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What Is the Goal of the Sales Function?

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Often we make assumptions about our lives that are so ingrained we never think to challenge them. The goal of the sales function is one of those assumptions.

When asked the goal of sales, we first respond by saying “to sell as much as possible.” However, on closer examination in this article we’ll see that the first response is usually incorrect. The goal in most companies should not be to sell as much as possible, but to sell all of the company’s production capacity. This response may surprise you, so let’s spend a few minutes exploring it.

It’s commonly understood that the goal of the sales function is to sell as much as possible. Salespeople are given a goal for the year and they work hard to meet or exceed that goal. When their sales managers prepare to forecast sales for the next year, they look at each of their sales people and how much they sold last year. Then the sales managers make an assumption about how much more each of their salespeople can sell in the next year. They add up all the individual forecasts and give the total forecast to the sales executive.

The salesperson, the sales manager, and the sales executive all make the same assumption about their goal: they should sell as much as they possibly can.

Is this the right goal?

It can be the right goal if you have a make-to-stock business. In a make-to-stock business, the production function supplies inventory according to a forecast and warehouses the inventory until it is sold. Salespeople are told to sell as much as they can because even when they exceed the forecast, they can use the stock in inventory to complete customer orders. This business model works for products from cars and washing machines to house paint and fertilizer.

However, what if you have a different business model? Many companies today sell products or services that are made-to-order or engineered-to-order.

Make-to-order companies don’t produce the product until they receive an order. Some of these companies adopt a make-to-order business model because they customize each order according to the customer specifications. Other companies adopt this model because they sell a service like consulting or repairs and they have no way to store an inventory of future services.

Companies with an engineer-to-order model go one step further. They actually wait until they have an order before they design the product. These companies include architects, custom software developers, and civil engineering firms.

Make-to-order and engineer-to-order companies will run into trouble if they adopt a selling strategy that encourages salespeople to sell as much as they can. If they sell too little, resources that can never be recovered will be lost. Manufacturing equipment goes unused. Software developers sit on the bench.

If they sell too much, orders are delayed and customers are unhappy.

Now that we know that selling as much as possible is not the goal of the sales function in make-to-order and engineer-to-order companies, then what is the goal?

Justin Roff-Marsh explains that the goal of the sales function at these companies is “to consistently sell all of the organization’s production capacity.”

This goal applies to companies whose capacity consists of a traditional plant and equipment as well as to companies where the capacity consists of teams of knowledge workers.

So now we know. Most companies should not adopt the goal to sell as much as they can. This goal only applies to companies with a make-to-stock business model. Otherwise, the goal of your sales department is to sell all of your production capacity. No more and no less.

Seth Godin on Marketing in Four Steps

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Three-Functions

Recently Seth Godin wrote a post that explains the essential steps to bring a product or service to market. He called it Marketing in Four Steps.

The first step is to invent a thing worth making, a story worth telling, a contribution worth talking about.

The second step is to design and build it in a way that people will actually benefit from and care about.

The third one is the one everyone gets all excited about. This is the step where you tell the story to the right people in the right way.

The last step is so often overlooked: The part where you show up, regularly, consistently and generously, for years and years, to organize and lead and build confidence in the change you seek to make.

Of course, these four steps are not the sole responsibility of the Marketing department. In fact, they require involvement and coordination between all three of the core functions—new product development (NPD), production, and sales.

Let’s look at who play the primary roles in each of Mr. Godin’s four steps.

The first step is to invent a thing worth making, a story worth telling, a contribution worth talking about.

NPD and sales work together to conceive new products (or services). These can be entirely new products or extensions to existing products. Sales is intimately involved with customers—what they want and what they will buy. NPD has the creativity and the technical knowledge to push boundaries and to know what is possible.

The second step is to design and build it in a way that people will actually benefit from and care about.

Once NPD has a design, it works closely with production to engineer how to build and deliver the product or service.

The third one is the one everyone gets all excited about. This is the step where you tell the story to the right people in the right way.

Sales has responsibility for acquiring new customer relationships, managing those relationships, and converting sales opportunities into customers. In a professional, scientific, or technical services firm, sales opportunities come from the relationships you have under your care. Some of these relationships are with existing clients. But most of them are relationships that you’ve been cultivating for months or even years. Your automated communications program educates them about industry trends and problem-solving.

