Three Part Series: Three-Part Series: Building an Effective Sales - - PowerPoint PPT Presentation
Three Part Series: Three-Part Series: Building an Effective Sales O Organization for the Recovery i ti f th R Summer 2010 Mike Marks, Mike Emerson, and Steve Deist Discussion Leaders Indian River Consulting Group Indian River
Mike Marks, Mike Emerson, and Steve Deist Discussion Leaders
Indian River Consulting Group Indian River Consulting Group www.ircg.com
Tom Gale, President and Publisher Moderator Moderator
Modern Distribution Management www.mdm.com
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“There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.” a new order of things. Niccolo Machiavelli
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Field sales behavior is actually customer interruption behavior, getting the customer to choose the sales rep’s company as their chosen s pplier of choice their chosen supplier of choice
– To gain the maximum share of spend available from the major users of product in the assigned geography, becoming the first call and the product in the assigned geography, becoming the first call and the recipient of the last look
– Chose who to call on and who to ignore – Was a generalist who took care of pre sales customer support, transaction support, and post sales service requirements, all paperwork,
processing, and collections I ll di t ib t (< $5 illi i l ) fi ld l ft – In small distributors (< $5 million in sales) field sales expense was often
– The key question is, “Were these incremental costs simply added on or were they a reallocation of total selling costs?”
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field sales rep and poor performance by an individual resulted in replacement
– They sold the services of an undifferentiated business where they made the only significant difference to the customer
whatever they can find and then you have to service it at whatever t i i d cost is required
development and using the sales force as an offensive weapon to i h gain share
– Companies need a clear sweet spot value proposition – Tools are provided to the sales force The sales force is aligned to specific missions – The sales force is aligned to specific missions
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S Bi th f S l Source: Birth of a Salesman, Harvard University Press, 2004, Walter Friedman
Ford Motor Company Sales Training on “Model T Training on Model T Specialist,” 1925 The key takeaway is: y y “What is your process and how do you model it?
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50.0%
IRCG Best Practices Model
30.0% 40.0% %
40.0% This data is from a group of distributors in
10.0% 20.0%
20.0% distributors in 2008 right before the financial
20 0%
0.0%
0.0% 5.0% 10.0%
is to examine the firms in the top right and see if they are just
20.0%
they are just lucky or if they are doing things differently than
12.0%
2.4% ROS ROS the others
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2006 US electrical distributor sample p
Source: NAED Par Reports & IRCG data
50.0%
This is how you find the money for specialists
35.0% 40.0% 45.0% 50.0%
GP$)
20.0% 25.0% 30.0% 35.0%
Burden (W2/G
Median: 15.6%, $3M Optimum: 8.5%%, $8M 5.0% 10.0% 15.0%
Cost B
0.0% $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000
Territory Size
Basic Idea: Taking low-value activities away from sales reps lets them cover a larger set of customers so perhaps you need fewer reps
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You spend
Critical
p more money where it really matters and
Critical Needs Critical Needs $$$$ $$ $$
matters and fund it by spending less where it
doesn’t matter
If we don’t understand our segments we spend lots of money but still miss the mark Understanding segments allows us to tailor our investment (think field sales time) for maximum effect
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In the electronic components distribution industry sales/sales rep went from $1.2M/yr to $4.8M/yr between 1982 and 1992 as they adopted this specialist model (Source: NEDA Par Reports)
FSR
Demand creation ($70K/yr)
FSR Assigned Acct ISR
Demand fulfillment ($45K/yr)
CSR
Transaction support ($30K/yr)
House Acct
Pod
ISR Assigned
Demand fulfillment ($45K/yr)
Specialization increases productivity FSR FSR Assigned Acct
Demand creation ($70K/yr)
(e.g. ROI from training, recruiting, automation)
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Why doesn’t your Doctor do the Medicare forms?
Easy to manage R ll Reps own all relationship equity Inefficient and Inefficient and expensive Reps must be jack-of-all- 4 X $130K = $520K 1 X $100K 1 X $130K jack of all trades Hard to segment 1 X $130K 1 X $60K 1 X $40K = $330K customers Can’t implement a t t
Pulling this off means re-designing
strategy
everyone’s roles
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Customer
Customer Service Reps
(unassigned)
Inside Sales Reps
(assigned)
Tech Spec
O t id
Routine orders and info requests Support
Outside Sales Reps
(assigned)
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Do the analysis of what the customers want and are willing to pay for, then design the structure so the service outputs that you supply equal the service outputs that they demand
1. Start gathering customer information to segment by what they need and are willing to pay for separating demand creation (your investment) from demand fulfillment (what they pay for) 2. Categorize the services that customers want and group them by their economic benefit so you can develop the organization 3. Design a model that uses specialization to improve services provided to targeted customers and lower the recurring costs of selling overall 4. Design appropriate incentive structures so the sales team gets paid to do what you want them to do 1. Design a sales management process that is aligned with your
g g p g y strategy 2. Develop scorecards to track performance and include some warning indicators to catch any design mistakes early
g y g y
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Has o r c rrent incenti e plan kept o from making necessar – Has your current incentive plan kept you from making necessary territory or organizational changes? – If your pay plan structure was not an issue and you rearranged everyone’s account deck based on your judgment in a “do over” everyone’s account deck based on your judgment in a “do over”, would there be an increase in revenue? – Are there some sales behaviors that are not in the best interests
the incentive structures?
