A Manager's Guide to Sales in a Down Economy
November 17, 2008
By Ulrich Herter
What is an executive to do with the sales department in difficult economic times like the present? The answer is the same as it is for all other areas of the business—adjust capacities, increase efficiencies, optimize utilization and eliminate waste. A straightforward, logical and quite obvious answer.
Ask how to do that, however, and the solution is less obvious—much less.
Forecasting During a Storm
Sales departments are not a good place for capricious, haphazard cuts. Such action is most often ultimately counterproductive, as it endangers the one unit that does bring in revenue. For guidance, one can review past revenue that individuals and sales teams generated. However, relying only on this measure is fundamentally flawed. Past results are a trailing measure and are not a reliable predictor of future performance.
The key reason for this is what we call "environmentals." While past results certainly may be a reflection of a seller's diligent and professional effort, they also may be a result of factors like the assigned territory, geographical peculiarities, target richness, competitive landscape, buyer politics, customer loyalty and home office support. And—probably more often than a seller would care to admit—simple luck plays a major part in success or failure.
One measure that can help is the forecast that comes from the sales organization and the underlying sales pipeline report. But the financial types bemoan the suitability of this measure saying, "The only thing reliable about our forecast is that it is unreliable." In many cases, that is a valid and undisputable concern.
The principal cause for the unreliability of forecasts is the route most companies take to construct them. The most common attempts attach some measure of probability to a seller's actions—such as the submission of a proposal, or an engineering study to provide some return of investment calculation. Other times the probability changes simply because the seller reports "a really good meeting." But what, really, do these things mean to the buyer?
The reality within most companies is that the sales manager qualifies the seller, the channel manager qualifies the channel and contingencies that make or break the deal are simply ignored—they don't fit well in probability models—and what the buyer thinks is, at best, a wild hypothesis.
One argument that financial types do not like to hear is that sales forecasts—which are based on external variables, rather that the depletion on the order book—are always and inherently at risk. The reason is simple—the buyer owns the final result.
This does not, however, excuse the sorry state of sales forecasting; that is a symptom masking a much bigger problem: The lack of constant, rigorous measurements at every step of the selling cycle. Such measurement is the only way to control the eventual outcome and assure the quality of leading indicators.
Executives must ask, "How many approaches have my sellers made, and to what type of prospects, within the last three months? How many of these approaches have led to engagements, such as customer visits for new versus pre-existing accounts? What is the correlation between these two variables individually and collectively? Why are things as they are, has anybody in the organization questioned the situation or tried to improve it?"
Creating the Cornerstone
These are all pertinent questions. Getting answers to these questions requires a management framework. That is, a structure which determines what the manager must focus upon to make the right decision, to pinpoint failures in the process and to drive the organization to higher levels of performance. Pipeline opportunities must be validated through a systematic link to buyer feedback. They must be further qualified though documented movement in the form of an agreed elimination of inhibitors.
Will this make all forecasts foolproof and spot-on? No, but it greatly increases its accuracy by making the focus the legitimacy of the underlying opportunities.
Enforced with the necessary rigor, this type of management framework will also yield answers to questions of capacity and utilization. Waste in sales departments is demonstrated by things like making proposals not requested by buyers, elaborating presentations to disinterested groups, frequent trips to unqualified buyers, holding on to dead or dying opportunities and a toxic avoidance of prospecting for new business. A proper framework will show the sales manager where and when to eliminate waste like this and focus the organization on things that really matter in selling. And, when it comes to capacity, management will need to understand the whole picture before making structural changes in sales or channel teams.
Having worked with managers in the implementation of selling management frameworks, we submit that it will be hard work involving everybody—the sales managers, the marketing management, the organizational infrastructure and the executives. Then again, we do not believe getting through the current crisis will be a cakewalk.
Ulrich Herter is the co-author of On Selling Management: The PATH to a Better Top Line (NOVEMBER 2008)
Sales & Marketing Management Magazine
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