When you have a new product or service to explain, you have a ready-made audience not only with your customers, but also with all the other relationships you have been nurturing.

The last step is so often overlooked: The part where you show up, regularly, consistently and generously, for years and years, to organize and lead and build confidence in the change you seek to make.

In this crucial final step, sales and production work together to deliver quality products on time. They solve customer service issues, process repeat transactions consistently, conduct requirement discovery and design custom solutions.

Sales Management Association Challenges Sales Training Tradition

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A recent article on salesforce.com by Jason Jordan challenges our assumptions about sales training. Normally when we hear sales training, we assume that means training for salespeople. Jordan recommends that we focus sales training investments on sales managers instead of salespeople.

This surprising conclusion came from the results of a survey by the Sales Management Association. The survey indicates that companies are more likely to achieve their revenue goal if they shift their sales training budget from salespeople to sales managers.

Specifically, organizations that invested more than 50% of their sales training budget in managers reported a 15% higher achievement of revenue goal than those that invested less than 25% in managers. And the relationship was relatively linear, with the middle group performing just in between. Interestingly, only 14% of the companies surveyed had the nerve to allocate more than half of their sales training budgets to their sales managers. All this presents a thought-provoking question: What if we spent literally nothing training salespeople? What if we only trained our sales managers rather than our sellers?

Should We Turn Sales Managers into Full-time Sales Trainers?

Mr. Jordan proposes that we train sales managers to become sales trainers for their own people. It asserts that if your sales manager can train your salespeople, then there is less need to remove salespeople from the field and send them to training. Further, you can take the money you would spend to give modest training to ten salespeople and give exemplary training to one sales manager. You improve the ability of sales managers to coach better performance from their team.

But does this article go far enough in challenging how we go about managing and developing our salespeople?

The survey assumes that salespeople need training to improve their ability to hold meaningful sales conversations with their customers. If their ability improves, then more of those conversations will convert prospects into customers.

Here’s the question to ask: Is conversion really the problem? Instead of focusing entirely on conversion improvement, why not hold more meaningful conversations each week? In other words, focus less on sales conversion and more on sales throughput.

Instead, Allow Salespeople to Specialize in Selling

If most salespeople are only scheduling a few meaningful conversations each week, what if you increase that number to ten or even twenty conversations per week? If a salesperson is holding twenty conversations per week, it’s likely that their current level of training is perfectly adequate to the task and that many of these conversations will turn into customers. Furthermore, the best way to get better at something is practice. Salespeople who hold ten or twenty conversations per week are going to get better much more quickly than those that only hold two conversations per week.

But wait. If a salesperson is holding twenty conversations per week, this raises questions about all the other work that salespeople do besides hold meaningful sales conversations. What are these other tasks? They include administration, customer service, prospecting, solution design, and appointment-setting.

Since meaningful sales conversations are the main factor that drives how many prospects turn into customers, would it be worth finding other people to do the tasks assigned to salespeople that are not sales conversations? If you did this, then you would free the salespersons time to spend on sales conversations. Your throughput would increase dramatically with a consequent increase in revenue and contribution margin.

Why It’s So Hard to Fill Sales Jobs

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Tom Keenan - Wall Street Journal

The Wall Street Journal reports that many companies find it difficult to fill positions in sales. Positions in scientific and technical fields pay well, but young people are uninterested.

Technical sales and sales-management positions play a critical role for U.S. businesses, but they are among the hardest to fill, according to a 2014 report from Harvard Business School’s U.S. Competitiveness Project. Employers spent an average of 41 days trying to fill technical sales jobs, compared with an average of 33 days for all jobs for the 12-month period ending in September 2014, according to Burning Glass, a labor-market analysis firm that worked with Harvard Business School on the report.

Many potential applicants are turned off by the stereotype that sales is a high-pressure, competitive environment (think Glengarry Glenn Ross). Others are wary of the financial risk. However, in many companies, the sales environment is changing.

As companies become savvier about the products they buy, wheeler-dealers are out, and problem-solvers are in. Sales organizations today are more commonly structured as teams, with lower-ranking members identifying prospects and developing early interest, someone else running through the specs or demos on highly technical products, and field reps negotiating and closing deals, employers say.

Relationship Marketing Explained

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Justin Roff-Marsh divides the world into two types of customers, customers who are product-focused and customers who are relationship-focused.