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Straight Commission Straight Salary
Order from NAW at www.nawpubs.org
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NAW is publishing an update later this year
– Objectives are clear, which means some GP$s are more important than others than others – Active sales management exists and the sales organization is
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performance)
– Straight commission – Goals not used; territory size is a key Goals not used; territory size is a key variable
– Performance objectives or expectations influence earnings by determining applicable commission rate Territory size still heavily influences – Territory size still heavily influences earnings
t ti
– Income target established by management and not territory size
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Could be $200,000 or $2,000,000 GP$s
– Perceived fairness
– Easy administration Easy administration – Cost is completely variable
– Annuity and free-riding – Lack of focus and/or accountability
– Territory sovereignty and/or inappropriately assigned accounts
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– Annuity and free-riding – Lack of focus (all $s are created equal) T it i t d/ i i t l i d – Territory sovereignty and/or inappropriately assigned accounts
– Burden and/or difficulty of setting targets – Program administration – Participants’ perception – Participants perception
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– Not to be thought of as “extra” – Not to be thought of as extra
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– Risk is gap below goal (lower income) – Reward is gap above goal (higher income)
– How much income is really at risk? – How much additional How much additional risk/reward is appropriate?
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Out of a sample of – Out of a sample of 1,000 sales rep months
average
average g
average
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average
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achieved
– Previous year’s GP$s equate to previous year’s income
– Different commission rates based on achievement of secondary factors y – 14% for achievement of no secondary factors – 20% for achievement of one secondary factor – 26% for achievement of two (all) secondary factors ( ) y
– Consequences of sales reps not reaching previous year’s g p y earnings are penal enough – Consequences will be lower increase in earnings if other bj ti t hi d
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– Facilitates the movement of accounts in and out of territories – Allows double counting of GP$s or dual account assignment – Can keep costs from scaling Can keep costs from scaling directly with GP$s – Allows the use of salaries without decreasing leverage without decreasing leverage
– Target commission
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– Bonus – Bonus and commission
– If multiple rates, achievement in secondary objectives determines rates
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g %, %, %
(strategic suppliers, target accounts, etc.)
– 0 secondary factors = 14% 0 secondary factors 14% – 1 secondary factor = 20% – 2 (all) secondary factors = 26%
target commission
and $26 000 is added to target commission and $26,000 is added to target commission
– $14,000 if no secondary factors are achieved – $26,000 if both secondary factors are achieved
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– Sales rep has $500,000 GP goal – $60,000 salary – $40,000 target commission
unchanged except goal likely to be an increase
(assuming performance 60% f ) >60% of goal)
moderately better or ff d di
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worse off depending on secondary factors
1. Start gathering customer information to segment by what they need and are willing to pay for separating demand creation (your investment) from demand fulfillment (what they pay for) 2. Categorize the services that customers want and group them by their economic benefit so you can develop the organization 3. Design a model that uses specialization to improve services provided to targeted customers and lower the recurring costs of selling overall 4. Design appropriate incentive structures so the sales team gets paid to do what you want them to do 1. Design a sales management process that is aligned with your g g p g y strategy 2. Develop scorecards to track performance and include some warning indicators to catch any design mistakes early
g y g y
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– How would you rate your sales organization’s accountability for performance? – Do you have clear measurements that accurately indicate – Do you have clear measurements that accurately indicate individual rep performance? – Do you have explicit processes for marking out and managing sales growth or is it just assumed to be a part of normal job sales growth or is it just assumed to be a part of normal job duties? – Do you know the activities and habits that separate your top performers from the others? performers from the others? – If you require call reports how are they actually used?
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Strategic Objectives Rep Roles Success Metrics (KPIs, Scorecard) Best Practices (tools and activities)
Increase OEM sales to grow revenue and improve margin mix Leverage MRO industrial and safety relationships to sell OEM products
and won
decision makers
Become supplier of choice for high growth commercial contractors Identify and nurture survivors who are capable of taking permanent market share
revenue growth
course attendance C i t
targets
share
agreements
courses Reduce selling costs for t ti l Transition low potential accounts to lt t h l
inside reps
high potential accounts C did t d l t l transaction only customers alternate channels Mentor junior inside sales reps
transitioned accounts Candidate development plans
Part 1 Part 2 Part 3 (today)
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Tailored solution for your unique situation and objectives y q j
Mutual commitments between reps, managers and the organization
Clear expectations + stress from deficiencies + tools to resolve
Avoid the CRM trap
Measure results, manage activities
“I love to learn but hate to be taught.”
