But, as you’ll notice from this chapter heading, we’re not navigating these big subjects in what would appear to be the logical order.

There are two (very) important reasons why we’ll be talking about prosecuting opportunities before we talk about originating them:

1. Assuming that your business exists right now, the first set of opportunities you’ll encounter are those that already exist – meaning that the content of this chapter is immediately applicable
2. Counter to popular opinion, there is typically (but not always) more upside in improving the management of your existing opportunity flow than there is in investing the same effort in the generation of new opportunities

In this chapter we’ll define what we mean by opportunity and then we’ll figure out how to convert opportunities into sales.

Suspects, prospects and opportunities

The definition of sales opportunity would appear to be self-evident: it’s an opportunity to sell something. This definition, however, is a little imprecise.

After all, anyone who has been around sales for a while knows that there’s a number of other commonly-used terms that reference the probabilistic nature of the sales engagement (e.g. suspects, prospects, leads and potentials).

Let’s start our little quest for precision by recognizing the requirement for different terms. It’s meaningful to differentiate potential sales from one another on two dimensions:

1. Probability (what are the odds of this potential sale becoming an actual sale?)
2. Incremental effort expended (do we process these potential sales individually or in batches?)

Probability

We can use this first dimension to distinguish between suspects, prospects, non-prospects and accounts (sales):

1. A suspect is a name in a telephone book. It’s the term used to refer to an individual (or organization) in the universe of individuals (and organizations) that exist out there somewhere. A suspect has no probability – which, by the way, is not the same as saying that a suspect has zero probability. The thing is, we use the term suspect specifically to refer to the greater population of unclassified (or unrated) individuals and organizations.
2. A prospect is an individual (or organization) with non-zero sales probability. To be more specific, it’s an individual (or organization) with some likelihood of purchasing during a sensible time horizon.
3. Like a suspect, an account has no probability because this opportunity has already been won!

So, where the probability dimension is concerned, I’m suggesting that the distinction is binary: prospects have some probability; everyone else doesn’t.

Incremental effort

The second dimension yields a binary result too. As mentioned, potential sales can either be processed individually or in batches. Salespeople interact with potential clients one at a time – and your marketing department processes them in batches.

This distinction is critical because personal interaction consumes finite resources. Unless there’s something terribly wrong with your technology, your marketing department can process one more click on a landing page or add one more person to an event with negligible incremental effort. Where your salespeople are concerned, however, there’s a hard limit on how many potential clients they can engage with simultaneously.

We use the term sales opportunity (or just opportunity) to refer to those prospects with whom you engage one-on-one.

The other terms we encountered are synonyms for those we’ve already defined. Potential and opportunity mean the same thing, as do lead and prospect.

We now have clarity. A suspect is an unclassified (or unrated) individual (or organization). A prospect is an individual (or organization) with non-zero sales potential. And an opportunity is a prospect in which you are investing incremental sales resources.

Implications for technology (CRM)

It’s useful to consider how these terms relate (or should relate) to modules in your CRM.

Generally speaking, suspects don’t belong in your CRM. Prospects do, and you’ll manage these using your Lead Management and Campaign modules. Opportunities will be managed using (predictably) the Opportunity Management module.

For most organizations, this represents a radical shift in how opportunity-management is done. If, according to our definition, an opportunity is any prospect with whom you are interacting one-on-one, this means that an opportunity should be created in CRM the instant that the sales coordinator engages with the prospect and not when a salesperson deems them to be qualified (or when a proposal is requested)!

Inactive prospects

If you’re on the ball, you’ll have spotted a hole in my definitions! What do we call individuals (or organizations) that have been assessed: but that have been assessed as having zero probability? This is more than an exercise in semantics as the following scenario will illustrate.

Let’s imagine we are a managed fund that promotes itself to large financial-planning firms.

And, let’s assume that we promote ourselves exclusively by purchasing lists and running direct mail campaigns (heaven forbid this is the case in this day and age!)

It would make sense for us to delineate suspects and prospects based on data that is readily available. So if we consider the universe of lists (suspects), we can readily identify the nature and size of most organizations (this information is in the public domain).

So, in our case, we’ll deem all financial-planning firms with greater than (say) 50 employees to be prospects. And, we’ll aim, over time, to ensure that all of these prospects end up in our CRM.

Now, as our salespeople prosecute opportunities that we have generated against these prospects, they may discover that some prospects are committed to certain investment platforms – and that these platforms prohibit them from recommending non-platform funds. With this additional information at our disposal, we’ll now likely conclude that these firms are actually non-prospects. It is impossible – during any sensible time-horizon for them to purchase from us.

But, this does not mean that we’ll reclassify these prospects as suspects and delete them from the CRM! If we were to do this, we’d almost certainly end-up adding them again, in future, when they appear on another list we purchase. What’s more, we’ll probably recognize that their zero-probability status is a transitory thing. It’s possible that these firms will change platforms at some point. It’s also possible that their current platforms will reassess their position on exclusivity – or even that our fund will get picked-up by those platforms!

The solution is to:

1. Make the prospect classification based only upon readily-available information (i.e. avoid stipulating a requirement for omniscience)
2. As more information becomes available, assign a status of inactive to those prospects that have zero probability

Converting prospects to opportunities

You may be surprised that the definitions I’m suggesting are not based on probability thresholds. I’m not suggesting, for example, that a prospect be reclassified as an opportunity when its probability is assessed as being greater than (say) 80%.

While it’s true that you should consider percentages when you are analyzing historical data, it makes no sense to use them as a guide to management (resource-allocation) decisions. When considering where to invest your resources, the question should not be which prospect has the greatest probability of purchasing? Rather, you should be asking, which prospect is likely to generate the greatest yield on the organizational constraint?

Obviously, the likelihood of that prospect purchasing has some bearing on that answer, but there are other factors that should probably receive equal (if not greater) attention:

1. What product or service is this prospect likely to purchase?
2. What margin are we likely to be able to charge that prospect for that product?
3. What is the likely term of our relationship with that prospect?
4. How many units of our organizational constraint are likely to be consumed servicing this prospect?

Of course, there is a high degree of uncertainty associated with all of these factors. The practical solution to this uncertainty problem is to design a sales environment that allows a healthy opportunity flow (volume, not crystal-ball-gazing is the antidote to uncertainty!).

You convert a prospect to an opportunity simply by determining that you will allocate finite sales resources to it. The conversion may be triggered by a prospect’s action (e.g. they may attend a webinar and request a consultation) or it might be triggered internally (e.g. your promotions coordinator sends a pre-approach package to 20 prospects and tags them all for follow-up by a salesperson’s sales coordinator).

If we assume that sales is your organization’s constraint, your primary focus will be keeping your salespeople fully utilized (four appointments a day, five days a week).

Which prospects to convert to sales opportunities is a secondary consideration. You may choose to engineer your sales environment so that the conversion of all opportunities is triggered by prospect actions or (more likely) you will have a mix of externally and internally triggered conversions.

Where the latter is concerned, you can use the factors above to implement a (quick-and-dirty) prospect scoring algorithm (with prospects sorted in descending order). However, you must recognize – as discussed earlier – that such approaches are helplessly inexact (hence, my quick-and-dirty reference).

The (grisly) end of qualification

Now, it’s important to note that I’m not advocating any half-way step in between prospect and opportunity. A prospect is either in play or it isn’t – and if it is, it’s an opportunity.

Of course, if you listen to salespeople talk, you’d be convinced there is an intermediate step where prospects must be either qualified or disqualified. In fact, it’s widely believed, in sales environments, that qualification is a necessary and value-adding activity.

Nothing could be further from the truth!

Let’s consider qualification, as it’s typically practiced:

Lenny, the CEO of a mobile-application-development firm returns from a business-leaders’ mixer with a handful of business cards.

Each business card has been given to him by a senior executive from a mid-sized organization.

Excited, he hands the 20 business cards to David, one of his salespeople – who agrees to follow them up.

Two weeks passes and Lenny has received no feedback so he button-holes David at the local cafeteria. “What’s happened with those 20 opportunities I gave you,” he asks.

“Well,” David explains, “only 2 of them are real opportunities … and I’m still working on them.”

Lenny is incredulous: “what do you mean; only two of them are real opportunities?” “All of those people are senior executives of decent sized businesses – and all decent-sized businesses have cause to at least consider web applications.”

David shrugs and returns to his lunch.

We can only make sense of David’s position if we consider the environment in which he operates (the traditional model). Because of the multitude of competing demands for David’s time, David has no choice but to prioritize. And, because many of these demands are urgent (e.g. helping production to interpret client requests, solving customer-service problems and so on), David has very little capacity remaining to invest in speculative business-development activities.

When Lenny hands him 20 business cards, he recognizes that he simply doesn’t have time to prosecute 20 opportunities concurrently. His solution is to make a quick (qualification) call to each contact to determine how interested they are in a mobile application.

Not surprisingly, he discovers that only 2 of the 20 have any concrete interest (none of the others has even made a budgetary allocation!)

Sadly, this scenario plays out every day, in almost every organization, in every country of the developed world.

Qualification is NOT selling: it’s actually the opposite (the avoidance) of selling. Of course, the core problem here is the design of the traditional sales environment. However, when we reengineer that environment we cannot simply assume that all the practices that made sense in the old environment will simply disappear in the new one. Some won’t – meaning that they need to be actively eliminated.

Qualification is a particularly insidious – and remarkably persistent – practice. You will need to hunt it down and drive a stake through its ugly heart whenever it makes an appearance.

If a salesperson has an unutilized unit of capacity and there’s a prospect available, that salesperson should be selling them, not qualifying them.

As discussed, it does make sense to distinguish between suspects and prospects but, I’d suggest you avoid using the term qualification for this purpose. Qualification is so destructive that you’re better off exorcising both the practice and the word from your organization!

Now it is true that not all prospects are equal but, as we’ve already discussed we can allow for this by:

1. Sorting (or indexing) prospects using our quick-and-dirty scoring algorithm
2. Maintaining a surplus, so as to ensure that salespeople are occupied with (probabilistically, at least) the higher caliber prospects

It’s also true that salespeople will, from time to time, encounter what we’ve resolved to call inactive prospects: individuals (or companies) who – for reasons that aren’t readily apparent – are not in a position to purchase. Doesn’t it make sense for salespeople to filter these out before they start selling?

The answer is no!

The thing is; if this information is not readily available, salespeople will have to dig for it. And, digging for this data is antagonistic to selling. A better approach is to accept that some prospects won’t purchase (that’s why we call them prospects in the first place!); but to treat them all as if they will (until they advise us otherwise).

It’s important that management helps salespeople to remember that theirs is a low-probability environment: that’s simply the nature of (true) selling.

The opportunity-management process

Now that we have opportunities, we need a process to prosecute them. This process must consist of:

1. A standard workflow that dictates:
   1. The sequence of steps (activities) each opportunity follows
   2. The resource responsible for each step
2. Critical stages (milestones)
3. Centralized scheduling
4. Management information and procedures

A standard workflow

Each of the words in the heading above is significant.

A implies one. You should only have one workflow for each product and service. In fact, similar products should share the same workflow. If you receive opportunities from multiple promotional campaigns, those campaigns should all be designed to feed into the same workflow.

Standard means that the path each opportunity follows through your organization is essentially the same as the path followed by the opportunity before it. Certainly, there is no reason for variation between salespeople. But even where clients are concerned, it is usually possible to adopt a standard workflow, for two reasons:

1. In a mature market, competitive pressures will cause your clients to structure their businesses similarly and adopt similar procurement procedures
2. In an immature market, clients will not have developed fixed procurement procedures – meaning that your salespeople have the opportunity to sell whatever you have determined is the ideal workflow (or engagement model)

And workflow, of course is significant because that’s what we’re here to discuss.

We’ve already discussed, at length, the resourcing component of the standard model. We know that, where opportunity-management is concerned, you have the following resource pool (assuming a complex-sales environment):

1. Sales coordinator
2. Salesperson
3. Project leader

Let’s now consider the activities (steps) that will be required to convert opportunities into sales. We can start by grouping them by general activity type:

1. Face-to-face appointments of various types (including workshops, demonstrations and so on)
2. Conference calls (voice and video)
3. Solution design, estimating and quoting
4. Scheduling activities (via phone, email, etc)
5. Various de-briefing conversations between different parties (particularly the salesperson and the sales coordinator)

To enable the collection of meaningful management information we need to identify milestones (stages) too. The ideal milestones are those locations in the workflow where your client has just agreed to proceed to the next meaningful activity:

1. Scheduled an initial appointment
2. Scheduled a proposal-review meeting (obviously agreeing to a proposal-review meeting is more meaningful that simply agreeing to receive a proposal)
3. Scheduled a management workshop
4. Scheduled a contract-review meeting

Now we have all the pieces, it’s time to assemble the puzzle – to draw our first draft of your standard workflow. I say first draft because this initial diagram will, almost certainly, be redrawn multiple times before its deemed fit for purpose!

For this you’ll need either a sheet of graph paper and a pencil or, better still, a copy of a charting program (my preference is Microsoft Visio.)

Step 1: let’s go swimming

Start by drawing a set of swimlanes (so named, because, collectively, they resemble a swimming pool). It’s standard-practice to delineate resources on the horizontal and stages on the vertical.

You can then name the workflow and each of the resources.

Step 2: a simple, linear flow

You can now start to add entities and connectors.

My recommendation is that you force yourself to map your entire workflow using only two entities: states and activities. (States are inputs to – and outputs from – activities). This restraint will prevent you from mapping the workflow at too granular a level.

In case you’re wondering, the ideal level of granularity is the one where (for most opportunities):

1. All activities are essential
2. All pairs of activities are non-commutative (their sequence can’t be reversed)

If we examine the first few steps in this workflow, we can make some interesting observations:

1. In this instance, we’re assuming the opportunity is triggered by an inbound enquiry, rather than an outbound campaign
2. The meetings have names – as opposed to being described by their location in the sequence (first meeting, second meeting, etc). This is because:
   1. It’s the content of the meeting that’s of primary importance. For example, a second meeting might be a repeat of the first meeting or it may be a materially different event.
   2. The meeting name communicates the purpose of the meeting (and sometimes its intended outcome) to all parties
3. We map a single path with no loop-backs and no trivial activities (e.g. update CRM). We do map the points where the salesperson debriefs their sales coordinator, because these activities are critical and should be tracked.
4. Stage names reference the outcome of that subset of the process and conclude with the word pending. This focuses team members on the concrete outcome, rather than on the activities being performed.
5. The Sales Coordinator is the process owner. For this reason, most states will appear in their swimlane.

Step 3: complexity, be gone

As we get deeper into this workflow (and get more comfortable with the mapping method) we can turn our attention to the structure of the opportunity-management process.

Specifically we need to consider the difference between a workflow for a simple sale and one for a complex sale. Interestingly, there isn’t much of a difference! (Or, at least, there shouldn’t be.)

