Think Sales Performance Optimization is Expensive?
Consider the Cost of Not Doing It!
At the start of any new sales enablement initiative planning, as the process to define what “better” will look, the project team will eventually come to the point where they start identifying the scope of the effort involved to successfully leverage people, process, technology, and knowledge to achieve specific sales performance optimization goals. When that occurs, the amount of time, resources, and money required to support that initiative will become clearer.
The temptation can be to look for ways to reduce the amount of those three things prior to even starting to work on the initiative. Before jumping into that exercise, we recommend something else be done as well. In addition to determining what the sales enablement initiative is going to cost, take the time to figure out what sales dis-enablement (failing to address your sales performance challenges) costs as well.
Sales dis-enablement can result from three things; Doing Nothing - maintaining the status quo when change is clearly needed, Doing It Wrong - taking on a sales enablement initiative that subsequently fails, or Doing it Long - implementing a sales enablement initiative without the right resources so the path to success is delayed. Each of these comes at a cost, which sales enablement professionals need to take time to understand and quantify. Failing to do so will result in your company writing a series of “invisible” checks. Here are some examples of how to go through this process.
Assume that you are the Chief Revenue Officer (CRO) for a 100-person sales team that is responsible for generating $100M in revenues per year. Over the past few years your firm has started to experience two problems common to many sales organizations: a greater number of forecasted deals have resulted in no decision, and your average discount rate has increased. What is the cost of not addressing these issues? Review the following.
Cost of No Decisions
Assume that for all forecast deals, your firm currently has a 50% win rate, a 30% competitive loss rate, and a 20% no decision rate—up from 15% historically.
Your average quota is $1M per sales professional. Based on an average deal size of $50,000, your salespeople must close 20 deals per year to make their quota. With a 50% win rate they need to have 40 deals in their pipeline to accomplish this goal.
Assume that by increasing the effectiveness of your sales professionals they could lower their no decision rate to 15%; thereby raising their win rate to 55%. That new win rate, times the 40 deals in the average pipeline, would result in each sales person closing two more deals per year.
Two additional contracts at $50,000 each would yield $100,000 in gross revenue per salesperson, or $10M across the sales force. This is how much not addressing the no decision problem is costing your company.
Cost of Increased Discounting
Assume your discount rate is currently 20%, up from 18% just a year or two ago. Since your average deal size is $50,000 based on a 20% discount rate, the list price would be $62,500 per deal.
Now assume you could find a way to improve your sales force’s ability to sell the value of the products or services you offer, which resulted in your discount rate dropping 2% back to its past levels.
Based on a $62,500 list price, a 2% margin increase would yield $1,350 more per deal. That figure times 22 deals per rep, using the new 55%-win rate, would yield a profit increase of $29,700 per sales professional, or $2,970,000 for the sales force.
So, think about your company for a minute. What are the sales problems that have crept up on your sales organization over the past few years? Is your sales force experiencing some of the challenges mentioned above? Or, could sales be experiencing other challenges such as higher salesperson turnover, lower productivity, increased customer churn, lower success rates selling new/strategic solutions, longer ramp-up times for new sales professionals, etc.?
Now take out paper and a pen and calculate what the cost of sales dis-enablement is for your firm. If you Do Nothing – that cost continues until it is addressed. If you Do it Wrong – that cost not only continues until it is addressed, you will have also incurred costs for the failed initiative, and you will have to deal with disillusionment issues among project team members and the salespeople who participated in the failed initiative. And finally, if you Do it Long, the time it takes to start achieving benefits is elongated and the extent of the benefits may be diminished.
Going through this exercise will put in perspective what your current sales challenges are costing your company. This insight, combined with an understanding of what the sales enablement initiatives are required to solve these sales performance problems, allows the sales management to make informed investment decisions.
Over the years, ZZ Sales Systems has recognized those individuals and companies that are thought leaders in B2B sales. We whole-heartedly agree with Sales Mastery’s premise on The Cost of Doing Nothing and thank Sales Mastery’s for their permission to publish this to our followers.
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