In any economic climate, you need to make sure that your best people are concentrating on what they're good at. When revenues are down, you need to ask a tough question: Are your salespeople really selling?
Start the Investigation
With one of the salespeople in your team, I challenge you to try this simple "time and motion" study.
Follow her around for a week and note the different activities in which she engages — and the percentage of her working hours devoted to each.
My guess is that you'll discover something like the following:
- 60 percent of her time is spent prospecting.
- 30 percent is spent face-to-face with qualified prospects (actually selling).
- 10 percent is spent servicing existing accounts (looking after people to whom she has already sold).
Now, ask yourself: Is your salesperson investing her time in the most effective manner? To answer that question, let's examine each of her activities, starting with servicing existing accounts.
Here's an often-overlooked fact of life: The best salespeople tend not to be great at customer service — and vice versa.
Better to assign customer service duties to a full-time, telephone-based serviceperson, who will do the job properly for around half the salary. Better still, you get to reallocate the freed-up time in your salesperson's schedule to prospecting, making it approximately 70 percent of her available time.
Your salesperson has 20 time slots a week that she could theoretically fill with appointments, and 14 of these slots are currently being spent looking for people to sell to in the remaining six!
Or, to put it another way, if you're paying your salesperson $70,000 a year, each appointment is costing you (in salary alone) $243, instead of the $73 you'd be paying per appointment if all of the available slots were filled. Is this so bad?
The answer is no — and yes!
No, it's not unrealistic to invest $243 to set an appointment for a $70,000-a-year salesperson. But this calculation doesn't take "opportunity cost" into account. In other words, what is it costing in lost sales revenue when a salesperson has just six out of a possible 20 appointments?
Let's assume that a typical customer is worth $10,000 to you (lifetime value), and that your salesperson successfully closes one sale for every six appointments.
Right now, your salesperson is performing six appointments a week, which equates to one sale, worth $10,000 (or $1,670 revenue per appointment).
If you can find another way to invest that $243 per appointment, such that each of your salesperson's 20 available timeslots is filled, your salesperson will now be performing an additional 14 appointments — lifting the average number of closed deals to more than three, and average weekly revenues to $33,400. That should just about cover your customer service person's salary!
Therefore, the "opportunity cost" of having your salesperson do her own prospecting is a massive $23,400 a week.
But that's not the half of it.
If your salesperson is no longer setting her own appointments, who is? And what's the likely impact on her closing ratio?
Let's assume that you were to use advertising to generate inquiries. And let's assume that you give your new customer service person the job of setting appointments for your salesperson.
Our experience is that responses to a lead-generation advertisement placed in a metropolitan newspaper are likely to cost you approximately $30 each. If your customer service person appoints one in five, each appointment will cost $150.
So will your salesperson's closing rate suffer if her appointments are set for her? In my experience: no. The fact is, salespeople's closing rates typically more than double when appointments are set with respondents to a lead-generation campaign.
And there's a simple reason why: Prospects who set appointments after responding to an advertisement — and after reading the information pack typically offered in a lead-generation advertisement — are significantly better qualified than those appointed by a salesperson using traditional prospecting methods.
If we assume that your salesperson's closing rate increases by only 50 percent, she is now making five sales a week, worth a total of $50,000.
What have we achieved? Well, we've increased your costs:
- A good telephone-based customer service person will cost around $35,000 a year;
- your lead-generation campaign will cost you $150 per appointment.
Accordingly, your costs have risen by around $3,700 a week. But we've also increased your revenues — from $10,000 a week to $50,000.
You do the math.
About the Author
Speaker and author Justin Roff-Marsh (Justin@Ballistix.com) is founder and chief executive officer of Ballistix, an international management consultancy with offices in Chicago and Brisbane, Australia. For more information, download a white paper on Sales Process Engineering from www.Ballistix.com.
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