the prospect’s customer.

Once you know the compelling event, schedule your activities backwards from that event, so you spend the right amount of time developing the opportunity.