Consider the continuation of our (complex-sale) workflow, above.

To date, we’ve performed a couple of appointments: the first with our initial contact and the second with the team of decision makers. As a consequence, we’ve secured a request for proposal. If this were a simple sale, we’d be proposing our ultimate offering at this point; however, because it’s a complex sale, we’re proposing an intermediate offering: a solution-design workshop.

You’ll soon see that the solution-design workshop consists of a couple of appointments and terminates in the presentation of another proposal: in this case, for the final offering.

However, if this sales opportunity were more complex still, the solution-design workshop might terminate in a proposal for a pilot, which – you guessed it – would be an engagement that leads to yet another proposal!

It should now be clear that a complex sale does not necessitate a complex opportunity-management process. Just as a centipede with 191 trunk segments is no more complex than a fly (with only 12), the complexity of an opportunity-management process does not increase as we accumulate multiple iterations of an inherently simple sub-process.

In summary, then, we prosecute a simple opportunity with a simple process (consisting of just a handful of activities). We prosecute a complex opportunity, with the same simple process – repeated multiple times.

We’ve just stumbled across the secret of what’s typically referred to as major-account selling. If you read books on this subject you’ll learn that the key to prosecuting complex deals is to get inside of – and attempt to manage – this complexity.

Again, nothing could be further from the truth. By definition, complexity is that which cannot be managed.

The key to prosecuting complex deals is actually to engineer the complexity out of the engagement process. Of course, both you and your clients will benefit from the simplification of an otherwise unproductive workflow.

Step 4: Solution design

We can now go ahead and complete the mapping of our representative opportunity-management process. (And, with this done, I think you’ve earned yourself a cup of tea!)

The solution-design workshop

A solution-design workshop is an invaluable addition to your opportunity-management workflow whenever you are selling a custom-engineered product (or service).

Such a workshop (they are often called feasibility studies, envisioning workshops and similar) provides the following benefits:

1. It enables you to take control of your client’s decision-making processes (which, absent your involvement, is often entirely unstructured and ineffective)
2. It turns solution-design into a collaborative process – which results in potential-clients assuming ownership of the solution long before they are asked to purchase and slashes the duration of the solution-design process
3. It enables you to socialize the new direction with a larger number of stakeholders (client-side) than would otherwise be possible

The solution-design workshop should be facilitated either by a project leader or by a dedicated facilitator. In either case your salesperson and nominated project leader must be present (and actively involved). You should design your workshop so that the greater proportion of the content that will ultimately populate your outcomes document (and accompanying proposal) is actually generated during the workshop (excluding content that is standard to all documents, of course).

Ideally, the workshop should consist of a series of tightly-choreographed exercises. You can conduct these exercises on a whiteboard, but my preference is to use a word processor and a charting application (in conjunction with a data projector) as a virtual whiteboard.

The exercises are likely to include the following:

1. (Very) brief introduction from the workshop sponsor (client side) and the project leader – including a summary of the scope of the workshop
2. Discovery of the sets of symptoms (undesirable effects) that have given cause to the workshop (I say sets of symptoms because you want to record the perspectives of multiple participants)
3. Reasoning from the undesirable effects to the root cause (or causes) of these effects
4. Determination of the direction of the solution
5. High-level design of the solution (ideally using diagrams)
6. Resolution of key lower-level design issues
7. Risk analysis (including a review of possible unintended consequences of the proposed solution)
8. High-level economic feasibility review (how will the organization justify the likely expenditure of money and other resources)

After the workshop, the project leader should convert the outcomes into a formal presentation of findings document and review this document with the salesperson prior to the scheduled presentation of findings meeting. My preference is to create this document in a PowerPoint (or similar) format.

Proposals, estimates and quotations

Where proposals and other similar documentation are concerned, it’s worth reviewing who should do what.

We know, already, that we do not want the salesperson involved in the creation of any documentation. And we should also have a good idea about who will be responsible for proposals for simple transactions (the customer-service team) and complex transactions (the project leader).

There are, however, some proposals that resist being squeezed into these two categories!

The solution-design workshop proposal

Take, for example, the solution-design workshop proposal: who should prepare that?

This proposal should be a stock-standard document – simply because all your solution-design workshops should use the same basic structure. Obviously the duration of the event will vary from client to client – as will the name of the client! – but all such variability can, and should, be accommodated with a simple automated Word document like the following.

With a basic knowledge of scripting an advanced user of any
word-processing application can create a master document
that prompts the user for variable data upon opening

Proposals for complicated (but not complex) products

We’ve resolved, already, that a complex sale is one where a perfect hand-off between sales and production is impossible. This definition leaves room for situations where the quote is still pretty complicated because of either the technical or the commercial requirements.

In these situations you need to ensure that the salesperson captures all of the information required to generate the proposal in the sales meeting. In other words, the salesperson should be able to submit all the data required to generate the proposal to their sales coordinator at the conclusion of the meeting (this might involve emailing a PowerPoint or Excel file or simply pressing submit within a custom tablet application).

Salespeople are likely to object that they need to need to customize the sales preamble at the start of the proposal and that this cannot be done in front of the client.

This is simply not true.

The reality is that clients, if they have invested the time required to meet with a salesperson, would rather receive a proposal that accurately captures both the commercial and technical realities of their situation.

Furthermore, in many cases, clients will be intending to take the proposal and use it to influence others in the organization who aren’t present in the meeting – meaning that they will particularly value the salesmanship contained in the document.

Demonstrations

Demonstrations are the cause of much value-destruction in complex sales environments (particularly among technology companies).

As is evidenced by the pitch-doctors who sell nifty potato peelers in shopping centers, nothing sells like a good demonstration.

Sometimes, however, the demonstration is a distraction from that which you are trying to sell. Here’s a scenario.

Imagine you’re the financial controller of a business that does $100m a year in sales. And, you’re considering purchasing a new ERP system.

Ask yourself, what are you really buying? Are you buying a piece of software? Or are you buying a better approach to governance, to management decision-making and to operational performance that will (hopefully) be facilitated by a software application?

It’s the latter, isn’t it?

Now, ask yourself this, if you stare long and hard at the software, is there any likelihood that the business outcomes you’re looking for will suddenly appear?

Of course not: the software is a distraction from what you’re buying. A smart ERP vender will not show it to you. Rather than demoing software, this vendor will talk to you about the assumptions, theories and methodologies that are baked-in to their software. They’ll understand that if they can sell the theoretical underpinnings of their software, then you will lose interest in examining the application itself.

They’ll assume that, if you’re one of the very few software vendors who’re capable of having a high-level discussion about the realities of business management, then you’ve probably also figured out how to build software that works.

One of our silent revolutionaries (a particularly successful enterprise software producer) has discovered that it makes sense to postpone demonstrations as long as possible and then to finally show the software in the form of a training session for users – with decision-makers looking on.

Continuous improvement

We’re about to turn our attention to the generation of sales opportunities – a big and exciting subject!

However, before we do, I must reiterate my exhortation that you first pay attention to the prosecution of your existing opportunity flow.

I hope this chapter has made it clear what a big subject opportunity-management is – and provided you numerous ideas for improvement. Please be sure to exploit all of these ideas before you shift your attention to promotion.

Yesterday, our sales function essentially consisted of a single salesperson. Tomorrow, sales will be the responsibility of a tightly synchronized team.

Principle 1: centralize scheduling

Our first principle dictates that, as we push towards division of labor, our very first specialist must be a scheduler.

We’ll elect to call our scheduler a sales coordinator.

It’s important to note that this person is not a sales assistant. The word assistant would imply that it’s the salesperson who allocates work. The opposite – as indicated by the direction of the arrow – is the case. The sales coordinator allocates work to the salesperson.

This means that the salesperson must transfer any and all scheduling responsibilities to the sales coordinator. This may be a more significant undertaking than it sounds when you consider that, in most cases, the salesperson’s scheduling responsibilities are not limited to the management of their own calendar. In most cases, salespeople are interfacing with production and customer service, coordinating the delivery of their clients’ jobs.

At this point in the discussion it’s premature to allocate specific activities to resources but it will do no harm to draw four very general conclusions:

1. Our sales coordinator must perform all scheduling
2. Our salesperson will spend more time selling
3. Our salesperson should work in the field (not in an office)
4. Our sales coordinator should work from the head office

The first two conclusions are not at all contentious. But the second two are less obvious, but important, none the less.

Salespeople work in the field: not an office

Traditionally, salespeople split their time between the field and an office. And this is unavoidable when you consider the diverse range of activities for which salespeople are responsible.

If we have a choice, however (and we soon will), it makes sense to have salespeople spend all of their time in the field, for two reasons:

1. If we are going to spend the (not insignificant) money required to employ field salespeople, it makes sense to have them selling in the field where, presumably, they’re more effective
2. A fundamentally different approach is required for scheduling field- and office-based activities – meaning that it’s impractical to schedule a blend of both

Where the second point is concerned, field activities tend to be allocated to specific time slots – and protected with significant time buffers. (Prospective clients would rather salespeople’s visits are pre-booked – and have little tolerance for salespeople who fail to appear when scheduled). This is not the case with office tasks. In most cases it makes much more sense to allocate activities to a list – and then sort that list dynamically to ensure that activities are completed within an acceptable lead-time. (In the first case, the worker goes to the work, in the second the work comes to the worker.)

When salespeople visit the office, they inevitably bring their field practices with them – meaning that they are shockingly inefficient, compared to a dedicated office-based person. Of course, this sets a poor example for their office-based colleagues.

The sales coordinator works from head office

It would be tempting to assume that the sales coordinator should operate in close proximity to the salesperson – but the opposite is true. The sales coordinator should operate in close proximity to the business functions with which sales must integrate.

We’ve already discussed that the integration between sales, engineering and production is becoming increasingly important for the modern organization. Well, it just so happens that integration is significantly easier to achieve if the individuals responsible for scheduling each function operate in close proximity to one another.

Additionally, if you consider the salesperson’s perspective, the salesperson will feel less disconnected from the organization as a whole if their sales coordinator is operating from head office.

The relationship between the sales coordinator and the salesperson

Although we are (for simplicity) drawing our inspiration from manufacturing, there is another type of production environment that is a better analogy for the sales function). It’s the project environment. Certainly, it’s healthy (particularly in major-sales environments) to recognize that sales opportunities are projects – and then to manage them as such.

We’ll expand on this idea shortly, but for the meantime, let’s consider the relationship between the sales coordinator and the salesperson by contrasting sales with another project environment where we have senior people working closely with schedulers.

That environment is the executive suite. In the executive suite of a decent-sized firm we will likely encounter at least one executive who works closely with an executive assistant. Unlike a plain-vanilla assistant, an executive assistant assumes overall responsibility for the initiatives (projects) in which the executive is involved – and, also, assumes responsibility for the executive’s calendar.

The executive assistant maintains an awareness of all the initiatives upon which the executive is working (and their relative importance) and plans the executive’s time so as to maximize the yield on their limited capacity.

If we take the preceding sentence and substitute executive assistant for sales coordinator and executive for salesperson, then we have a perfect functional description of the role of the sales coordinator. And if we reflect on the nature of the relationship between the executive assistant and the executive, then we will observe exactly the relationship that must exist between the sales coordinator and the salesperson in order for the sales function to be productive.

This discussion also sheds light on the inevitable questions about whether, in practice:

1. Salespeople will find it demeaning for someone else to plan their calendars
2. Potential customers will find it disturbing if salespeople fail to set their own appointments

The answer to both questions is a firm no. Treating salespeople like executives does not demean salespeople and, if anything, it elevates their standing in the eyes of potential customers.

Principle 2: standardize workflows

We’ll return to the subject of resourcing (and our diagram) in a moment. First we must standardize our sales-related workflows.

Our second principle dictates that we use a standard sequence of activities to:

1. Originate opportunities (identify or generate sales opportunities)
2. Manage opportunities (prosecute opportunities – resulting in either a win or a loss)

It makes sense to treat these as two workflows (rather than one) because opportunities tend to be originated in batches but prosecuted one at a time. Because opportunities tend to be originated in batches (via either prospecting or promotional activities) the idea of standardizing the first workflow is not a foreign one.

However, the case for standardization is not so clear when opportunity management is concerned. It’s easy to see that standardization will yield internal efficiencies, but we must explore whether or not our ability to win orders will be negatively impacted by standardization.

Or, to frame this consideration as a question: do our salespeople require unlimited degrees of freedom in order to effectively win orders?

The case for standardization

To address this question, we should first acknowledge that, whenever we are selling, a potential customer is buying. Therefore, our opportunity-management workflow is the flip-side of our potential customer’s procurement workflow.

So, we can reframe our question: do our customers require unlimited degrees of freedom in order to make an effective purchasing decision?

Viewed from this perspective, the answer is, not necessarily. Increasingly, organizations are standardizing their procurement procedures for those products or services they purchase regularly. What’s more, different organization’s procurement procedures, for similar products, tend to be remarkably similar.

If we consider major purchases, I suspect the greater variation we see in procurement procedures is more a consequence of an absence of procedure than it is evidence of the absence of a need for one. In other words, I’m suggesting there probably is an objective ideal procedure for making major purchases – it’s just that, because organizations make major purchases infrequently, they haven’t gotten around to figuring out what it is!

I’ve often asked groups of salespeople who sell major products (enterprise software, for example) if there’s a right and a wrong way for organizations to purchase a product like theirs and I’ve always been impressed by how well-reasoned and unanimous salespeople’s responses are.

My suggestion, then, is that there is an ideal opportunity-management workflow for both minor and major purchases. Where minor purchases are concerned, this is more likely to be determined, in advance, by your customers but there’s unlikely to be enormous variation, from customer to customer. Where major purchases are concerned, customers are unlikely to be aware of the ideal procurement procedure, presenting you with an opportunity to take the lead and help them discover it.

If you sell major products (where major refers to the magnitude of the decision, not the dollar value), your entire opportunity-management workflow should be designed around the concept of you taking the lead – but we’ll return to this point in a moment.

The anatomy of an opportunity-management workflow

Your opportunity-management workflow is little more than a sequence of standard activities. Here’s a typical sequence for a minor product (or service):

If we think of a sales opportunity as a project, then the table above is our project plan. In other words, it’s our sales coordinator’s job to schedule each of these activities in the sequence specified with each potential customer. And, as indicated by the objective column above, it’s our salesperson’s job to sell the next significant activity at each meeting.

At the first meeting in the sequence, the salesperson should sell the workflow as a whole. Now, because opportunity-management workflow is not a particularly client-friendly term, it’s more likely that the salesperson will present this critical sequence of activities as your engagement model. (From now on, we’ll use these terms interchangeably.)

Major product sales

Where major-product sales are concerned, it’s necessary to make one fundamental change to the design of the opportunity-management workflow.

