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Getting Traction in the Market – How to Use Kaizen to Make Sales Training Stick

In tough times like these, some executives drastically reduce their training budgets.

Yet when it comes to sales training, smart executives may pause to think about it: 

Isn't this a critical time for the sales force to be on its toes? Maybe doing some sales training makes sense?

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Why Your Sales Process Cost Matters, and What You Need to Know to Get it Right

By Michael J. Webb

(pdf of this article)

One of the most important management systems for the senior executive is the one that measures the costs of production. Executives must know not just the total cost of production, but also the cost of the stages of their production. Sales and marketing organizations need this every bit as much as production manufacturers. Unfortunately, sales and marketing organizations typically are not even aware that such a system is possible, much less of the profound effects it could have on management decision making.

Examples of this are playing out right now in a marketing department near you: their goal? To increase the quantity or reduce the cost of the leads they produce for their sales force. They may do it by offering some reward or a contest, for example, to individuals who agree to talk to a salesperson. How are their results measured? Increased quantities of leads or reduced costs per lead, of course.

Unfortunately, as hard as they may be working, instead of improving things, their attempts may actually have a detrimental effect. This is because while they can measure their local results, their company has no way to measure the impact of their work on the overall “system.”

This can easily happen when there is a disconnect between what marketers are producing and what the sales department needs. Marketers often define a “lead” to mean “contact information from someone who downloaded something on the website (or attended our webinar).” The sales department s definition of a lead is usually very different: “someone who has the ability and the interest to buy what we sell within 90 days,” for example.

This common mismatch causes a condition in which marketing believes it is improving productivity, whereas the sales department is suffering from starvation. Needless to say, such a frustrating situation needs to be resolved. But how can it be done? Who is to say whether this is a real problem or a “he said/she said” sort of thing? Is this the most important bottleneck to making the numbers, or is some new market channel or product a higher priority?

Without the facts provided by a production cost measurement system, the argument is impossible to resolve.

The Missing Link: Measuring the Creation of Value

Solving this dilemma requires you to go to the root of the sales process and define it correctly. By “root” I mean this: you must be able to identify the value your sales process creates. This is where most companies get it wrong, because they unwittingly define their sales process around their own actions and activities.

To get it right, you must recognize that a sales process creates value only when it gets customers to take actions. You can have as many websites, mailings, phone calls, demos, and proposals as you like: if customers don t respond to them, no value has been created.

This is a significant departure from definitions of value (and cost) in the production manufacturing world, where conformance to specifications is the issue. In sales and marketing, what the customer values is measured by the actions they take.

These actions are expressed in terms of something called the Customer s Journey (also called the Buyer s Journey). Basically, the only reason customers buy anything is because they believe it is the best way to solve their problems. They go through predictable stages, from being unaware of their problem, to realizing the pain, to prioritizing and uncovering the causes of the pain, to examining their alternatives, and ultimately to taking an action to resolve it (which may involve a purchase).

The key is to line up your marketing and selling with the stages of the Customer s Journey. To measure the value being created (how effective your work is), all you need is a reasonable way to count the customers who take the actions you want them to take. Their movement through the stages of the Customer s Journey is the equivalent of adding value to inventory as it moves through the stages of raw material, work in process, and finished goods.

Tracking leads, opportunities, and deals as assets (like inventory) is the missing link that enables a scientific approach to sales and marketing management.

Sales Process Cost to the Rescue

Once the sales process is defined in terms of the Customer s Journey, it is possible to provide managers with the facts and data they need to understand incremental costs of production, as well as its impact on the entire system. It also provides a means to measure the cost of waste in the system.