One type of customer ‘buys’ a product. (She focuses primarily on product attributes and price.)

And the other type of customer ‘buys’ a relationship. (She is less focused on the transaction, and more interested in a longer-term relationship.)

Product-focused purchases are more transactional. When you choose between Safeway and Trader Joe’s or Home Depot and Orchard Supply, you are choosing based on features and price.

On the other hand, the choice of an accountant, a lawyer, or an interior designer is more likely to be made on the opportunity to form a trusted relationship. These purchases involve too much uncertainty and risk to make them solely on features and price.

Good news for small companies

This is good news for small companies. Although small companies find it difficult to compete against larger competitors on the basis of features and price, they have a natural advantage when it comes to forming close business relationships. They are able to deliver a level of customer intimacy that larger companies simply cannot do.

Even better, customers are willing to pay a premium for these relationships. For an important product or service that has some risk associated with it, customers want to know that they have a relationship with the seller. They want to know that they can rely the relationship when issues arise.

You may intuit that your business is well-suited to a relationship-centric model but are unsure how to attract and profit from relationship-oriented customers.

Shift from Product-Centric Marketing to Relationship-Centric Marketing

Since traditional marketing programs are product-centric, these programs will not help. The alternative is to build a relationship-centric marketing program. Instead of focusing your energy on selling product, focus it on selling relationships.

The good news is that you don’t have to sell a relationship-oriented customers anything to begin cultivating the relationship.

If you implement an automated communications program you can begin to educate potential customers about your industry and best-practices. This program allows you to have consistent and meaningful contact with your potential customers. They receive value from you, they learn from you, and they increase their trust in you.

If you identify potential customers, it doesn’t matter if they are ready to buy. It doesn’t even matter if they recognize the kinds of problems that you know how to solve. If you can introduce them to your automated communications program, you can begin to educate them and cultivate a relationship with them.

Now remember, relationship-centric marketing programs are not about they sale. They are not about optimizing the value of specific transactions. They are about maximizing the lifetime value of the relationships under your management, both current and potential customers.

And guess what, these programs don’t have to be expensive. Here’s how Roff-Marsh recommends you get started:

  1. Build a central database that contains the details about your current customers, potential customers you have identified, and possible centers of influence.
  2. Design a program of communications that will establish and nurture relationships with the people in your database. A well-established method is to send an email periodical once or twice a month. Give your articles a do-it-yourself feel. This useful information educates people about what is involved to fix the problem, and indirectly helps them to see the value of hiring an expert (like you) to help them. You will find this approach more effective than constantly writing about your offer and your successes.
  3. Acquire new relationships that you can manage and nurture. The best way to acquire new relationships is to ask for an email address at every point of contact.

Relationship Marketing Stages

Once you have a large number of relationships with whom you communicate valuable material on a regular basis, you now have the raw material for sales opportunities. As salespeople need more sales opportunities, you can reach out to these relationships and and initiate your sales process.

The creation of a turnkey sales process marks a significant transition in the management of your business.

It all begins with the recognition that “your ideal customers are those who are in the market for relationships (rather than low-margin commodities).”

Now you can take your focus off transactions and apply it to building and nurturing relationships with a growing army of customers who are prepared to pay a premium to work exclusively with you.

The Case for Relationship Marketing

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Most companies are good at managing their production process. They’ve designed an organizational process that matches each task in the production sequence with a specific resource, whether it be a person or a technology. They understand what inputs are needed to produce the required outputs. They can adjust throughput to achieve the volume they want.

The same cannot be said for sales. Instead of an organizational process where each task is matched to the best resource, sales organizations deploy an individual process where the salesperson is responsible for nearly all sales tasks. These tasks include prospecting, selling, administration, solution design and customer support.

Since sales organizations leave prospecting up to the individual salespeople, they have little control over the inputs to their process (sales opportunities). Consequently, sales organizations cannot control their throughput rate. They find it impossible to dial up or down the number of sales they produce each quarter because they don’t control the sales opportunities that enter the sales process.

Why is that? Because most companies rely on existing customers and referrals for their sales opportunities. They inevitably lose some customers each year which erodes their primary source of opportunities. And since referrals come primarily from their current customers, this erosion in sales opportunities is compounded by the loss of their source of referrals.