As hinted a moment ago, the absence of a formal procurement procedure provides an opportunity for your organization to take a leadership position. Specifically, if your potential client is not practiced in purchasing whatever it is that you’re selling, then you should take the opportunity to manage their procurement procedure for them.

You do this by breaking your opportunity-management workflow into two parts:

1. Sell a solution-design workshop, feasibility study or similar
2. Via the solution-design workshop, sell your ultimate product or service

The solution-design workshop is a structured procurement procedure – facilitated by you, on behalf of your potential client. In many cases the solution-design workshop will be more than a single workshop: it’ll be a sequence of activities, like the following:

1. Pre-workshop research
2. Solution-design workshop (attended by all decision makers and key influencers)
3. Preparation of outcomes document (often a PowerPoint presentation)
4. Formal presentation of findings meeting (attended by all decision makers)

More often than not, it will be possible to charge for a solution-design workshop – and if you can, you should! But regardless of whether or not you charge, your solution-design workshop must be structured so that it delivers true stand-alone value to your potential client. (In other words, it cannot be a thinly-veiled sales presentation.)

When you are delivering a solution-design workshop, you have an obvious conflict of interest. This means that you must to go to special trouble to ensure that your methodology is robust and your reasoning, immaculate.

Principle 3: specialize resources

If we return to our project analogy for a moment, we now have a project plan (our opportunity-management workflow), a project manager (our sales coordinator) and a resource pool containing a single resource (our salesperson).

It’s time now to add to our resource pool so that we can exploit some of the potential of division of labor.

A nice starting point is to consider all of the activities performed by a typical salesperson and determine which can be allocated to other resources.

Beside each activity above is a proposed activity type. Some of these are obvious – and some are a little contentious. So, let’s be sure to resolve the contention, if we can, before we re-allocate four of the five following activity types:

1. Promotion
2. Administrative
3. Sales
4. Technical
5. Semi-technical

Promotion

It is possible for salespeople to generate their own sales opportunities but, the fact that they can does not constitute an argument that they should (and this statement applies to almost every other activity above too). The thing is, the generation of sales opportunities is extremely resource intensive if they are originated one at a time – and salespeople lack the resources required to generate them in batches. Typically the batch-generation of sales opportunities requires the ability to procure and manipulate contact lists, the ability to produce funky promotional campaigns, the resources to broadcast personalized e-mail (or snail mail) and perhaps even the ability to promote and coordinate events.

Salespeople lack these capabilities, so it makes sense to allocate responsibility for prospecting to the marketing department – and for marketing types, the generation of opportunities belongs to a subset of marketing called promotion.

But before we hand over prospecting to the marketing department, we need to be very clear on two points:

1. The person responsible for opportunity generation must be part of the sales function (not the marketing department)
2. A sales opportunity is only an opportunity if the potential customer has already been sold an initial meeting with the salesperson

If your firm is big enough to have a marketing department, it’s big enough for people in that department to be pulled in all directions at once! Because your sales function can’t operate without sales opportunities – and because sales is a critical function – there’s a pretty sound argument that the generation of sales opportunities should take automatic priority over any other demands on marketing people’s time. But, in reality, that will never happen!

The solution is to add a promotions coordinator to the sales function and make this person responsible for the administration of all promotional activities and, therefore, for the generation of sales opportunities. Your promotions coordinator should then use the marketing department as a resource for the creation or promotional collateral and so on.

If yours is a small firm (with no marketing department), point one is no big deal. If you need to add a promotions person, simply add a promotions coordinator to the sales function and have them outsource work that would otherwise have been performed by the marketing department.

Now, where point-two is concerned, if your promotions coordinator is responsible for the generation of sales opportunities, we need a functional definition of sales opportunity. You should define a sales opportunity as: a prospect who has requested a meeting with a salesperson or who is likely to accept one if offered.

In other words, I’m suggesting that the responsibility for selling the salesperson’s initial meeting with a potential customer must rest firmly on the promotional coordinator’s shoulders (and not the sales coordinator’s).

Administrative

It should be easy to see why data entry, reporting, calendar management and travel arrangements have been categorized as administrative activities but, what about appointment-setting and follow-up calls? How can they possibly be administrative?

Let’s start with follow-up calls.

As we have discussed already, at each meeting within the opportunity-management workflow, it’s the salesperson’s job to sell the next critical activity. If the next activity has already been sold, the scheduling of that activity is purely an administrative function. The standardization of the opportunity-management workflow has automatically eliminated the requirement for salespeople to make unplanned and unstructured telephone calls.

Now, it is true that prospective customers will often need to be called multiple times before a meeting is finally scheduled, but hustling ain’t selling: it’s hustling – and good administrative people make much better hustlers than salespeople!

On the occasion that an administrative person discovers that further input from the salesperson is required before the next activity in the workflow can be scheduled; the administrative person should either schedule another meeting with the salesperson, or a teleconference. In either case, this additional meeting does not constitute a material change to the opportunity-management workflow; it’s just a repeat of the preceding activity.

If you think about it, the initial appointment-setting call is no different from follow-up calls. If (and only if) the meeting has already been sold, the call is simply a scheduling exercise.

Here’s a real-world example:

Nigel is the director of sales for a large recruitment firm (one of our silent revolutionaries). Because he also happens to be most capable public speaker in the sales department, he’s now addressing a room full of senior executives – introducing a controversial approach to headcount management.

At the close of his presentation, he will ask delegates to complete a feedback form and encourage them to tick a box at the bottom of the form to indicate that they would like to schedule a best-practice briefing with Rick, the firm’s local consultant (salesperson).

It’s Nigel’s expectation that a little more than 20% of delegates will tick that box and virtually all of them will meet with Rick. What’s interesting is that Rick’s sales coordinator is unlikely to call any of them. Setting those appointments is such a simple undertaking that she will simply send each an e-mail, asking them to nominate their preference from a number of available meeting slots.

This is an example of an effective promotions campaign: evidence that, if promotions is done properly, even the initial appointment-setting call is purely administrative in nature.

In due course, we will pay much more attention to promotions. I understand that the generation of opportunities is a tough problem for many organizations – and that my new definition of opportunity makes this problem even more onerous – but, for the moment, I have to ask you to suspend your disbelief!

As perhaps you’ve already guessed, all administrative tasks (including both initial appointment-setting and follow-up calls) will become the responsibility of the sales coordinator.

Technical

Every major-sales environment has the same problem.

Salespeople become entangled in the delivery of the solutions they sell – and this entanglement cannibalizes their selling capacity.

This inevitable entanglement has a simple cause. The thing is, above a certain level of product complexity, a perfect hand-off from sales to production is impossible. Not just difficult: impossible. This means that, beyond this complexity threshold, information will always be lost when sales hands-off the project to production. This information-loss cannot be eliminated with more detailed briefings, more documentation or management exhortations to better communicate.

This graphical depiction of the complexity threshold shows that hand-off difficulty goes to infinity when

complexity increases beyond a certain point. The markers on the x-axis suggest the degree of complexity in

three environments: (a) make to stock; (b) make to order; (c) engineer to order

There are only two possible solutions to this problem:

1. Propose only products that are simple enough to sit beneath the complexity threshold (limit customization to a fixed menu of options)
2. Eliminate the requirement for a hand-off altogether

Of course, in major-sales environments, the second option tends to be the default approach. What happens is that the salesperson never fully hands-off to production: they remain on-call, post-sale, to answer questions and to interface with the client.

There is, however, another approach: one that has a profound impact on both sales effectiveness and service quality. The alternative approach is to add a third party to the mix: a person we’ll call a project leader.

In a major-sales environment there are two approaches to the avoidance of hand-offs.

In the default approach, the salesperson remains engaged through delivery.

This results in a reduction in the salesperson’s selling capacity and, consequently,

late engagement with potential clients. It also defers resolution of the inevitable tension

between sales and production until after the sale is won.

In this alternative approach, the project leader and the salesperson work side-by-side for most of the opportunity-management workflow.

Here are the essential characteristics of this approach:

1. Because the salesperson has no post-sale responsibilities they have more selling capacity. This enables them to engage earlier with clients than they otherwise would – meaning that initial contacts are conceptual in nature.
2. At the point at which the client wishes to discuss (in concrete terms) their requirements, the salesperson introduces the project leader.
3. The project leader takes responsibility for requirement discovery and for solution design (in many cases, these will occur in the form of a formal solution-design workshop).
4. From this point until the point of sale, the salesperson and the project leader work together. The project leader is responsible for the technical component of the engagement and the salesperson, the commercial component.
5. Post sale, the project leader champions the project as it moves through production. This means that the project leader replaces the salesperson as the primary point of contact for both production and the client.

The sole responsibility of the project leader is to manage the interface between production and both the client and sales. When they do their job well:

1. The product presented to the client is both saleable and deliverable (taking into account features, price, delivery lead-time, etc)
2. The product that is ultimately delivered to the client fulfills the client’s requirements, without compromising the profitability of the organization (understanding that the client’s requirements may well have changed – or been reinterpreted – during delivery)

Because the project leader seeks to optimize the numerous trade-offs though both the opportunity-management and delivery phases of the engagement, it should be clear that their role is critical and their contribution invaluable. For this reason, the project leader should always have protective capacity (they should never be over burdened with work). Accordingly, it is not a problem that the project leader works both in the office and in the field. If we are deliberately maintaining the project leader at less than 100% utilization, it is obviously not necessary to maximize their efficiency.

Semi-technical

Semi-technical activities include the generation of standard proposals, the processing of repeat transactions and the provision of after-sales support.

All these activities – as well as any others that are semi-technical in nature should be allocated to the customer service team.

Curiously, most organizations already have customer service teams. However, the primary responsibility for customer service rests with the salesperson. The result tends to be that the customer service representatives are disillusioned and generally unprepared to take ownership of customer service cases (we’ll use the word case to refer to a unit of customer-service work).

This means that two changes must occur. The customer service team must rapidly develop both the capability and the capacity to take full ownership of the entire customer-service case-load. And, salespeople must extricate themselves from customer service.

In practice, the latter is not as difficult as it sounds. With two simple initiatives, it can be accomplished quite quickly:

1. Salespeople must avoid taking ownership of customer-service cases in the first instance. This is easier than it sounds. For example, if a client asks a question about an incorrect order, the salesperson might use their cell phone to initiate a three-way conference call between the client, a customer-service representative (CSR) and themselves.
2. Customer service representatives must assume ownership of cases as soon as they encounter them. With this in mind, it is useful, in the design of your customer-service workflow, to stipulate that the CSR must send the client an e-mail when each case is opened and closed. Obviously, the first e-mail should make it clear that the CSR is the person responsible for resolving the issue and is, consequently, the primary point of contact.

The customer-service team must be head-office based (close to production). If there’s a requirement to perform field visits in order to resolve customer-service cases (perhaps to inspect a problematic product), the CSR should task the project leader to perform this visit and report back with the necessary information.

If we return to our project analogy – where we compare a sales coordinator with a project manager – we can now see that our sales coordinator has inherited a resource pool consisting of three resources (salesperson, project leader and customer service representative).

This means that, in order to prosecute each sales opportunity, the sales coordinator will break the opportunity into a series of activities and allocate each activity to one or more of these resources, in accordance with the routing specified in the opportunity-management workflow.

The client’s perspective

It’s easy to see that this model is quite ordered and logical from the organization’s perspective: but what about the client? In asking our clients to interface with multiple people, haven’t we just made their worlds more complex?

It’s true that in this model, clients will interface with four people (sales coordinator, salesperson, project leader and customer-service representative).

It’s also true that, today, most clients ask for – and most organization’s strive to provide – a single point of contact. However, reality is a little more complicated than this.

It’s a mistake to commence this discussion with an assumption that the traditional model delivers good customer service. It simply doesn’t.

It’s also a mistake to take clients’ claim that they’d rather have a single point of contact at face value. In practice, clients can be quite aggressive in seeking-out relationships with other individuals if they sense this is in their best interest.

My experience is that the following statements are closer to the truth (particularly in major-sales environments):

1. Clients don’t mind multiple points of contact, but they want a single conversation. In other words, they will willingly speak with multiple people within your firm as long as they do not have to repeat themselves.
2. If clients have a choice between dealing with a single generalist and multiple specialists, they would rather speak with specialists.
3. Although we talk about the client as if this were a single entity, in most cases, there are multiple people client-side involved in the purchase and consumption of your products.

You will discover that this new model provides a vastly better quality of service, provided you ensure that:

1. There is a clear delineation of the responsibilities of the four parties with whom clients interact
2. Sales coordinators (who are planning all opportunity-management activities) and CSR’s are in close communication with one another

Principle 4: formalize management

As discussed, the downside of division of labor is that it causes environments to become fragile. Although it’s the responsibility of the sales coordinator to synchronize the various team members, management oversight is critical for a number of reasons:

1. Sales coordinators tend to be younger and less-experienced than both salespeople and project leaders. Accordingly, the sales coordinator’s mandate is very limited. If the sales environment is operating exactly as it should be, they have total control over the schedule. However, a relatively small disturbance in the operation of the environment can render them impotent.
2. The sales function must integrate effectively with other functions (production and marketing, to name two). Because the sales coordinator tends to be relatively inward-looking, it’s necessary for a more senior person to interface with those other departments.
3. In most sales environments there are multiple sales coordinators (one for each salesperson). This means that a more senior person must manage any contention between sales coordinators (or salespeople).
4. As with any environment, there’s a requirement for a senior person who is somewhat detached from the day-to-day minutiae, to perform a periodic audit

Hence the requirement for a sales manager.

The sales manager’s most important duty is to chair a regular (at least weekly) sales meeting. To be effective the sales meeting must have an explicit agenda, it must run to the agenda, and it must be short (20 minutes)!

The model for an effective sales meeting should be the standard factory (stand-up) work-in-progress meeting.

The enduring challenge with sales management in general, and with the conduct of sales meetings in particular, is the absence of objective information. Many organizations have given up on sales meetings because, in the absence of objective information, they are ineffective, at best; caustic, at worst.

With division of labor, an interesting change has occurred, with respect to management information. Previously, all sales-related information was owned by the salesperson – who was free to reveal (or not) this information when it was advantageous to them.

In the new model, the sales coordinator is the central information repository. Not only are they aware of sales activities before the salesperson (they schedule them), but they receive accurate and timely updates from the salesperson (the salesperson can only disadvantage themselves by failing to communicate).

Provided, then, we have the necessary technology (a subject we’ll get to in due course), we are now in a position to have an objective – and therefore productive – sales meeting.

In addition to the conduct of sales meetings, the sales manager should be responsible for:

1. Accompanying salespeople in the field to share best practice between salespeople
2. Accompanying salespeople on (typically) late-stage meetings to assist in the winning of deals
3. Participating (along with other senior managers) in the formulation of offers and other decisions that must be made by a multi-functional committee
4. Whatever activities are required to maintain the overall health of the sales environment and the quality of the interface between sales and other functions

It should go without saying that this new model empowers the sales manager. With the critical combination of information and control (via the sales coordinator) they are transformed from a lobbyist to a true manager.