Table 1. Incremental Costs

  Operational Cost Qty Prod. Incr. Cost / Unit
Inquiries (responded to trigger) $1,036,992.00 22,436 $46.22
Interested (agreed to talk with salesperson) $310,494.00 6435 48.25
Qualified (have need, money, decision date) 54,977.00 2436 22.57
Closed (order placed) $315,721.00 609 518.43
Implemented (system installed $330,649.00 609 $542.94
Total: $2,048,833.00    
    Total Unit Cost 1,178.40

Table 1 illustrates the first step of how this is done. The left column lists the stages of the Customer s Journey, expressed in terms of the customer s actions. The Operational Cost column is the direct and indirect costs of implementing the work processes, which produced (and measured) the customer s actions. A simple employee time study technique (described in Chapter Three of “Sales and Marketing the Six Sigma Way”) was used to determine how to distribute indirect costs to the stages of production (the Customer s Journey).

The Quantity Produced column is the count of prospects who moved into each stage over a period of six months. With the operational cost by stage and the quantity of individuals who moved into each stage, it is easy to calculate the incremental cost of each unit of production (Incremental Cost per Unit).

This makes it possible to measure changes in the cost of leads, for example. A marketer might increase the number of prospects who agree to talk to a salesperson from 6,435 to 10,000 without increasing expendititures beyond $310,494. Would she be doing her company a favor?

Table 2. Absorbed Cost per Unit

  Operational Cost Qty Prod. Incr. Cost / Unit Absorbed Cost Absorbed Cost / Unit
Inquiries (responded to trigger) $1,036,992.00 22436 $46.22 $1,036,992.00 $46.22
Interested (agreed to talk with consultant) $310,494.00 6435 $48.25 $1,347,486.00 $209.40
Qualified (have need, money, decision date) $54,977.00 2436 $22.57 $1,402,463.00 $575.72
Closed (order placed) $315,721.00 609 $518.43 $1,718,184.00 $2,821.32
Implemented (system installed $330,649.00 609 $452.94 $2,048,833.00 $3,364.26
Total: $2,048,833.00        
    Total Unit Cost $1,178.40 Waste per Unit: $2,185.86

To find out, you have to take the costing model a step further to consider the Absorbed Cost per Unit. Incremental cost measures the cost required to produce the next incremental stage of production. Divide it by the units produced, and you have the incremental cost. Absorbed cost accumulates total costs through each successive stage of production. This is the real cost accumulated by the system. Divide the absorbed cost by the number of units at each stage, and you have the total cost of production (system-wide).

The absorbed cost enables the senior executive to understand several important things. First, the sum of the incremental costs (ie, value added to each unit) is $2,185.85 less than the value added in the fully absorbed model. This represents the cost of “Inquiries” that did not move to the “Interested” stage, “Interesteds” that did not move to the “Qualified” stage, and so forth. This was production that was paid for, but did not yield results and thus can be classified as waste.

Second, the absorbed cost enables the senior executive to understand the impact of changes on the overall system. For example, it would be one thing if the marketing department could increase the quantity of leads while holding costs steady, and no other changes to the system took place. The cost to the entire system would stay constant, and no harm would be done. However, that is not what happens in the real world.

Table 3. Cost of Increased Leads

  Operational Cost Qty Prod. Incr. Cost / Unit Absorbed Cost Absorbed Cost / Unit
Inquiries (responded to trigger) $1,036,992.00 22436 $46.22 $1,036,992.00 $46.22
Interested (agreed to talk with consultant) $310,494.00 10,000 $31.05 $1,347,486.00 $134.75
Qualified (have need, money, decision date) $124,117.00 2436 $50.95 $1,471,603.00 $604.11
Closed (order placed) $315,721.00 609 $518.43 $1,787,324.00 $2,934.85
Implemented (system installed $330,649.00 609 $542.94 $2,117,973.00 $3,477.79
Total: $2,117,973.00        
    Total Unit Cost $1,189.58 Waste per Unit: $2,288.20

In the real world, all those so-called “leads” need to be followed up. This could easily require additional manpower and expenses. If the additional volume can be handled and does not contain any more qualified leads than previously (as often happens), it is actually less productive, and increases net system-wide costs.