What’s needed is another source of sales opportunities. If you could create a reliable source of sales opportunities, then you could control the inputs to the sales process. You could dial up the number of sales opportunities you produce each quarter as you need them, and dial them back down when production reaches the limit of its ability to service orders.

Justin Roff-Marsh’s relationship marketing method redefines the primary source of sales opportunities. With his method you cultivate relationships over time with a large number companies who are not your customers.

In fact our Relationship-centric Marketing methodology explains how an organisation should actively acquire and sustain intimate relationships with individuals who are not yet clients (prospects) and even some individuals who may never be clients (centres of influence).

With relationship marketing you can use your promotional budget to “acquire a constant stream of relationships with potential customers and centers of influence.”

Relationship marketing enables you to scale your sales production because you “have a clear cause and effect relationship between your sales inputs (promotional expenditure) and its output (sales).”

The Indicative Proposal, a Useful Tactic Early in the Sales Cycle

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In a typical sales cycle, the goal is to engage the customer in conversation, uncover a need, and conduct a requirements discovery exercise. If all goes well, the requirements discovery will produce a request for a proposal. This proposal will outline what you will do and how much it will cost.

Opportunity Prosecution

However, often a customer will want you to submit a proposal before the requirements discovery exercise.

In this case, you face a problem. You don’t have enough information from the customer to accurately describe the work to be done. Consequently, you also don’t have the necessary information to estimate the cost. Until you have that information, you face the risk that your proposal will be inaccurate, that you will charge too little and agree to an unprofitable deal.

Justin Roff-Marsh suggests an alternative that gives you flexibility over the work and the price. Simultaneously it gives your customers more information early in their buying cycle.

He calls it the indicative proposal. In fact, asking for the indicative proposal is the purpose of the initial formal presentation you make to the customer.

Indicative Proposal

Because if you gain the customer’s permission to send an indicative proposal, then you have the opportunity to ask any additional questions necessary to produce the indicative proposal.

What role does the indicative proposal play in the sales process? Roff-Marsh explains:

Now at this point I need to explain the notion and the value of an indicative proposal. There is often a bit of tussle early in sales people’s engagements with prospects. Prospects will request a proposal because they’re keen to get the sales person to commit to a number and understandably sales people are reluctant to make this commitment so early in the engagement. A nice compromise here is what we call an indicative proposal. An indicative proposal proposes the general direction of the solution and quotes a range of prices. Ideally this range should extend from below what your client expects a competitor to quote to above what you ultimately expect to charge. This range of prices will result from a set of parameters that are yet to be defined. You should advise what those parameters are in the indicative proposal and you should use this requirement for additional information as leverage to continue the discussion with your prospect.

The indicative proposal gives both you and the customer more information about each other. It sets up the next stage in the sales cycle, a detailed requirements discovery which leads to a specific proposal.

Meaningful Sales Conversations—the Key to Sales Growth

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starry night 3

The primary driver to improve your sales growth is the number of meaningful sales interactions (MSI) your salespeople conduct each week with potential customers. Since these conversations can only be conducted by salespeople (not administrators, not customer service, not engineers), your sales growth is a function of your ability to maximize the number of sales conversations held each week.

You can increase the number of MSIs each week when you reduce the number of salespeople activities that are not meaningful sales interactions (administration, customer service, solution design, and prospecting).

The job requirements of most salespeople simply don’t allow them to spend much of their time in meaningful sales conversations. In fact, a study by Alexander Proudfoot revealed that they only spend about 10% of their time selling.

How do salespeople spend their time? Roff-Marsh explains:

The majority of a salesperson’s day is dedicated to customer service and administrative activities, to solution design and proposal generation, and to prospecting and fulfillment-related activities.

So how can companies relieve their salespeople of these other activities and keep them focused on selling conversations?

They need look no further than other departments in the company. No one does all the functions of accounting and finance—the work is divided among specialists in accounts receivable, accounts payable, payroll, and analysis.

It’s the same for production and engineering. Labor is divided among different people. In each department the work is conducted by a coordinated team of specialists.

When sales departments divide the labor among a team of specialists, they relieve salespeople from the activities that take them away from meaningful sales interactions.

In addition to the throughput increase in MSIs, these departments experience two additional benefits. First, when people specialize, they improve their productivity because they get better and better at their specific job. Salespeople get better at selling. Business development coordinators get better at administration of sales campaigns and opportunities. Customer service staff get better at routine proposals and support calls.