* * * *

In chapter one, we encountered James Sanders Group (one of our quiet revolutionaries). We discussed Jennifer’s enormous productivity and the productive relationship she has with David (her sales coordinator) and Phillip (a project leader). We also discussed the critical role that customer service has played in the remarkable transition that has occurred at JSG.

This chapter should have shown how our four key principles lead logically to this end result. In part two of this book we’ll pick up on the many threads left open in this chapter. We’ll talk more about major-account selling, about promotions, technology, and so much more.

But before, we dive deeper into the practical workings of SPE; we should widen our focus and consider the sales function as a single cog within a much larger machine or, if you like, as the machine within the machine.

So you think you’re going to publish a newsletter?

Hey, that’s not a bad idea!

If you make it an e-mail newsletter — like the one you’re reading now — it’s a particularly cost effective exercise. Your distribution costs are nil. Your publishing costs are equivalent only to the time you invest in producing content.

And just think what your newsletter will achieve.

Your newsletter will keep your organisation ‘top of mind’ with your clients, potential clients and centres of influence.

Your newsletter will establish you as an expert in your field.

And your newsletter will enable you to maintain an enduring and intimate relationship with your marketplace.

Or will it?

How do you know that subscribers will actually bother to read your newsletter? They are busy people, after all.

What’s to stop them hitting ‘delete’ each time your periodical arrives in their inboxes? Or worse still, pressing ‘reply’ with that dreaded ‘unsubscribe’ word in the subject line?

It’s one thing to publish a newsletter. It’s another to produce a publication that will be avidly read, respected and even awaited by subscribers.

Of course, when it comes to publishing a great newsletter, content is the key. (The same applies to running a great event.)

But what’s the mark of great content? How should you select this content? How should you package it? And how can you ensure that you can keep producing quality content after the second, the tenth, or the one-hundredth edition of your newsletter?

Religion is the key!

Our belief is that great content is more than simple information, education or instruction.

Great content flows from a higher cause … an ideology.

The presence of this ideology adds an overriding purpose to all of your communications, supercharging their effectiveness.

Ask yourself, would Permission Marketing, Seth Godin’s runaway best seller, have been the hit it was if it had just preached textbook marketing practices?

Would upwards of 25,000 stockholders attend Berkshire Hathaway’s Woodstock-style annual general meetings if it weren’t for value investing, Warren Buffet’s counter-intuitive investment methodology?

Or would CRM (customer relationship management) have ever captured the executive share-of-mind that it has if it weren’t for Peppers’ and Rogers’ long-term one-to-one marketing crusade?

In each case, this higher cause has transformed what would otherwise have been an interesting concept into a religion (at least, in the more general sense of the word).

As a marketer, the notion of a starting a religious movement should be an intriguing one. And there’s a simple reason why.

When a concept becomes a religion it becomes infectious. In other words it self-propagates, like a virus! (It’s interesting to note that Seth Godin’s second book is called Unleashing the Ideavirus — it’s all about what he calls viral marketing.)

The real significance of this infectiousness is the impact it has on the ROI (return on investment) of your marketing activities. If you can successfully ‘start a religion’, the return on your marketing investment will increase exponentially over time. This is in contrast to the diminishing returns we see from most product-centric sales processes in mature markets.

So now you understand the importance of ‘getting religion’, how do you go about the process of starting a religious movement? And how does this concept of ‘religion’ relate to our Relationship-centric Marketing methodology?

Starting a religious movement

We’ve created a simple six-step process you can follow to start your own religious movement. The starting point for this process is your basis for communication.

If you’ve attended one of our seminars or workshops, you’ll have heard me introduce this concept. Your basis for communication is the content platform upon which the relationship with your marketplace is built. You can find your basis for communication in the area of intersection between your market’s interests and your expertise (and credibility).

Typically, your basis for communication consists of expertise that you have acquired as a by-product of the delivery of your core product or service.

For example, an office furniture retailer may establish relationships with its marketplace by sharing its workplace design expertise with clients, potential clients and centres of influence. (This firm’s market may not have an enduring interest in our office retailer’s range of workstations but it is likely to have an ongoing interest in improving workplace productivity.)

Once you’ve identified a basis for communication, you’re ready to go to work starting your religious movement!

Step one: identify ‘a better way’

It seems there’s always a better way. No matter what industry we consult to, we always hear the same thing: ‘standard practice is fundamentally flawed’.

In fact, one of the special benefits of being a consultant is having the opportunity to learn the truth about furniture design, industrial air conditioning, merchant banking, aerial mapping and myriad other industries.

Your challenge is to look at your basis for communication and describe standard practice.

Once you’ve done that, you can outline your better way.

Godin does this beautifully in Permission Marketing.

Godin refers to traditional marketing as interruption marketing. Every advertisement or promotional campaign is an unrequested intrusion. The marketer views the potential customer as an opportunity for a short-term relationship (a one-night-stand).

The permission marketer views the potential customer as an opportunity for an ongoing relationship. While she may use interruption techniques to initiate this relationship, she then attempts to exchange value for increasing levels of customer permission. (Godin refers to the highest level of permission as intravenous permission — that’s the kind of permission you give to a surgeon when you submit to general anaesthetic!)

Your better way can describe the optimal process. Alternatively, it can describe the process that should be followed in order to design the optimal process.

Step two: create an ideology

For your better way to be converted into an ideology, it needs good packaging.

And the first step in packaging a concept is to assign it a name.

It’s interesting to note that, neither Ricardo Semler (Maverick) nor Michael Gerber (The E-myth) gave their management methodologies names. I suspect their methodologies would have been more infectious had they taken this next step.

As well as naming your better way, you should also assign a name to the standard practice. (You can see how Godin has done this in the example above.)

You’ll find that it is easier to sell your better way if you position it against standard practice.

While it may seem manipulative to use polarisation as a selling tool, the reality is that you are selling only an intellectual position. (You may have noticed how ideological arguments tend to assume extreme opposing positions: ‘pro life versus pro choice’, ‘political left versus political right’, ‘salvation versus eternal damnation’, etc.)

Once your ideology has a name, it needs a model. A model is a simple diagram that provides a portal through which complexity can be viewed.

Your model can be a decision-making tool like a two-by-two matrix or investors’ economic clock. It can also be a process diagram, like our own Relationship-centric Marketing model.

It’s also worth developing your own terminology (when appropriate). When I attend meetings with potential clients, I often notice that they use Relationship-centric Marketing terminology. They do this because they have become sold on our ideology as a result of their exposure to AdVerb and our events.

We once received a request for a proposal from a potential client where the project brief was sprinkled with our own terminology. This document had been circulated to two or three other consultancies. Our potential client was kind enough to provide a link to our Website to enable our competitors to decipher the brief! Needless to say, we won the work.

Step three: write a manifesto

Now that your ideology has a name, a model and its own set of terminology, it’s time to commit it to print.

Your manifesto can be as simple as an eight-page discussion paper or as complex as a traditional book.

The purpose of your manifesto is to argue the case for your ideology. Nothing more, and nothing less.

Your manifesto should build a bulletproof case by contrasting standard practice with your better way. It should then present evidence in the form of real-life case studies. While it’s nice if the subjects of your case studies are your own clients, it isn’t absolutely essential.

If you do a good job of producing your manifesto, you will find that it rapidly becomes your most valuable communications tool. In fact, we often recommend that our clients produce their manifestos in place of a corporate brochure. The fact is, your manifesto will do a much better job of selling your organisation than a traditional corporate profile ever can.

While the first evolution of your manifesto is likely to be a discussion paper, it’s well worth ultimately turning it into a book. If you can get your book onto the shelves of bookshops around the country, you have just created a self-liquidating, perpetual promotional machine!

One of the best manifestos I have ever come across is a book called The Goal, by Eliyahu Goldratt. The Goal is a gripping ‘business novel’ about manufacturing process design. It does a superb job of selling Goldratt’s contrarian process design methodology, the Theory of Constraints. The Goal has sold over two million copies, a remarkable feat for any business book — particularly one about manufacturing process design.

Step four: start a movement

Now that you’re armed with a manifesto, it’s time to start spreading the word.

In reality, this undertaking isn’t as ominous as it may sound (no, you’re not required to don a suit and spend Sundays knocking on doors!)

You simply need to redirect your promotional resources from the promotion of your organisation to the evangelism of your ideology.

And there are three good reasons to do this:

• It’s easier to sell an ideology than it is to sell a product or service.
• If you can sell your ideology, you end up selling your organisation by default.
• Each time you sell your ideology you have an opportunity to recruit a disciple — an assistant in the propagation of your ‘religion’. (Of course, this is the key to the viral growth of religions.)

If you’re familiar with our Relationship-centric Marketing methodology, you’ve already got a pretty good idea of how to go about evangelising your ideology.

Step one is to attract ‘followers’ with the offer of your manifesto. And step two is to build an intimate relationship with ‘followers’ by subscribing them to an automated communications program (consisting of regular newsletters and seminars).

Acquiring ‘followers’

You’ll find that a magical thing happens when you begin promoting your manifesto. People actually respond to your promotional campaigns!

While campaigns that promote your organisation are unlikely to yield much of a response, an advertisement for a discussion paper that advocates a new, better way can easily generate one hundred or more replies.

Accordingly, your advertisements, direct mail and other relationship-acquisition campaigns should be re-configured to offer respondents a complimentary copy of your manifesto.

Now, if you’re worried that this promotional approach will fail to deliver the brand building benefits of traditional campaigns, you shouldn’t be. The reality is that the promotion of your ideology will do more for your brand than traditional self-congratulatory advertisements ever could!

Turning ‘followers’ into ‘disciples’

Your ongoing communications should offer your subscribers assistance with the application of your ideology to their businesses (or their lives).

Each communication should focus on one facet of your ideology and explore its implementation in detail.

As previously mentioned, the presence of an overriding ideology will multiply the effectiveness of your communications. Rather than being isolated points of contact, each communication with your subscribers will be a part of an ongoing dialogue.

If you can succeed, over time, in converting interested subscribers into ardent believers (or even activists), you win in two ways:

• Your subscribers are almost guaranteed to turn to you for assistance with the implementation of your better way.
• Your subscribers will join you in your efforts to spread the word!

It’s interesting, isn’t it, that your search for compelling newsletter content has lead to the development of a complete marketing program. You could call this marketing program an ideology-based marketing strategy — or you could simply call it getting religion!

Before I leave you with your quest to identify an ideology worthy of religious fervour, let me briefly introduce you to the two final steps in starting your own religious movement.

Step five: make your ideology the industry standard

The idea of making your ideology the industry standard seems counter-intuitive. This is because I’m advocating that you give it away!

Specifically, I’m suggesting that you encourage channel partners — and even competitors — to join your religion.

In practice, as long as you’re recognised as the originator of your ideology, you will always have the most to gain from its growth.

Ask yourself, would Stern Stewart & Co have ever been able to make their Economic Value Added (EVA) the financial standard that it is today, if it was the only consulting firm to advocate it?

Step six: extend the standard

This last step isn’t really about starting a religious movement; it’s about extending the life of your movement.

You can extend your standard by showing your followers how your ideology can be applied to other areas of their businesses or lives. I mentioned the Theory of Constraints (TOC) previously. Although this theory initially related just to production, Goldratt has subsequently applied it to finance, project management, marketing, management and other business functions.

It is important not to extend your ideology until it is firmly entrenched as an industry standard. To do so would be to divert resources from what should be your number one marketing objective.

In fact, if there were ever a competition to judge the most self-indulgent of all business communications, the newsletter would have serious competition from only the corporate video for first place!

A tragedy, when you consider that newsletters have the potential to be by far the most valuable communications tool any company can invest in.

Certainly, for most JRMA clients, newsletters are the backbone of their marketing programs.

Our newsletters generate a steady flow of new customers, unlock the ‘lifetime value’ of existing customers and position our clients as leaders in their fields.

This article explains both why and how you should establish a newsletter as the backbone of your marketing program. It all starts with a little marketing theory – an introduction to our ‘relationship-centric’ marketing model.

A ‘relationship-centric’ marketing program

We like to say that there are two types of customer in the world.

One type of customer buys a product. (They focus on product attributes and price.)

And the other type of customer buys a relationship. (They are less interested in a transaction, and more interested in a longer-term relationship.)

Most small- to medium-sized business would be wise to focus on this latter type of customer. Certainly, small businesses have a natural advantage when it comes to ‘customer intimacy’. Furthermore, relationship-focused customers are prepared to pay a premium for these relationships – insulating smaller businesses from the inevitable ‘margin shrinkage’ that efficient markets (read: their larger competitors) inflict upon them.

Smaller businesses tend to recognise this. But few have any idea how to attract, to service, or to profit from relationship-focused customers.

The solution is to turn traditional marketing methodology on its ear and build a relationship- rather than a product-centric marketing program.

Selling a relationship

If you’ve decided you’d rather be in the business of selling relationships than (keenly priced) products, here’s a three-step introduction to our ‘relationship-centric’ marketing model (click to enlarge):

• Take your focus off sales. If your customers aren’t transaction-focused – you certainly shouldn’t be.

• Create an automated communications program. Because a key ingredient in any relationship is ‘communication’, this system should provide your customers with regular (and meaningful) points of contact with you. Your automated communications program should be designed to exploit the value resident in the relationships under your management. However, rather than designing this program to optimise the value of individual transactions, you should design it to maximise customers’ ‘lifetime value’. ‘Lifetime value’ is a measure of the gross profit earned over the life of a typical customer relationship.

• Identify potential customers and introduce them to your automated communications program. Rather than establishing a relationship with people after they make their first purchase (as is normally the case) you should establish a relationship in advance. If your potential customers are those who will buy on the basis of a relationship, doesn’t it make sense to deliver this relationship in advance? (You’ll discover, in a moment, just how inexpensive it can be to introduce potential customers to your automated communications program.)

Enter the humble newsletter!

Well, that’s the theory out of the way – and the stage set nicely for the newsletter!

Step two of our ‘relationship-centric’ model involved building an automated communications program. And, as you already know, your newsletter should be the backbone of this program.

The purpose of your newsletter should be to provide those regular and meaningful points of contact we mentioned previously. Of course, your newsletter can be augmented with other types of customer contact (outbound calls, face-to-face visits, workshops, and so on), but your newsletter is likely to remain the most important component of your automated communications program. This is because a newsletter allows you to provide your customers with a considerable amount of value, for a fraction of the cost of face-to-face (or even telephone) communications.

Think ‘mini-magazine’

Now, for your newsletter to make an effective contribution to the quality of your customer relationships, it must be genuinely meaningful. Remember, if you emulate the self-indulgent style of the half-dozen newsletters that are currently providing ballast for your wastepaper basket, yours is likely to suffer a similar fate.