The example in Table 3 illustrates this in detail. Here, the incremental cost of the “Interested” stage has been substantially reduced. This could be done, for example, by offering some enticement that causes prospects to be willing to talk to a salesperson. Yet, if the enticement is an iPod or a chance for a vacation package (ie, unrelated to the value of the company s offer), the results can be disastrous. Salespeople may have to talk to more people to find the ones who are qualified, thereby increasing their costs.

Summary

Analyzing costs in this fashion once or twice per year provide a powerful set of data for senior executive decision-making and can prevent them from making costly mistakes in allocating resources. Such systems do not show marketing departments how to produce the right kinds of prospects, but they do provide the feedback necessary to determine whether the expected results are actually happening. They provide the information that can prevent expensive mistakes. Such mistakes go unnoticed when firms do not have the management systems in place to detect them.

About The Author

Michael J. Webb, president and founder of Sales Performance Consultants, is the foremost expert on sales process improvement. Michael has helped business executives of both Fortune 500 and smaller companies apply the principles of Six Sigma and Lean to achieve greater sales and marketing results.

Michael delivered the keynote address to the first two conferences ever held on applying Six Sigma to marketing and sales. Michael has helped companies such as MAQUET, Thermo Fisher Scientific, Marriott, WaterFurnace, DDI, and many others to improve their revenue generation by identifying bottlenecks, changing behaviors, increasing close ratios, and improving forecast accuracy. He also has extensive sales training facilitation and field coaching experience with hundreds of sales people and managers in the U.S.and Canada.

Michael is the author of “Sales and Marketing the Six Sigma Way” (Kaplan, 2006) and numerous articles. He holds several professional certifications. Michael has a BS in Mathematics from Southeast Missouri State University.

What Is Operational Excellence in Sales and Marketing?

by Michael J. Webb (with Robert Ferguson)

(pdf of this article)

A reader from Microsoft recently asked me an interesting question:

“What are the key parameters which define Operational Excellence in a sales and marketing organization?”

I like the question, because Operational Excellence isn't just a slogan or a matter of opinion. It is a fact that businesses that achieve Operational Excellence produce the most consistent growth and profit performance in the long run.

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OK, Salespeople Can’t Find Enough Prospects. Now What?

The economic sea change we have all been going through makes companies pay attention to their sales process.

One company president I spoke with yesterday said his revenue shrank 25% in December (compared with the same month last year). Companies affected by the financial crisis (like housing, oil, or automotive) are trying to survive. They are worried whether their customers even have enough money to pay for things any longer.

Hopefully, your business can find enough customers to stay alive. Will your marketers find them? Can your salespeople find them? Will they be found fast enough?

If you are like most B2B organizations, your salespeople may have been struggling to find sales opportunities even before the financial crisis!

The danger of this is worse than you think, because there are hidden, double threats.

Good Prospects Aren't Flowing into the Funnel

For example, a marketer on our teleconference in December said their trade shows were no longer working to generate leads. “What do you define as a lead?” I asked.

“Someone who stops by our booth and demonstrates interest in our product,” he answered.

“How is that working for you?”

“It is not working,” he said. “They stop by the booth. Some even fill out a card. But they don't end up buying anything.”

Salespeople are also having a tougher time getting into new accounts. Prospects won't call them back. They can't get appointments. And prospects aren't responding to traditional ads and promotions either.

Fixing the Process

The sea change we are struggling through has made things a lot different than they used to be. Salespeople alone can't bring in customers at a profit anymore. Their prospect's behaviors have changed so drastically in the last few years, it is disorienting.

Now, prospects are feeling, in effect, “Don't:

  • Waste my time.
  • Try to be my friend.
  • Expect me to tell you about my business.
  • Give me a product dump.
  • Use any self-serving verbiage.
  • Expect me to infer the value.
  • Create extra work for me.”

How can you get prospects to take your salespeople's calls in this environment? How can you get them to read your ad and respond?

There are ways of doing it. A few highly talented individuals have learned to do it.