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Account Targeting Call Budgeting
Targeting Tasks Opportunity Pipeline
Scorecard Toolkit
Monthly Review
Applying some science to our largest single expense
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Applying some science to our largest single expense
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see and how often?
y p p
customer objections?
Sales Mojo
customer objections?
Mojo
Prescription Only
These questions form the basis of a Best-of-the-Best design session
– Numeric goals for each target that roll up to the territory quota – Customer profiles – Target task plans – Refinement based on better information and task progress
Strategic customer
Strategic customer intimacy
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including travel)
A tool for account managers, not bosses
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keep them from falling through the cracks
– Rate of generation, qualification, win C l ti – Cycle times – Loss reasons and alternative sources – Variations by customer segments (and abusers) V i ti b d t t d b h – Variations by product type, vendor, branch
$10M
Caution: keep it simple!
Cycle time
$5M
Caution: keep it simple!
Won Bid RFI Identified Cycle time
$1M
Billed
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Metric Perf Rank Class Leader Toolkit Resources
Revenue to Goal 102% 16 Lennon: 144% Targeting BPs, Consult BPs Gross Profit Growth 3% 32 McCarthy: 26% Pricing BPs Pricing Realization
92 Starr: +4% ABC tool, negotiation tool Pipeline Opportunities Won $243K 3 Harrison: $301K Opp Identification BPs Target Account Growth 23% 2 Daltry: 25% Targeting BPs Customer Training Courses 4 51 Moon: 11 Consult BPs Pipeline Opportunities Qualified $488K 19 Townsend: $752K Opp Identification BPs Specialist Utilization 8% 83 Entwhistle: 30% Specialists BPs Overall Performance Score 19 Hendrix: 1 Estimated Bonus (current performance) $21K Potential Bonus (all targets met) $32K
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Every sales manager must conduct a formal territory performance review with every rep at least monthly
it t ti l l d i lt Th commitments, creating real plans and measuring results. They create a culture of accountability.
urgency limits micro urgency, limits micro management
guidance coaching and feedback guidance, coaching and feedback
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1 of CRM Projects Fail?
– Data entry intensive – Complex functionality Complex functionality
– Asks them to divulge key customer information Micro manages their activities and interactions – Micro manages their activities and interactions
– Designed for light touch, B2C Di t ib ti l f f d t – Distribution sales force focused on customer intimacy
Imposed from the top down Implementation death spiral: Incomplete data – Imposed from the top down – Business processes insufficiently designed (“solution in a box” fallacy) Not aligned with strategy management processes Reluctance to use – Not aligned with strategy, management processes, performance measurements, compensation plans
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Activity Estimated Time Per Month View scorecard 15 mins each week 1:00 Budget calls at start of month 15 mins per month 0:15 Log calls and opportunities each week 15 mins per week 1:00 P f t it i 30 i th 0 30 Prepare for territory review 30 mins per month 0:30 Conduct territory review 30 mins per month 0:30 Target account planning and profiles 4 hours per month 4:00 Target account management and goals 30 mins per week 2:00
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Target account management and goals 30 mins per week 2:00 Total (out of ~180 working hours/month) 9:15
1. Start gathering customer information to segment them by what they need and are willing to pay for separating demand creation (your investment) from demand fulfillment (what they pay for) 2. Categorize the services that customers want and group them by their economic benefit so you can develop the organization 3. Design a model that uses specialization to improve services provided to targeted customers and lower the recurring costs of selling overall 4. Design appropriate incentive structures so the sales team gets paid to do what you want them to do 5. Design a sales management process that is aligned with your strategy 6. Develop scorecards to track performance and include some warning indicators to catch any design mistakes early
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Factor Description Factor Description Our Business Providing business advisory services to the executives who are responsible for results in their firms Our Brand We will deliver what we promise and we are very careful what we Our Brand Promise We will deliver what we promise and we are very careful what we promise Our Expertise Domain Strategy development, sales effectiveness, incentive design, channel design and channel management Our Story We provide expert insight based on experience along with research, and where necessary provide the support to implement major change that improves competitive performance for our client Our Four 1 Wholesale distributors; 2 Manufacturers who go to market through Our Four Customer Segments
wholesale distributors; 3. Equity firms or hedge funds who are interested in, or own a business in, the first two categories; and 4. Service groups of wholesale distributors including marketing groups, trade associations, trade press and service providers trade press, and service providers Our Four Key Differentiators
multiple relationships within many narrow verticals; 3. Can provide either advice or project implementation, as appropriate; 4. Pricing is fixed by project and we aren’t trying to sell the next job at the end of the first
www.ircg.com