The best model for the editorial style of your newsletter is a magazine. The competitive nature of the publishing industry has resulted in magazine editors becoming particularly adept at producing publications that their readers want to read. (In fact, it’s worth noting that Australia has the highest per-capita readership of magazines in the world.)

You would, no doubt, have noticed the rapid fragmentation (specialisation) of magazine titles over the last few years. We suggest that your newsletter should be a ‘mini-magazine’ designed to appeal to a finely targeted group of individuals – your customers (and potential customers).

The key is to emulate the editorial style (and the look and feel) of a publication your customers are already likely to read. Your newsletter’s articles can then provide readers with more specialised, and perhaps more current, information. The test of the quality of your newsletter is to ask yourself: Would my customers be prepared to pay for this? If your answer is yes, you have a powerful communications tool.

Compelling content: four components

Once you’ve settled on the editorial style of your newsletter, your next challenge is to decide what you’ll write about. Each of our newsletters typically contains the following four components:

• Feature story (or stories). To write a feature story, pick a subject of interest to your customers from within your field of expertise, and ‘empower’ your readers with a clear understanding of it. (As Queensland’s Noel Whittaker has demonstrated with his best-selling books on money, a great way to take ownership of a category is to freely share your expertise.)

• Editorial comment. Typically, editorial columns are used to share company news (new employees, etc). If I were you, I’d bump this exciting stuff to your ‘news in brief’ column below, and use this space to deliver a thought-provoking (and preferably controversial) opinion piece. Where other articles in your newsletter may be written in third person, your editorial comment should definitely be written in first person – preferably by your company’s designated spokesperson.

• News in brief. Here’s the spot for industry (and yes) company news.

• A case study. One of the challenges you face selling relationships is that your ‘product’ is intangible. Consultants often tend to find it difficult to dimentionalise the benefits of their services. Obviously, one of the benefits of your newsletter is that it enables potential customers to experience a relationship with you prior to making a purchasing decision. Another particularly effective way to demonstrate the benefits of a relationship is to allow your potential customers to ‘walk in the shoes’ of existing customers.

A case study should introduce a customer, outline a problem they were facing, walk the reader through the steps your company took to solve that problem, and then paint a picture of the end result.

… just add people!

Once you have a newsletter that communicates meaningfully with its readers, you have your ‘automated communications program’ – the backbone of our relationship-centric marketing model.

Your next step is to introduce people to this communications program. These people should come from three sources:

• Customers. Obviously, your customers have a higher propensity to spend money with you than strangers do (that is, unless you’re doing something dreadfully wrong!)

• Prospects. These are people who have both the reason and the ability to become customers of yours. More importantly, they are people you feel are likely to be relationship- rather than product-focused. We’ll talk more about identifying prospects in a moment.

• Centres of influence. A centre of influence is a person who is in a position to refer customers to you. He or she may not actually be a prospect. A typical example of a centre of influence is a journalist from your trade publication.

Introducing people to your communications program is as simple as adding their details to a database. You could manage this database in-house. However, our advice is to outsource it to a specialist. Most capital cities have mail bureaus that provide database management, as well as mail processing (and often list rental and telemarketing) services.

We do not recommend creating a fanfare when you introduce prospects to your communications program. A simple letter of welcome will do.

Identifying prospects

The great thing about dealing with relationship-focused customers is that you don’t have to ‘make a sale’ to have a relationship with them. In other words, initiate a relationship first, then leave the selling (or should we say ‘buying’) up to them.

But how do you identify prospects?

Well, if you sell to businesses, it could be easier than you think. You might just find that the names and contact details of your prospects are available from a list broker. For example, if your target prospect is a ‘human resource manager working in a company with 100 or more employees’, this list is available from all good list brokers. Simply buy the list and add the records to your database.

If your prospects need to be better targeted than this, it might be worth commissioning some telephone research to filter these records. For example, if you want to identify those human resource managers who operate a particular software application, it’s still cheaper to have someone ring and ask, than it is to try and strike up a relationship with advertising!

If you cannot purchase (or otherwise acquire) a list of suitably targeted prospects, you may have to resort to less direct forms of ‘lead-generation’.

Now, because you’re looking for relationship-focused prospects, the trick with lead-generation is to promote a relationship – rather than your product or service. The obvious way to do this is to offer prospects a free 12-month subscription to your newsletter. Remembering that your newsletter has been designed to be truly valuable to prospects – this is an offer that’s likely to be eagerly accepted. (About 20 people a month request free 12-month subscriptions to AdVerb via our Website.)

We recommend the following promotional mediums for your lead generation-campaign (listed in typical order of effectiveness):

• Strategic alliances. Your prospects are already other business’s customers. Identify businesses that serve your prospects, and convince them to offer a free 12-month subscription to your newsletter to their customers.

• Direct mail. If the lists that you can obtain from your list broker are not qualified enough to warrant the cost of telephone research, you can identify qualified prospects by offering a newsletter subscription to this list. Respondents are likely to have both an interest in your services, and a bias towards relationships.

• Advertising. A successful lead-generation advertisement is little more than a good direct mail letter, reformatted for the media in which you’re advertising. Of course, your offer is still a free 12-month subscription to your newsletter. (You’ll find a couple of articles on advertising on our Website.)

Not just a newsletter. A total marketing solution.

Once you’ve navigated our three-step process, developed a relationship-focus, built an automated communications program and introduced prospects to this program, you’ve successfully converted your newsletter into a total marketing solution.

Your newsletter is now the backbone of a coordinated program that identifies potential customers, develops a relationship with them – perhaps even before they need your services – and then manages that relationship to exploit their lifetime value.

The good news is that the management of your relationship-centric marketing program shouldn’t consume a lot of resources – financial or otherwise. Key functions, including the research, writing, production and distribution of your newsletter, the management of your database, and the creation of your lead-generation campaigns, can all be outsourced.

And even if you do choose to outsource all of these functions, once it’s established, your newsletter should cost you around $4.50 per contact. That’s less than the cost of a face-to-face (and probably even a telephone) contact.

The theory is simple and, in most cases, its application is easily affordable.

Now might be the time to dust off your newsletter and see if it’s really living up to its true potential.

At worst, these communications run the risk of damaging the very relationships they are supposed to be cultivating.

The problem is, from a marketing department’s perspective; every relationship looks like a sales opportunity.

Accordingly, marketing (and sales) people tend to design communications based upon the assumption that every recipient is in the process of making a purchasing decision.

Few potential clients are sales opportunities

Unfortunately, as the diagram below illustrates, nothing could be further from the truth.

This diagram portrays a marketplace consisting of six potential customers. Each makes a buying decision every 25 days. The duration of each decision-making process is two days.

If a marketing person (‘you’ in the diagram) were to view this marketplace for a total of eight days, only two sales opportunities would come into view.

Of course, if the marketer were to notice these two sales opportunities and assume that they were representative of the market as a whole, he would be sorely mistaken.

In the real world, the odds of a marketing communication striking a potential customer within her decision-making process are nowhere near as generous as those illustrated in this diagram.

If you’re selling a service or a ‘major’ product, your customers’ buying cycle (time between sales opportunities) is likely to be three or more years. The duration of a sales opportunity may be one or two months. And the persistence of your marketing communication (how long it stays top-of-mind) may be less than a week. (In this more realistic scenario, only one out of every 144 recipients of your communication would be in the process of making a purchasing decision.)

The real cost of irrelevant communication

In other words, the odds of your communication striking any given customer at just the right time is comparable to the odds of your being able to spear a particular fish in a pond, while wearing a blindfold!

Marketers traditionally compensate for these lousy odds by broadcasting their sales communications to large numbers of potential customers simultaneously.

Now, this approach is like electrifying the pond. You’ll get your fish, but the pond will sustain a lot of collateral damage in the process!

Obviously, repeated exposure to irrelevant communications (perhaps for a period of many years) is likely to damage your relationships with potential clients. If these communications are delivered by e-mail, many recipients will eventually unsubscribe themselves from your list — cutting-off your future access to them.

You could argue that this collateral damage is likely to be minor, because those individuals for whom your communications are irrelevant are more likely to simply treat them with indifference.

This is a valid argument. However it ignores the opportunity cost of this promotional approach.

What if, instead of deliberately creating and distributing communications that will be treated with indifference by the greater majority of your marketplace, you were to create communications that were relevant to recipients, at any stage of their buying cycles?

If this were possible, each communication would make a positive contribution to a developing relationship with your potential customers.

Well it is possible.

Invest in relationships, not sales opportunities

All you have to do, is identify a basis for communication that transcends your quest for sales opportunities. Our article entitled The importance of getting religion explains that this basis for communication should consist of the intersection between your market’s interests and your expertise (and credibility).

These relationship-building communications may be less effective at inciting action from that small percentage of recipients who are in the midst of their decision-making processes — but that’s okay.

The effectiveness of your communication should not be measured on an individual-to-individual basis; it should be measured across the marketplace as a whole.

Remember, when you broadcast a communication to your marketplace, those potential customers who are ready to buy today are a tiny minority. You’ll enjoy a significantly greater return on investment if you design your communications to be relevant to those individuals who are not currently sales opportunities!

I don’t know about you, but sometimes I feel that managing a traditional ‘bricks and mortar’ business is downright unsexy!

Particularly when stories abound of Web entrepreneurs who have reinvented business as we know it (and become billionaires in the process) – seemingly without being slowed by any of the trials and tribulations of ‘real-world’ business.

The good news is that you don’t need to start an online enterprise to benefit from the power of the Internet. With the right approach, you can use this exciting virtual world to multiply the effectiveness of your real-world marketing activities.

This article will show you how.

Know your model

In the last issue of AdVerb, we introduced you to our Relationship-centric Marketing Model.

We explained that this model is appropriate for those businesses that sell a product with an essential service component – in other words, a product that isn’t a pure commodity. (I’m guessing that’s you!)

You’ll remember we explained that our Relationship-centric Marketing Model consists of two components:

• An automated communications program. A system of pre-programmed communications, designed to nurture relationships with customers, prospects and centres of influence. (Your ideal customers are likely to make a buying decision based on relationship first; price and features second.)

• A relationship-acquisition program. Once you have a system that deftly converts prospects into customers, you need a program that provides you with a constant stream of new prospects.

If you’re comfortable with our Relationship-centric Marketing Model, you should be excited about the Internet. This is because the Internet provides you with both a low cost communication channel and a lucrative source of new relationships.

Furthermore, the Internet provides you with the ability to hand control of your sales process to your customers – conserving your resources and often improving your conversion ratios. (We’ve been encouraging our clients to relinquish control of their sales processes for years!)

A low-cost communications channel

E-mail is already like the fax machine. Yesterday it didn’t exist, but today we can hardly live without it!

E-mail is exciting for the Relationship-centric marketer for three reasons:

1. It is an extremely low-cost communication channel. It costs no more to send ten thousand e-mails than it does to send one.
2. It is immediate. Within minutes of pressing ‘send’ your recipients are clicking ‘yes’ and reading their messages.
3. It is intimate. Think about it: are you most likely to communicate with a close friend by letter, fax or e-mail? E-mail wins because an e-mail is less formal than a fax, and much less formal than a letter.

The Relationship-centric marketer understands that the more frequently he communicates (in a meaningful, value-added way) with his customers, the more intimate a relationship he will build.

The problem is, until now, higher frequency has equalled higher cost. (Even with postal discounts, it’s difficult to mail anything to anyone for less than a dollar.)

E-mail makes frequency affordable. Because it costs virtually nothing to send an e-mail, the only limit to your frequency of communication is your ability to come up with interesting things to say!

How does e-mail fit into your automated communications program?

Once our clients grasp the implications of the low cost of e-mail, many ask if they should replace all of their existing points of contact with e-mail.

The answer’s no. The problem is, e-mail is nowhere near as potent as other (more costly) communication mediums. (In fact, when it comes to communication channels, there seems to be an inverse relationship between potency and cost.)

What you should do is design a communications mix relative to the lifetime value of each of your categories of relationships. (The table below illustrates a possible communications mix.)

You must genuinely add value

Planning to e-mail your customers is one thing. Coming up with something meaningful to say is another! (Remember, each point of contact must genuinely add value to the relationships under your management.)

As I’ve often stressed in the past, the best way to add value to these relationships is to give the gift of information. As well as inspiring the same tendency for reciprocity as any gift, the gift of information is special because it positions the giver as an expert – making future gifts appear all the more valuable!

You can deliver value to your customers via e-mail in two ways:

• You can include the information of value within the e-mail itself (e.g. snippets of industry news).

• Or you can use an e-mail message to point to information of value (usually with hypertext links to content on your Website).

We like to use our monthly ‘eBulletin’ primarily to advise our clients of additions to our Website (i.e. new books we’ve added to our reading list, new marketing tools in our download zone, or the addition of articles from the current edition of AdVerb).

You might be starting to realise that you can get enormous benefit from the Internet, without even building a Website. Such is the power of e-mail.

If you don’t already have your customers’ e-mail addresses, now is the time to start asking for them – and you should ask at every point of contact.

Acquiring new relationships

Most organisations ‘go online’ hoping that their Websites will somehow attract more customers. Sadly, most don’t!

Of course, most Websites don’t ‘work’ for exactly the same reasons that most advertisements don’t. They provide no incentive to visit in the first instance; they deliver little value once you’re there; and they contain no compelling reason to initiate further correspondence.

It should come as no surprise that we suggest that your Website (like your advertisements) should not suffer from these performance impediments.

It all starts with an offer

Before you start work on your Website, you need an offer. This offer will provide your visitors with both a reason to visit and a reason to initiate further correspondence.

Fortunately, because you are a Relationship-centric marketer, you already have such an offer. It’s called your ‘automated communications program’. Think about it. You designed your communications program specifically to add genuine value to your relationships with customers. Doesn’t it make sense that potential customers will jump at an opportunity to ‘subscribe’ to this program?

It does. And they will!

Typically, we recommend that our clients use the offer of either a free 12-month subscription to a newsletter, or a free ticket to a workshop. (Of course, you can also use these offers in your real-world promotional activities.)

Your offer should be featured prominently on your Website (to get your visitors to volunteer their e-mail addresses) and on other people’s Websites (to convince their visitors to click-through to yours).

Fishing for e-mail addresses

We suggest that, in most cases, the primary objective of your Website should be to convince visitors to surrender their e-mail addresses.

This means that your offer should be:

• Prominent. It should be your home page’s most noticeable element.

• Desirable. The benefits of subscribing need to be ‘dimensionalised’ for the visitor.

• Accessible. Ideally, your visitor should be able to enter his e-mail address and click ‘submit’ right there on your home page. (Certainly, the form that captures his e-mail address should be no more than one click away.)

• Affordable. The number of e-mail addresses you collect is inversely proportional to both the cost of your offer and the amount of information you request from your visitors.