One is Jill Konrath, author of “Selling to Big Companies” (Kaplan, 2005), which made Fortune Magazine's top ten “must read” books of 2008.

On Thursday afternoon this week, I'm teaming up with Jill to conduct a unique and timely webinar:

How to Permanently Improve Salespeople's Ability

to Access Big New Accounts in 90 Days or Less

With A Sales Kaizen Event

https://www.salesperformance.com/GainAccessKaizenJan08.aspx

We'll be discussing some crucial questions, like:

  • How to know if getting access to accounts is the real problem
  • Improving your salespeople's ability to access the right executives in big new accounts
  • How to make this improved ability permanent

Visit https://www.salesperformance.com/GainAccessKaizenJan08.aspx to sign up for this event now.

Before it is too late.

Over the Edge

These are such scary times because companies can't spend money very long without getting a financial return. 

In fact, when things have changed as drastically as they have recently, how can a company know for sure if they are going to get a return on their sales and marketing dollar? Spending money without knowing the return is like walking around on the top of a building blind-folded. Sooner or later, one of your feet is likely to miss the edge. 

There is just about no way to measure returns in traditional views of sales and marketing.

You might think companies would have already done the research to know why customers buy. You might think they would have set up early warning detectors to give signals when prospect's responses change, and to tell them where the bottlenecks are.

How well has your company done that job?
Most companies exist because somebody along the way stumbled onto a market where money was already flowing. The people who work there now assume things have been figured out. 

Until, that is, things are like they are right now. Many people in many companies today never lived through bad times. When money stops flowing in sales and marketing, people get into big trouble fast. They don't know what to do when the pavement is flying up at them.

Sales and marketing people typically don't know how to use words like “problem” and “solution” precisely. They don't know how to distinguish data from opinions, or causes from effects. They don't know that they don't know. Heck, they don't even know what they DO know.

Voices get raised, politics get played, people run for cover. Some get the RIF.

Sellers and marketers need help. Not just figuring out how to fix the sales process, but also to IMPLEMENT the fixes so they will stick. If ever there was a time to help your sales and marketing team get oriented the right way, and make the improvement stick, the time is now. 

Fix the Sales Process the Right Way
By “the right way,” I mean: 

     1. Gain profound knowledge of the customer's journey

What stages do your customers go through? Why? What help do they need along the way? How do you know this? (I mean “profound knowledge” in the sense Deming meant, by the way.)

     2. Make the sales process visible and measurable

How can you know that value is created for customers, and for your company (i.e., that we will get a return?) What proof, or evidence, do you have? How can you construct the sales process so the data is easily generated?

     3. Recognize the “system” of the finding, winning, keeping lifecycle

How can you understand the interdependencies of marketing, selling, and servicing? Which is the easiest way to reach your objectives: by taking better care of existing customers, or by finding new ones? How do you know?

     4. Eliminate waste whereever it occurs

What value is created by every dollar you spend? How do you know whether you need more brochures, or a better website? More demo equipment, or DVDs about the product? Where is the best place to spend (or save) your sales investment dollars? How do you know?

     5. Incorporate Plan-Do-Check-Act at all levels to close the “feedback loop”

Of course, I'm referring to the only evidence-based approach to designing – and implementing – a sales production process, what we are calling “sales kaizen.”

+++++++++++++

On December 18 Robert Ferguson and I announced a new guidebook:

“How to Conduct a Sales Kaizen Event –
Improve Your Sales Process in a
Way Your Customer Will Love”

The book is now shipping and it turned out even better than we had hoped.

Due to some slight delays in getting it completed, we have extended the availability of charter pricing. After Saturday, January 10, the price will be increased to $470. Your satisfaction is guaranteed.

Visit https://www.salesperformance.com/SalesKaizenEvent.aspx to get your copy today.

+++++++++++++

Getting answers to your sales process questions 

If the steps of “sales kaizen” sound abstract to you, that's because they are.