And finally, sales departments experience a second benefits because they lower their costs. How? They are no longer paying expensive salespeople to do tasks that can be done by less expensive employees.

If you want to improve your sales growth, increase the number of meaningful sales interactions your salespeople conduct each week.

Rebuild Your Sales Function from the Inside Out

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If field sales is on the wane and inside sales is replacing it, how do we organize the sales function to reflect this transition?

Justin Roff-Marsh recommends an inside-out approach. “Start with an inside sales function and then add field resources as they are required—and only to the extent they are required.”

He says to begin with the simplest and most common transactions and give them to Customer Service Reps. Staff enough CSRs to handle all requests for quotes, simple orders, and issue resolution.

Inside Out Sales.003

Once the CSRs are taking all the routine calls, you can add inside sales reps whose only job is to have what Roff-Marsh calls meaningful selling interactions with customers and prospects. Inside salespeople can conduct 30 of these conversations a day, many more than a field person could possibly achieve. Some of these calls are inbound, either from your website or by phone. Others are outbound calls which are fed to the inside salespeople by the campaign coordinator.

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Some customers will want a visit from a representative from your company to conduct a product demonstration or an on-site discovery. You might think this would be the time to add field salesperson. But no, Roff-Marsh cautions, these customers don’t need a selling conversation for these visits. Instead, simply augment the selling conversations of the inside salespeople by adding a field specialist.

If you have fully exploited your inside sales group and augmented their capabilities with a field specialist and you still need the abilities of field salespeople, now you can consider adding business development managers (BDM). Of course, by giving them a business development coordinator (BDC) to do all the scheduling and a project leader to work with production, the BDMs will be highly productive.

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Inside Sales: Lower Cost, More Effective, Customer Preferred

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Field sales is no longer necessary in the way it once was because communication has improved. At one time customers relied on salespeople for information about not only the vendor but also industry trends. Conversely, vendors relied on their salespeople to learn about changes in their market and customer needs.

Customers today no longer need salespeople to perform these communication functions. Industry trends are available from a variety of sources. Vendors post lots of information on their website about products, pricing, and usage case studies.

Many customer questions can be answered with a question via text messaging or a quick phone call. No need for a salesperson to visit the customer.

These trends support the case that field sales is dying and inside sales is replacing it. The economics of customer acquisition also support the argument for the transition to inside sales.

Field Sales Is Dramatically More Expensive than Inside Sales

David Skok divides the four methods of selling software-as-a-service (SaaS) in order of complexity from Freemium to No Touch (online e-commerce), Inside Sales and Field Sales. He has stated that he expected to find a linear relationship between the complexity of these four methods and Customer Acquisition Costs (CAC). However, he found in his own informal review of different companies that the relationship between CAC and sales complexity is not linear at all.

What we see is something quite surprising: using the rough numbers that I had estimated for these different categories, CAC appears to increase exponentially as Sales Complexity increases.

David Skok - CAC vs. Sales Complexity

This logarithmic relationship creates a tremendous incentive to conduct as many transactions as you can using either No Touch or Inside Sales. And it supplies a strong economic motivation to avoid Field Sales except where it’s absolutely necessary.

How Does the Sales Process Look to the Customer?

Justin Roff-Marsh also makes the case for moving much of the sales process to inside sales. “The fact is,” he says, “sales today is an inside endeavor, supported in some cases, with discrete field activities.”

To understand more clearly how this vendor-customer dynamic has changed, Roff-Marsh suggests we look at the situation from the customer’s perspective.

Ask yourself the following: If you are making a purchase (of an unspecified nature), is your default starting point to look for a person who can come and visit with you in the field? I suspect not.

For most of us, our first instinct is to make the purchase with no human intervention at all, like on a website. If that isn’t possible, then we’ll still opt for minimal human communication—by phone or by visiting the place of business ourself. Our last choice will be for the field person to come to our home or office.

Even for a complex purchase (like something that must be built-to-order), we’ll begin with online research, and then perhaps we’ll pick up the phone to ask some questions. It’s only if it’s very complex that at the late stage of the buying process that we’ll agree to meet with someone in person.

Roff-Marsh makes a clear argument that No Touch communication and Inside Sales are the preferred way that customers today want to buy. Fortunately for sellers, these methods are also dramatically less expensive than deploying salespeople in the field.