This last point is an important one. Many marketers attempt to ‘qualify’ visitors by insisting that they part with either money or information in order to receive the offer. This is counter productive for two reasons:

• If a visitor wasn’t already reasonably well qualified, he probably wouldn’t be on your Website in the first instance. For example, if a property developer ran a banner advertisement featuring the headline: How to use the equity in your home to build a million-dollar property portfolio, it is likely that the visitors to his site will be home owners with an interest in investment property.

• If you are going to deliver your offer by e-mail or via your Website, the incremental cost of acquiring an unqualified name is absolutely nothing. You’re better off making it as easy as possible for your visitors to respond.

Once you have an e-mail address, it’s relatively easy to convince its owner to volunteer additional information. (We acquire the details of close to 90% of our e-mail subscribers by offering an invitation to a forthcoming workshop in return for a name, address and telephone number.)

Site promotion

Once you’ve built your Website, the next step is to convince someone to visit it.

In the early days of the Web (three years ago), it was possible to generate an instant traffic flow by registering your site with the various search engines and online directories. Today, as a result of the exponential growth of the Web, search engine registration has become a science in itself – with no guarantee of immediate results.

While you should obviously register your Website with search engines, there are more immediate ways of driving site traffic:

• Real-world promotion. One low-cost way to generate site traffic is to feature your site address prominently on your corporate stationary and on all of your communications (including the signature on your e-mail messages).

• Reciprocal links. Your next step is to encourage those non-competitive organisations that share your client profile to put links to your site on theirs – in exchange for your doing the same for them. This is a highly effective (and often overlooked) form of site promotion.

• Banner ads. In spite of their regular poor publicity, we have found banner advertisements to be remarkably cost effective. As a rough rule of thumb, we typically find that we can generate a response from a banner advertisement for around 20% of the cost of a response to an advertisement in a metropolitan newspaper.

As mentioned previously, the trick with banner ads is to use them to promote your offer (rather than your Website). Because banner ads are so small, they should consist of little more than a headline. The essential selling copy should appear on the page that the viewer clicks-through to.

Our current banner advertisement provides us with a constant stream of new subscribers to this publication. It reads as follows: Turn your business into a finely-tuned marketing machine … subscribe to AdVerb free … Marketing tips! … Advertising tricks! … And strategies to fast-track the growth of your business! (Because our banner ad is animated, each ellipse denotes a new frame.)

Putting your customers in control

The great thing about a well-designed Website is that, if you let potential customers loose inside it, they tend to sell themselves!

This is nice because it conserves your valuable promotional resources. But it is also significant because your Website can provide an environment that’s less threatening to a potential client – meaning that they tend to stay longer (and explore more) than they would if they visited your real-world business.

An introduction to a well-designed Website

While Web design could easily be the subject of another AdVerb feature, here are three tips to get you started:

• Make your site’s content readily accessible. Try and minimise the clicks required to travel from one area of your site to another. If your site attracts non-technical, as well as technical, visitors, be sure to provide a secondary jargon-free navigation bar.

• Provide resources of value to your visitors. Such resources could include articles from past editions of your newsletter, transcripts of lectures, a self-analysis questionnaire, software-based tools and a reading list. Perhaps some of these resources can be provided by your suppliers and business partners.

• Remember, this is a marketing, not a technical exercise. Your Website should be designed to communicate, to educate and to transact – not to show off!

If the media hype surrounding the ‘dot coms’ had you convinced that the Internet and traditional ‘bricks and mortar’ business were mutually exclusive, I hope I’ve changed your mind. The fact is, clicks and mortar can coexist quite happily!

[Listen to a seminar on this subject!]

If your organisation sells expensive (or complex) products and services, odds are, you get most of your new clients by ‘word of mouth’ or referral.

If you’ve tried your hand at lead generation advertising, you’ve probably discovered that, even if an advertisement does make the phone ring, it’s a pyrrhic victory. (Isn’t it true that traditional advertisements tend to attract a calibre of clients better suited to your competitor’s business than yours?)

The problem with ‘word of mouth’ as a primary promotional medium is that, because it’s passive in nature, it’s difficult to scale. In other words, ‘word of mouth’ is limiting your business to incremental (rather than exponential) growth.

So why is it that traditional marketing wisdom breaks down when products are expensive or complex – or, worse still, when products aren’t real products at all, but intangible ‘services’? And is it possible for an organisation that sells such products to develop a more proactive approach to business marketing than a reliance on ‘word of mouth’ business?

The answer to both of these questions lies in the discovery that there are actually two types of customer in this world!

Two types of customer

We like to say that there are two types of customer in the world.

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.)

A customer tends to be ‘product-focused’ when she’s purchasing a commodity. If she’s choosing between Qantas and Ansett, between Dell and Compaq or between Holden and Ford, she’s likely to make that decision based primarily upon product features and price.

However, if this same customer were choosing a new accounting firm, looking for a financial planner, or organising an African safari, she is more likely to be shopping for a relationship than for the very lowest price.

Now this observation is more than just a curiosity. The choice between product- and relationship-focused customers affects the very design of a business. The fact is, a business designed to serve product-focused customers will drive the relationship-focused variety away in droves! (And vise versa.)

A ‘product-centric’ business promotes features and price – where a ‘relationship-centric’ business promotes a total solution.

A product-centric business exploits the value in a transaction, where a relationship-centric business profits from the value in a relationship (lifetime value).

And a product-centric business grows primarily by expanding its share of market (more customers) – where a relationship-centric business grows primarily by expanding its share of customer (more services for each customer).

A natural advantage for small businesses

While small businesses do not generally have the scale required to compete on the basis of features and price, they do have a natural advantage when it comes to delivering ‘customer intimacy’ – a key requirement of relationship-focused customers.

Furthermore, relationship-focused customers are prepared to pay a premium for these relationships – insulating smaller businesses from the inevitable ‘margin shrinkage’ that efficient markets (read: their larger competitors) inflict upon them.

Smaller businesses tend to recognise this. But few have any idea how to attract, to service, or to profit from relationship-focused customers.

The solution is to turn traditional marketing methodology on its ear and build a relationship- rather than a product-centric marketing program.

Selling a relationship

If you’ve decided you’d rather be in the business of selling relationships than (keenly priced) products, here’s a three-step introduction to our ‘relationship-centric’ marketing model:

1. Take your focus off sales. If your customers aren’t transaction-focused – you certainly shouldn’t be.
2. Create an automated communications program. Because a key ingredient in any relationship is communication, this system should provide your customers with regular (and meaningful) points of contact with you. Your automated communications program should be designed to exploit the value resident in the relationships under your management. However, rather than designing this program to optimise the value of individual transactions, you should design it to maximise customers’ ‘lifetime value’. ‘Lifetime value’ is a measure of the gross profit earned over the life of a typical customer relationship.
3. Identify potential customers and introduce them to your automated communications program. Rather than establishing a relationship with people after they make their first purchase (as is normally the case) you should establish a relationship in advance.

If your potential customers are those who will buy on the basis of a relationship, doesn’t it make sense to deliver this relationship in advance? (You’ll discover, in a moment, just how inexpensive it can be to introduce potential customers to your automated communications program.)

Building an automated communications program

Once you’ve decided to become relationship- rather than product-focused, your first step is to create an automated communications program.

Begin by building a central database, containing the details of existing customers, prospects (potential customers) and centres of influence. (If your database is a little cumbersome, it might be worth considering an off-the-shelf contact management application like Maximizer, Act or Goldmine.)

Your next step is to design a program of communications that will build and nurture relationships with the people on your database.

We suggest that a newsletter should be the backbone of your communications program. This is because a good newsletter is both effective and scalable. (It takes little more effort to send a newsletter to 20,000 subscribers than it does to mail 2,000.) A newsletter can either be a magazine-quality publication or, if your budget won’t stretch that far, it can be a simple two- or three-page letter, laser printed on your corporate stationery.

Either way, your newsletter should be designed to dispense valuable information to your subscribers (not to boast about your organisation). The best newsletters have a do-it-yourself feel. The great thing about sharing your knowledge with your subscribers is that it positions you as an expert in your field – and empowers them to work with you.

If you publish your newsletter quarterly – and this is our suggested frequency – it’s worth supplementing your newsletter with a monthly e-mail bulletin. While e-mail communication doesn’t have the same impact as print, its cost effectiveness makes it invaluable. For this reason, it is essential to capture e-mail addresses at every point of contact with subscribers.

Acquiring new relationships

The best-kept secret when it comes to relationship-focused customers is that you don’t have to wait for them to buy from you before you build a relationship with them. In fact, if you build a relationship with relationship-focused prospects before they need to transact, you are almost guaranteed their future business.

But how do you acquire these new relationships?

Well, if you sell to businesses, it could be easier than you think. You might just find that the names and contact details of your prospects are available from a list broker. For example, if your target prospect is a ‘human resources manager working in a company with 100 or more employees’, this list is available from all good list brokers. Simply buy the list and add the records to your database.

If your prospects need to be better targeted than this, it might be worth commissioning some telephone research to filter these records. For example, if you want to identify those human resources managers who operate a particular software application, it’s still cheaper to have someone ring and ask, than it is to try and build the same list using advertising!

If you cannot purchase (or otherwise acquire) a list of suitably targeted prospects, you may have to resort to less direct forms of ‘lead-generation’.

Now, because you’re looking for relationship-focused prospects, the trick with lead-generation is to promote a relationship – rather than your product or service. The obvious way to do this is to offer prospects a free 12-month subscription to your newsletter. Remembering that your newsletter has been designed to be truly valuable to prospects – this is an offer that’s likely to be eagerly accepted. (About 100 people a month request free 12-month subscriptions to AdVerb via our Website.)

We recommend the following promotional mediums for your relationship-acquisition campaign (listed in typical order of effectiveness):

• Strategic alliances. Your prospects are already other businesses’ clients. Identify businesses that serve your prospects, and convince them to offer a free 12-month subscription to your newsletter to their clients.
• Direct mail. If the lists that you can obtain from your list broker are not qualified enough to warrant the cost of telephone research, you can identify qualified prospects by offering a newsletter subscription to this list. Respondents are likely to have both an interest in your services, and a bias towards relationships.
• Advertising. A successful lead generation advertisement is little more than a good direct mail letter, reformatted for the media in which you’re advertising. Of course, your offer is still a free 12-month subscription to your newsletter.

A recipe for growth

The turning point in the development of any business is the creation of a turn-key marketing program. If you sell expensive (or complex) products and services, our Relationship-centric Marketing Model is such a program.

Once you have recognised that your ideal customers are those who are in the market for relationships (rather than low-margin commodities), the battle is half won.

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.

It’s easy, once you recognise that there are actually two types of customer in the world!

I’ve been interested to see that, although I’ve cut my available capacity in Australia by almost half, our volume of Aussie sales has stayed exactly the same (in fact, in recent times it has actually been trending upwards).

Furthermore, I’m noticing a dramatic decrease in opportunity cycle-time (measured across won opportunities).

 By ‘opportunity cycle-time’, I mean the duration of the opportunity-management process.  The opportunity management process is also referred to as the ‘engagement model’ (a more client-friendly term).

 It’s interesting and instructive to dig into the cause of these positive effects.

 Because of my limited availability in each country, Andrew (my Sales Coordinator), has had to make the following changes to how he manages opportunities:

1. He encourages interested executives to skip an initial one-on-one appointment (Best-practice Briefing) and jump straight to what used to be the second step in our process: an in-house, half-day Executive Briefing.  If executives need help convincing their colleagues to set aside half a day, Andrew provides them with a kit containing our whitepaper, multimedia presentation and 90-minute keynote video.
    
2. Andrew has also been replacing some meetings (e.g. the presentation of study outcomes) with web-conferences – and scheduling more teleconferences

I have also replaced our encyclopaedic Feasibility Study Outcomes documents with a simpler PowerPoint presentation.  I’ve discovered that the PowerPoint presentation takes almost half the time to produce, that it’s read by more people and that it’s (surprise, surprise) much easier to use in group presentations (including web conferences) than a traditional document.

 The result of these changes is that I have more than doubled my effective capacity while simultaneously improving the performance of our sales (opportunity-management) process.  Of course, the value of this additional capacity is the cost of the additional Business-development Manager that we now do not need to add (plus the significant on-costs associated with such a person).

The bad news is that the measures above have been forced upon us by our US expansion.  I’m not convinced that we would have pursued them without this external pressure.  The lesson is that we should all be alert for opportunities to further exploit our salespeople’s limited capacity by simplifying our engagement models.

When you open your eyes, your bedroom appears roughly as it did the night before. Your bed is below the open window, and your dresser is still adjacent to the door.

However, a second look reveals that the curtains that normally hang above your windows are missing. As is the painting that normally hangs, slightly crooked, on the wall facing your bed.

What’s more, you notice some strange additions to your bedroom furnishings. A plaster bust now dominates your dresser. And an empty hat rack leans precariously against your bed head.

As you rise and navigate your way around your bedroom, you discover that your memory provides the accurate version of reality. In spite of the information tendered by your eyes, your curtains still hang above your open window, and your painting still adorns the wall adjacent to your bed. Your sense of touch confirms that there is no plaster bust on your dresser, and that the hat rack is also a mirage.

You only have to spend a day in a typical marketing or sales department to discover that this scenario is analogous to the environment in which management operates.

Various reports and performance indicators (both formal and informal) provide glimpses of reality. However, this feedback falls short of delivering the accurate and complete viewthat managers need in order to be truly effective.

When hobbled with an incomplete and unreliable view of reality, managers’ activities are, at best, inefficient and risk-adverse. At worst, managers unknowingly engage in activities that are harmful to the organisation as a whole.

Hence the need for an objective management structure!

Reality

By definition, reality must be the starting point for an objective management structure.

Without the ability to accurately perceive reality, measurement and, accordingly, management is impossible.

Of course, the concept of measurement presupposes something to measure.

This means that the ability to perceive reality is not enough. We need also to determine upon what aspect of reality we should focus.

It is perhaps self-evident that our focus must be determined by our goal. After all, a measurement out of context with a goal is just a number (data, not information).

If your goal were to drive from Sydney to Darwin, your current location, speed and direction of travel are information; the weather in Perth is data.

For this reason, the most critical step in designing an objective management structure is defining your goal.

I’ve had many managers assure me that this is also self-evident:

Marketing managers tell me that it’s their goal to generate sales opportunities.

Sales managers advise me that their goal is to generate sales.

In each instance, managers forget that the processes they manage are part of a larger system. As a result, they fail to recognise that their goal must be subordinated to the goal of the system.

One system, one goal!

For simplicity, let’s define a system as a set of interdependent processes.

A fine example of a system — one with which we’re all familiar — is an internal combustion engine (pictured below).

As you no doubt know from your experience with this particular system, the goal of the internal combustion engine is to generate torque (rotational force).