The fixes to your sales and marketing challenges are concrete, specific, simple fixes, applied successively, while watching the needles of hard data metrics climb steadily in the needed direction.

Trouble is, it takes some analysis and thinking to identify which fixes are the right ones. Once you know what needs fixing you can recommend activities that are easier for people to go out and do and won't be a waste. 

Many of you know that we're launching a professional community devoted to sales process improvement this month, so we can focus on answering application questions like these. Everyone needs help thinking these things through.

For starters, this Thursday's teleconference will be our first webinar from SPIF! – the new Sales Performance Improvement Forum (our website will be undergoing some changes by the middle of January).

I look forward to chatting with you there!

Michael Webb
January 6, 2008

OK, Salespeople Can’t Find Enough Prospects. Now What?

The economic sea change we have all been going through makes companies pay attention to their sales process.

One company president I spoke with yesterday said his revenue shrank 25% in December (compared with the same month last year). Companies affected by the financial crisis (like housing, oil, or automotive) are trying to survive. They are worried whether their customers even have enough money to pay for things any longer.

(more…)

Book Review – Introduction to Sales Process Improvement: Gaining More of the Right Customers at Higher Margins and Lower Costs with Lean and Six Sigma

Michael J. Webb, Sales Performance Consultants, Inc., $84, 182 pages, June 20, 2005, www.salesperformance.com.

Many companies would like to be more scientific about sales and marketing, but fear causing more problems than results. Now, a unique and path-breaking work by Michael Webb enables those companies to apply an approach that gets salespeople to pay attention, and customers to line up!

(more…)

What Value Does Your Sales Process Create?

By Michael J. Webb

(pdf of this article)

Most sales executives are challenged to produce better results these days. Jill Stillman, a sales executive I worked with a few months ago, seemed particularly frustrated.

“There are only 100 firms in the country large enough to buy our services. I know them all. Qualification is not my problem. What I want to know is, once I am in the account, what do I have to do to get them off the dime?”

(more…)

Can Your Marketing and Selling Process Be Improved?

By Michael J. Webb, Sales Performance Consultants, Inc.

Originally published in Marketing Times Spring 2005

(pdf of this article)

Process improvement has revolutionized manufacturing over the past two decades, but is only now coming to sales and marketing. Yet it is coming, and it s something every marketing and sales executive should know about and consider employing.

Process improvement, also know as quality improvement, encompasses scientific approaches to management such as Six Sigma, Lean, and Total Quality Management. In general, these methods measure and analyze the parts of a business process, eliminate unneeded parts, fix broken ones, add new ones, and monitor improvement.

(more…)

Book Review – "The Leaky Funnel Earn More Customers by Aligning Sales and Marketing to the way Businesses Buy"

by Hugh Macfarlane

2003, Bookman Media Pty Ltd

(available on www.amazon.com)

Submitted by Michael J Webb:

HardBits (a mid-sized company in a maturing industry) is struggling because its products are being commoditized by competitors from around the world. Customers are slow to buy, often delaying decisions until the last minute. Yet they expect miracle delivery times and cheaper prices in the bargain. This is the setting faced by Frank McInroth, HardBits' General Manager at the beginning of Hugh MacFarlane's “The Leaky Funnel, Earn More Customers by Aligning Sales and Marketing to the Way Businesses Buy”
(2003, Bookman Media Pty Ltd).

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What is Six Sigma… and Why Should Marketing and Sales Managers Care?

Michael J. Webb, Sales Performance Consultants, Inc.
Originally published in Marketing Times Summer 2005
Subsequently published in Marketing Watchdog Journal, August 2005

(pdf of this article)

Six Sigma is a funny name for a serious way of boosting marketing and sales performance. It's already transformed manufacturing in hundreds of companies, and it is now doing the same in marketing and sales in companies such as Bank of America, Dell, General Electric, HSBC, Service Master, Johnson & Johnson, Standard Register, Sun Microsystems, Xerox, and many more.

(more…)