As depicted above, this system consists of four processes:

1. INTAKE (a mixture of fuel and air is drawn into the cylinder).
2. COMPRESSION (this mixture is compressed by the rising piston).
3. COMBUSTION (the fuel/air mix is ignited by the sparkplug).
4. EXHAUST (the resulting exhaust gasses are expelled from the cylinder).

Now, consider this question for me:

If you were the sparkplug in this system, what would be your goal?

1. Would it simply be to generate sparks (as many as possible)?
2. Or would it be to generate (a set quota of, say) 10 sparks a second?

Of course, neither answer is correct.

Your goal could only be expressed in terms that recognise the relationship between your activities and the goal of the system.

Accordingly, your goal would be something like the following:

To produce a spark at the top of each compression stroke.*

* Technically, the sparkplug produces a spark fractionally before the top of the compression stroke.

If your goal must be subordinated to the goal of the system, it’s essential for us to identify your organisation’s goal.

Why does this organisation exist?

Whenever I ask this question of a seminar audience, I get a range of answers:

1. Some managers claim that their organisations exist to manufacture widgets.
2. Others explain that their organisational goal is produce happy customers.
3. Others try and cover all bases with statements that reference the organisation¡¯s relationship with all stakeholders (shareholders, staff, the community, the goldfish in the corporate pond etc.)

In each instance, managers are confusing the goal of their organisations with necessary conditions.

The goal of any commercial organisation is, by definition, to make money.* Necessary conditions are the conditions that must be present to enable this goal to be achieved.

* Goldratt (whose work has had a significant impact on the thinking behind this article) explains that the goal of a business is to make money, now and in the future. I would argue (as, in fact, does he) that the latter part of this statement is redundant (we’re all accustomed to recognising the value of future revenues). To learn more of Goldratt’s work, begin by reading The Goal.

While the idea that the goal of a commercial organisation is to make money may initially cause managers some discomfort (believe me, it does), it also provides the clarity we need to start to piece together our objective management structure.

Unravelling organisational complexity

As our internal combustion example illustrated, all goals at a process level must reflect the contribution that the process makes to the goal of the system as a whole.

Unfortunately, organisations tend not to be as simple as our little engine.

In fact, one of the greatest challenges faced by managers is the requirement to understand the interaction between multiple organisational processes.

As has been explained in recent editions of AdVerb, this challenge has been greatly simplified by Goldratt’s Theory of Constraints (TOC).

In short, TOC recognises that the output of any system is determined by the system’s constraint (or bottleneck). It also points out that:

1. Every system has a constraint (if it didn’t, output would be infinite).
2. At any one point in time, every system has only one constraint.
3. A stable system is one where the constraint remains in one location.
4. Because the constraint is the sole determinate of system output, every management decision should reference the constraint.
5. The investment of resources in any non-constrained process or activity will produce absolutely no return (contrary to the assumptions that underpin cost accounting).

An understanding of TOC enables a manager to ignore organisational complexity when making decisions, and simply consider the impact that the options under consideration will have on the system’s constraint.

Now, because the goal of the organisation is to make money, when we’re discussing system output, what we’re really talking about is money. And when we’re discussing the system’s constraint, our consideration is the flow of money at the constraint.

TOC practitioners use a simple formula to express this concept:

Flow of Money = Throughput / Available Constraint Units

Throughput (T) refers to revenue minus totally variable costs (true gross profit).

Available Constraint Units (ACU) refers to the number of units of constraint that are available over the period of consideration. (If the constraint is a machine, the Constraint Unit is likely to be time-based. If the constraint is a salesperson, the Constraint Unit will be an appointment slot.)

As we’ve established, the goal of every process within our organisational system should reference the organisational goal: maximising the flow of money at the system’s constraint (or T/ACU).

Let’s pause now, for a practical example.

A two-process organisational system

Consider the simple organisation pictured below.

If we assume that the constraint in the organisation above is in the production process, what is the goal of the sales process?

Is it to produce as many sales as possible?

Obviously not!

The sales process should produce enough sales to ensure that the production process operates at peak capacity, all the time. To produce more sales than this would waste resources (and annoy the marketplace).

But, that’s only the half of it.

If the production process is constrained, the sales process should also produce the kind of sales that are going to deliver the greatest return on the Constraint Units consumed.

Here’s the solution:

System Goal: maximise T/ACU (measured at point of sale).

Production Process Goal: maximise T/CU (measured at point of sale).

Sales Process Goal: maintain a production buffer of optimal size (x days’ worth of unstarted work in progress). Maximise the value of the production buffer (T/CU).

To translate this into plain English:

The goal of our simple organisation is to maximise the yield (Throughput) it gets on its Available Constraint Units. (Because the output of a system is determined by the system’s constraint, this is equivalent to saying that the goal of the organisation is to make money.)

The goal of the production process is to maximise the yield it earns on every Constraint Unit it consumes.

The goal of the sales process is to:

• Maintain a buffer (or inventory) of unstarted work in progress (or orders) of an optimal size. If this production buffer is too small, there is a risk that the production process may sit idle from time to time. If it is too large, this indicates that the sales process is wasting resources that would be better deployed at the constraint.
• Maximise the value of the production buffer. The value of the buffer is the total Throughput that the buffer represents, divided by the number of Constraint Units that will be consumed to realise this Throughput. The inference here is that not all Throughput dollars are equal in this scenario. The sales process must focus on winning the sales that produce the greatest yield on the scarce Constraint Units.

The sales process dissected

We have now accumulated all the theory we need to apply our focus to the sales process.

I’m going to assume for simplicity’s sake (and because it is often the reality) that your system constraint is your sales process. In other words, I’m assuming that your production process can handle all the sales that your sales process produces (at least for the duration of this discussion).

Because we’re now shifting our focus from the system (which is a collection of processes), to one particular process within that system, we’re now going to have to think at a more granular level.

Our interest now shifts from determining which process is constrained to determining the exact location of the constraint within the constrained process.

Let’s consider a simple sales process (designed around Relationship-centric guidelines), containing three personnel:

The basic responsibilities of each person are:

1. Marketing Coordinator. Producing sales opportunities.
2. Sales Coordinator. Managing the salesperson’s diary.
3. Salesperson. Negotiating transactions.

Before we even attempt to manage this process, we need to determine exactly where the constraint is.

Now, the nice thing about operating at this level of granularity is that you get to choose! At this level, it’s quite easy for you to shift resources around to ensure that the constraint is exactly where you want it to be (and to ensure that it stays there).

If you consider that, in any process, by definition, it is only the constraint that operates at 100% capacity, ask yourself, who in the process above would you least like to be idle?

It’s obvious, isn’t it?

You would like your salesperson to be operating at 100% capacity, all the time. This is because your sales process will generate a greater flow of Throughput when your salesperson is fully utilised than it will when either your sales or marketing coordinator is flat-out (and your salesperson has idle time).

If you want to ensure that your salesperson is the constraint (and stays that way), you simply over-resource the marketing coordinator and the sales coordinator. In practical terms, this means ensuring that they never have to operate at full capacity (at least where their critical tasks are concerned).

As we did in our previous example, we’re going to take one more precaution to ensure that the constraint stays put.

We’re going to build an inventory (or buffer) of unallocated sales opportunities to ensure that the salesperson never has to sit idle.

The resulting process is pictured below:

Now, let’s apply the same logic to this sales process that we applied a moment ago to our simple organisational system.

We should first remind ourselves that the sales process pictured above is part of a larger system ¡ª the business as a whole.

We already know that the goal of that system is to make money.

We also know that the money that the system makes is determined by the organisational constraint, which happens to be the salesperson.

The salesperson’s Constraint Unit is an appointment slot.

 Accordingly, the goal of the system as a whole is to maximise T/ACU (or Throughput / Available Appointment Slot).

Now, if we shift our focus to the sales process, it is obvious that the goal of the sales process must be the same as the goal of the system. (The sales process is the constrained process.)

Let’s look now at each of the personnel operating within the sales process.

The salesperson’s goal should be to maximise his Throughput per appointment slot consumed (or Throughput / Appointment). It’s worth noting that the salesperson’s goal is not simply to maximise Throughput, nor is it to maximise his conversion rate. Each of these goals is likely to result in behaviour that is sub-optimal in the context of the system as a whole.

The sales coordinator’s goal is to keep the salesperson fully utilised. In other words, it is her responsibility to ensure that every available appointment slot is filled. (An empty appointment slot represents an opportunity cost equivalent to the average Throughput / Appointment).

As you’ve no doubt guessed, the marketing coordinator is responsible for both the size and the quality of the opportunity buffer. The buffer should be maintained at its optimal size (measured in days¡¯ worth of appointments). It should also be composed of opportunities that are likely to yield the highest Throughput / Appointment.

Now that we have established an objective (and systemically congruent) goal for each person in our sales process, performance indicators are pretty much self evident:

Function	Goal	Performance Indicator
Sales Process	Maximise yield on Salesperson	Throughput / Available Appointment Slot
Salesperson	Maximise yield on Appointments	Throughput / Appointment
Sales Coordinator	Ensure salesperson is fully utilised	% of Optimal Utilisation (Optimal Utilisation is 100%)
Marketing Coordinator	Maintain opportunity buffer at optimal size. Maximise value of opportunity buffer	% of Optimal Days. {Throughput / Appointment Slots x Probability}*

* means sum of. Throughput, Appointment Slots and Probability are all estimates. Probability refers to the probability of your converting that opportunity.

Management just got easier

Well there it is: an objective sales process management structure!

Each person’s goal (and the accompanying performance indicator) is congruent with the goal of the system as a whole ¡ª and, accordingly, is reality based.

Each performance indicator is quantitative, rather than qualitative, meaning that no subjective interpretation of results is required.

Each person has only one or two performance indicators (one is optimal), meaning that there is no confusion as to what she should be doing, and how she will be judged.

Each person is likely to have a clear understanding of the contribution she makes to the success (or otherwise) of the system as a whole. As well as being good for morale, this discourages the development of political factions.

Creating a productive environment

As I’m sure you’ve already realised, an objective management structure will make an enormous contribution to organisational productivity.

However, there are three more initiatives we recommend you implement in order to create a truly productive environment.

1. Use run charts. It’s one thing to allocate a performance indicator to a team member. It’s another to find a way to use this information to positively influence her behaviour. If you remind yourself that a performance indicator is just feedback from the system, the solution is obvious: plot it on a graph. Better still, have each team member plot her performance indicator on a run chart. An example of a run chart follows. This was generated within Excel, however, traditional plotting paper does as good a (and some would argue, better) job.
2. Eliminate budgets and bonuses. Managers traditionally have attempted to motivate their teams with a cocktail of artificial stimulants. Budgets, bonuses, performance reviews, quotas and management exhortations are tactics invented by management to cope with the lack of an objective management structure. You’ll find that, if you simply pay your team members what they’re worth — and have each discuss his or her run chart at a weekly management meeting ¡ª your requirement for these artificial stimulants will rapidly dissipate.
3. Replace the word maximum with optimum. In this discussion I have taken a shortcut (for the sake of simplicity) and allowed myself to use the word maximum on a couple of occasions. I’ve referred to maximising the yield on the constraint and to maximising the value of the opportunity buffer.

My preference is, in both cases that you replace the word maximise with optimise.

We’ve already discovered that every process (and system) is constrained. What this means is that, if you scale a process, you will eventually reach a point of diminishing returns.

In the case of maximising the yield on the constraint, you may find the constraint moves (which is generally undesirable), or that your ability to grow your business is constrained (it takes time to recruit and train new staff).

In the case of maximising the value of your opportunity buffer, you’re likely to find that, past a certain point, increased promotional costs are likely to overwhelm any increase in opportunity value.

Now, in both instances, it will take some experimentation to determine those optimas. However, in the short term, I suggest you aim only for incremental improvements in these (and similar) situations. From a systemic perspective, it is far healthier to aim first for stability, and second for incremental improvement, than it is to set stretch goals. (The latter approach is guaranteed to wreak havoc elsewhere in the system.)

My thanks to James Powell (Viago), who provided technical assistance for this article. Viago assists organisations to apply TOC to production processes. www.viago.com.au

Over lunch, a CEO recently admitted to me that his financial controller was using his organisation’s profits to build quite a substantial commercial property portfolio.

When I asked if this was best use of his organisation’s free cashflow, he smiled, "How did I know you’d ask that question?

"The fact is," he continued, "the availability of capital is not currently a constraint on our growth."

"It might not be a constraint on your organic growth," I argued, "but I still think that money could be better invested in new client acquisition."

We spent the rest of that lunch scribbling on napkins. Together, we discovered that a dollar invested in promotional expenditure was actually providing this CEO’s organisation with a better-than 900% return on investment!

By the time coffee was served, we’d agreed that his organisation’s sales process could provide a much more favourable return on capital than even the bluest of blue-chip commercial property investments.

In our experience, this holds true for most organisations. Unfortunately, most are reluctant to invest in their sales processes because (unlike other business processes) it’s impossible to calculate a return on investment.

Science versus art

If you’re a follower of our Relationship-centric Marketing methodology, you’ll know that a sales process has inputs and outputs — just like any other business process.

You’ll know that a sales process (as the word process implies) consists of a sequence of simple, interrelated steps — just like any other business process.

And you’ll know, at least in theory, that each step in a sales process can be measured, managed and optimised — just like any other business process.

This article explains the science (and more importantly, the mathematics) behind sales process management. It will show you how to take control of your sales process and use it to fast-track the growth of your organisation.

If you didn’t pay much attention to mathematics at school, you may find this article tough-going at times. But please be sure to persevere.

I’m sure you’ll discover that your sales process is harbouring significant growth potential!

Management by numbers

If you think about it, the word management presupposes measurement. The fact is, if you can’t measure it, you simply can’t manage it.

So, to manage a sales process (or any process for that matter), we need to know what to measure. Generally speaking, we will measure inputs, outputs and time. Specifically, we’ll measure:

• Throughput (output/time)
• Productivity (output/inputs)

We’ll measure these key performance indicators (KPIs) for the process as a whole, and then we’ll break the sales process into its key components (sub-processes) and devise a set of KPIs for each component.

It’s worth remembering that your sales process is actually a component of a much larger system: your entire business. In the context of your business as a whole, revenue is a measure of throughput, and gross profit is a measure of productivity. The problem with these indicators is that they are trailing indicators: that is, they tell you more about what you have done in the past than they do about what you should do in the future.

Because your sales process is the first step in your entire organisational process, the information you collect from monitoring these performance indicators can be used to enable real-time process optimisation.

As we dissect and analyse the sales process, we’ll make references to a fictitious company we’ll call Correlex. Correlex is an engineering firm that consults to property developers. Correlex’s clients all pay a retainer of $450 a month to access its consulting services. References to Correlex will appear in indented sections, with a green sidebar, just like this one.

Measuring the process as a whole

The objective of your sales process is obviously to generate sales.

This process must be designed and managed to ensure that it delivers a sufficient volume of sales in exchange for a commercially realistic investment.

For simplicity’s sake, we’ll assume that the objective of our sales process is to acquire new clients. But don’t worry, we will be sure to take follow-on sales (and even referrals) into account.

Accordingly, the two global indicators in which we’re most interested are:

• Client acquisition rate (new clients per month).
• Client acquisition cost (cost per new client).

When we’re measuring client acquisition cost, we’re dividing the amount we invested in the acquisition of relationships by the number of clients acquired as a result of that expenditure.

When we calculate this figure, we only take into account the variable costs associated with the promotional campaign that acquired each particular client relationship. With a promotional campaign, variable costs are typically media costs. We do not factor in the fixed costs associated with that promotional campaign (the cost of creating the campaign). Nor do we include the fixed costs associated with the rest of the sales process (e.g. the cost of managing the relationship with the potential client).

We ignore fixed costs because these are the cost of operating your sales process, rather than process inputs.

Our client acquisition cost is most useful for monitoring the performance of our relationship acquisition campaigns. It’s important to remember that, unless you have a very short sales cycle, client acquisition cost tends to be longer-term performance indicator. (The term sales cycle refers to the average time span between the acquisition of a relationship and the consummation of a sale.) We’ll uncover a short-term indicator when we examine the relationship acquisition step of the sales process.

When the CEO of Correlex reviews his organisation’s sales process, he discovers that, averaged over the last 12 months, Correlex acquired two new clients each month.

To determine his average client acquisition cost, he divides his total variable promotional costs by the number of clients he acquired over this period.

In the last 12 months, Correlex had advertised in the Financial Review, and in a number of specialist publications. It had also run 4 direct mail campaigns. Accordingly, its variable promotional costs consisted of the cost of media for the advertising campaigns, and the cost of mail processing for the direct mail campaigns.

In total, Correlex invested $9,600 in order to acquire 24 new clients: an average client acquisition cost of $400.

$9,600 / 24 = $400

Optimisation

It’s obviously important to know how many sales your organisation is making. It’s also nice to know how much each sale is costing you in promotional expenditure.

But, in isolation, this information is not particularly useful.

What you need to be able to do, is compare your actual performance with your optimal performance.

A common mistake in process management is to establish absolutes as targets. For example, it would be tempting to assume that the objective of your sales process is to generate as many sales as possible, for the lowest possible promotional expenditure.

The reality is that sales and promotional expenditure are interrelated. (You can’t have one without the other.) A singular focus on either maximising sales or minimising promotional costs is likely to sub-optimise the performance of your sales process. The key is to determine the optimal relationship between promotional expenditure and sales.

Accordingly, you now need to determine the optimal figures for each of your global KPIs.

Client acquisition rate is easy. Obviously, your optimal figure is determined by the capacity of your production and distribution processes. (There’s little point generating sales that can’t possibly be fulfilled.)

However, your client acquisition cost requires a little more thought.

As the graph below illustrates, as your promotional expenditure increases, the number of clients you acquire should also increase. However, with the increased promotional expenditure, the profitability of each client relationship suffers.

In theory, your optimal client acquisition cost is the point where these two lines intersect.

In practice, it will take some experimentation (and careful measurement) to calculate your optimal acquisition cost.

The starting point for this calculation is the determination of the lifetime value of a client. (Your optimal client acquisition cost will be a percentage of this figure.)

It is difficult to overemphasise the importance of performing this calculation. Without an understanding of the dollar value of a client, it is simply impossible to effectively manage your sales process.

In our experience, because most organisations have no way to value a client relationship, most grossly underestimate the amount that they are prepared to invest in client acquisition.

This under-investment in client acquisition seriously retards the growth of many organisations.

The publishing industry is one industry that does understand the concept of lifetime value. Typically publishers of magazines and other periodicals are prepared to invest at least 100% of the first year’s subscription revenue in order to acquire a new subscriber!

Valuing a client relationship

In financial terms, a client relationship is simply an annuity income stream.

It follows that you can value a client relationship, just as you can value any other kind of annuity (income-producing investment).

You value an annuity using a net present value calculation. (Net present value is the sum of a series of future payments, discounted for the cost of capital.)

To calculate the lifetime value of a client, determine the gross profit you earn in an average year from an average client, then multiply this by the figure in the annuity table below that corresponds to the number of years you retain this average client.

This table shows how much a series of $1 payments, to be paid at the end of each year for a specified number of years into the future, is currently worth, with interest at different rates, compounded annually. In other words, the table shows what you should be willing to pay, today, in order to receive a certain series of future payments of $1 each.

As you already know, Correlex sells a consulting service for $450 a month.

To calculate the lifetime value of an average client, it must multiply the gross profit in a transaction by the number of times Correlex transacts with an average client over the lifetime of the client relationship.

On average, Correlex retains a client for three years. Its gross profit is 70% (or $315).

It chooses to account for cost of capital at its overdraft rate, 9%.

Correlex calculates the net present value of a client relationship by first calculating its annual gross profit, and then multiplying this figure by the appropriate multiplier from the table above:

Average annual gross profit: $450 x 12 x 70% = $3,780

Net present value: $3,780 x $2.53 = $9,563

The CEO of Correlex is surprised to see just how valuable a client relationship is.

Prior to performing this calculation, he was considering reducing his promotional expenditure ($400 per client seemed like a lot — especially for an engineering firm).

Now, however, he suspects that he has been underspending on client acquisition!

Accordingly, he decides to set his optimal client acquisition cost at a (conservative) $900. He also resolves to watch his KPIs carefully and review this figure in six months’ time.

As explained, your optimal client acquisition cost will be a percentage of the lifetime value of a client. The actual percentage will depend on the fixed costs associated with your sales process (and your sales volume). It will almost certainly be more than 10%. It may even be as high as 50%.

(While the idea of investing 50% of the lifetime value of a client in client acquisition may seem ludicrous, it’s important to remember that, once an organisation has passed its break-even point, it’s effectively enjoying a 100% return on this promotional expenditure. Try earning that in the bank!)

Before he can finalise his global performance indicators, the CEO of Correlex must determine his optimal client acquisition rate. A quick call to his operations manager confirms that Correlex is capable handling four new clients a month.

These indicators provide Correlex’s CEO with an overview of the relationship between his sales process’s inputs and outputs.

His suspicion that he is underspending on promotion is supported by the fact that Correlex is growing at 50% of its optimal rate.

Because your global KPIs are longer-term indicators, they do not enable you to manage your sales process on a day-to-day basis.

To do this, we need to divide your sales process into its key components, and then devise a set of performance indicators for each.

You’ll remember that a sales process consists of three components:

• Relationship acquisition
• Relationship management
• Opportunity management

Let’s start with the final component of the sales process and work backwards.

Opportunity management

The objective of your opportunity management process is to convert sales opportunities into sales (remember, we’re assuming that a sale is a new client). This process will generally involve salespeople, operating either in the field, or from a call centre (or both).

A sales opportunity is typically an expression of interest in a specific product or service, generated as a result of your opportunity management process. (Sales opportunities are often called leads.)

As with your sales process as a whole, we are primarily interested in the throughput and the productivity of your opportunity management process.

Accordingly, we will begin by measuring:

• Client acquisition rate (clients per month)
• Opportunity conversion rate (sales/opportunities x 100)

Of course, the throughput of the opportunity management process (client acquisition rate) will be identical to the throughput of your sales process as a whole.

Your conversion rate is the percentage of sales opportunities that convert into sales.

The CEO of Correlex already knows his client acquisition rate.

What he doesn’t know, is how many sales opportunities his consultants require in order to make each sale.

A survey of his consultants’ sales figures indicates that, on average, his consultants convert one in every 2.9 sales opportunities into sales. (Accordingly, his conversion rate is 35%.)

But these sales figures also reveal an interesting phenomenon. Correlex’s CEO observes that conversion rates vary considerably from consultant to consultant. He also notices that there seems to be an inverse relationship between acquisition rate and conversion rate for individual consultants.

In other words, the consultants who acquire the most new clients tend not to have the highest conversion rates, and visa versa.

He wonders why …

Optimising conversion rates

Contrary to popular belief, the primary influencer of conversion rate is not the skill of salespeople.

Rather, it is the design of the opportunity management process.

In our experience, opportunity management processes are best designed with a view to minimising the time between the emergence of a sales opportunity and closure of that opportunity (a sales opportunity is closed when it is won, lost or abandoned).

Increasing the throughput of a sales process may result in lower conversion rates, but this is not necessarily a bad thing!

Sales managers typically manage their salespeople as if a conversion rate of 100% is achievable.

In reality, 100% is rarely an optimal conversion rate. The reason is that, as conversion rates go up, throughput goes down.

Ask yourself, which would you prefer: a salesperson who conducts 5 appointments a day, with a 40% conversion rate; or a salesperson who conducts 3 (highly qualified) appointments a week, with a 95% conversion rate? (Hint: salesperson A generates 10 sales a week, where salesperson B generates less than 3.)

You can take the following steps to increase the throughput of your sales process:

• Break the opportunity management process into a number of logical steps.
• Ensure all sales opportunities follow the same process.
• At each step in the opportunity management process, be sure to up-sell to the next step.
• Actively manage open opportunities.

You can manage individual (open) opportunities with a simple tabular report, like the one below. Normally, a sales team will work through this report in its weekly sales meeting. The key indicators to watch are the number of open opportunities and average days open. (If you sell a number of products with different price points, you may prefer to monitor the dollar value of opportunities).

Most CRM systems produce such a report; alternatively, you can create your own in Excel.

You can also use the weighted value and target close data from this report to produce sales forecasts.

Correlex’s CEO reviews his consultants’ differing opportunity management processes. He identifies the consultant with the most efficient process and resolves to benchmark this process and make it the organisational standard.

This new benchmark calls for a conversion rate of 25% and an average days open of 45 days.

From these figures, he calculates that, at any one point in time, his organisation should have one and a half months’ worth of open opportunities:

Optimal monthly sales: 4

Opportunities required to make 10 sales: 4 / 25% = 16

Average days open: 45 (5 months)

Optimal open opportunities: 16 x 5 = 24

Relationship management

The objective of your relationship management process is to generate a steady stream of sales opportunities from your relationships under management.

We do this by creating an automated communication program. This is a sequence of ongoing communications, where each communication is designed to add value to these relationships.

A typical communication program will consist of a monthly e-mail newsletter and bimonthly seminars or workshops.

We tend to take an indirect (longer-term) approach to the generation of sales opportunities. Our experience is that, if you can design the relationship management process to position your organisation as the leader in its particular field, sales opportunities will be forthcoming.

Events and other activities can be used to stimulate the flow of activities, but on many occasions, these activities will simply time-shift the emergence of opportunities — rather than creating opportunities you wouldn’t otherwise have received.

You need to balance your need for sales opportunities against the requirement to add value to the relationships under your custodianship. There is a danger that, if you design your communications specifically to maximise the flow of sales opportunities, you may compromise the integrity of these relationships.

As with our other processes, we are primarily interested in monitoring throughput and productivity. Accordingly, our KPIs are as follows:

• Opportunities per month.
• Opportunity realisation rate (monthly opportunities/relationships).

Opportunity realisation rate advises you of the correlation between the number of relationships you have under management (the size of your database) and the number of sales opportunities these relationships produce each month.

Correlex has 1,500 contacts on its database. Because all of these contacts are recipients of Correlex’s monthly e-mail newsletter, it referrs to them as subscribers.

On average, Correlex receives 12 sales opportunities a month from its subscriber database.

These 12 opportunities represent an opportunity realisation rate of 0.8%:

12 / 1,500 x 100 = 0.8%

In order to increase the flow of sales opportunities to the 16 per month required, Correlex’s CEO realises he must acquire an additional 500 subscribers:

16 / 0.8% = 2,000

Relationship acquisition

The objective of your relationship acquisition process is to acquire a steady stream of relationships with potential clients and centres of influence.

The input into this process is the investment in your relationship-acquisition campaigns (remember, we’re only tracking variable costs). The output is obviously the relationships (or subscribers) you add to your database.

The precise management of this process is critical for two reasons:

• The flow of inbound opportunities is the key determinate of the throughput of the process as a whole.
• In the absence of an objective performance measure, there is a high probability that you will either under- or over-spend on promotion.

Our performance indicators for this process are:

• Relationship acquisition rate (relationships per month).
• Relationship acquisition cost (cost per relationship).

Relationship acquisition cost is calculated by dividing the variable cost of promotional campaigns by the number of new relationships acquired by those campaigns.

As with our global KPIs, these indicators don’t mean much until we can compare actual and optimal figures.

Optimising your relationship acquisition process

The calculation of your optimal relationship acquisition rate is easy. This figure is determined by:

• Your target database size.
• Your availability of promotional funds.
• The capacity of your relationship acquisition process.

The calculation of your optimal relationship acquisition cost requires a little more thought.

The amount that you are prepared to spend in order to acquire a new relationship must obviously relate to the value of such a relationship.

But how can you value one more name on your database?

The solution is to value relationships using exactly the same methodology we used to value clients.

Your database of subscribers provides you with a flow of sales opportunities.

You can value a sales opportunity by discounting your optimal client acquisition cost for your conversion rate. (In other words, if your conversion rate is 10%, a sales opportunity is worth 10% of your optimal client acquisition cost.)

Accordingly, to value one new subscriber, all you have to do is calculate the odds of that subscriber becoming a client over the life of their relationship with you.

While you can easily calculate the life of a client relationship, it’s a little harder to calculate the life of a subscriber. In our experience, it’s rare for subscribers to unsubscribe from our automated communications program.

For this reason, we arbitrarily choose to value subscribers over the same lifespan as clients. Accordingly, if the life of an average client is three years, we value subscribers over this same period.

The CEO of Correlex is prepared to invest $900 to acquire a new client.

Because his optimal conversion rate is 25%, a sales opportunity is worth $225.

$900 x 25% = $225

He knows that his automated communication program provides him with an opportunity realisation rate of 0.8% per month. Or, to put it another way, for each subscriber on his database, he will receive 0.8% of a new sales opportunity each month.

Because he arbitrarily decides to value subscribers over a three-year period (36 months), Correlex’s CEO can calculate that there is a 28.8% likelihood of a new subscriber turning into a client over this period.

0.8% x 36 = 28.8%

If 28.8% of subscribers become clients, it follows that a new subscriber is worth $64.80:

$225 x 28.8% = $64.80

Therefore, this $64.80 is Correlex’s optimal relationship acquisition cost.

Correlex’s CEO decides to set his optimal relationships acquisition rate at 85 per month. This will allow him to easily hit his target of 2,000 subscribers within 12 months. (Even accounting for a particularly conservative unsubscribe rate of 42 a month.)