Tell me, how’s your conversion rate?
Specifically, is your organisation converting the optimal percentage of sales opportunities into sales?
My bet is that you’ll find this question hard to answer … for two possible reasons:
- You don’t know what your optimal conversion rate is.
- You can’t bring yourself to be happy with a conversion rate any less than 100% — which makes the concept of an optima superfluous!
This article explores the opportunity management process — that all-important process responsible for converting sales opportunities into sales.
It explains why a conversion rate approaching 100% is undesirable. Why a salesperson and an opportunity management process are not one and the same. And why pep talks and sales quotas are counter-productive.
Is yours really an opportunity management problem?
Most managers blame their salespeople for a lack of sales.
That’s like blaming a light bulb for darkness during an electricity failure.
In all likelihood, there’s nothing wrong with your salespeople’s ability to sell.The problem is more likely to be a lack of sales opportunities.
It’s important to recognise that salespeople are not good at generating sales opportunities. They can do it, but it’s an inefficient use of their time. (It’s also technically possible to use a light bulb to generate electricity, but there are more efficient means!)
For this reason, we divide sales processes into three key components as pictured below (each component is a sub-process).
The first two components of this sales process (relationship acquisition and relationship management) generate sales opportunities; the third (opportunity management) converts those sales opportunities into sales.
Before we consider your opportunity management process, we must ensure that it’s your current process constraint. If your salespeople are currently conducting less than three or four appointments a day — and if you don’t have a rising backlog of sales opportunities — then your opportunity management process is not the constraint.
Accordingly, you need to focus your process improvement efforts elsewhere.
Specifically, you need to work on the upstream components of your sales process to increase the flow of sales opportunities.
(Our article on Relationship-centric Marketing explains how to build the process components you need to generate a predictable and scalable source of sales opportunities.)
Where are the sales?
Once you have a scalable source of sales opportunities, your sales will go up, right?
Yes and no!
As you increase the opportunity flow, your sales will initially rise. However, as the opportunity flow continues to increase, you will reach a point where your sales volume levels out (and your conversion rate begins to drop).
Once you reach this point of diminishing returns, you’ll know that your process constraint has shifted. Yesterday, your process output was constrained by a lack of sales opportunities. Today, it is constrained by a lack of resources in your opportunity management process.
It’s now time to focus our attention on your opportunity management process.
Multitasking: productivity’s public enemy #2
If your opportunity management process is under-resourced, the solution is to employ more salespeople, right?
I’d recommend you first perform a time and motion study on your existing salespeople.
When you do, calculate the percentage of your salespeople’s time that is devoted to each of the following activity categories:
- Clerical and secretarial duties. (Data entry, literature fulfilment, report preparation, appointment scheduling, routine follow-up calls etc.)
- Account management. (Routine ‘customer service’ visits and order collection.)
- Proposal generation. (Preparing quotations and generating proposals.)
- Prospecting. (Generating sales opportunities.)
- Fulfilment logistics. (Liaison between clients and the production department and expediting client orders through production.)
- Negotiating sales. (Negotiating sales with near-term sales opportunities.)
My guess is that your end result will look something like the following.
This pie chart would illustrate that your salespeople are devoting only a small percentage (10%) of their time to negotiating sales.
We would argue that this activity is the highest-leverage use of their time.
The other 90% of their time is devoted to activities that could (and should) be delegated to other less-skilled and lower-paid individuals (or to organisational systems).
An additional problem here is that, instead of focusing on one activity, salespeople are sharing their time between six activities, each of which requires a different skill set and different resources.
This is multitasking at its worst!
Goldratt (the developer of the Theory of Constraints) claims that cost accounting is productivity’s public enemy number one. Well, if he’s right, and we believe he is, multitasking has got to be public enemy number two.
Our experience is that the productivity of individuals decreases geometrically as they take on each additional task.
Our estimate is that this decrease in productivity is equal to the square root of the number of disparate activities. In other words, conducting six activities concurrently will take two-and-a-half times longer than performing these same activities sequentially!
As a result, when you divest your salespeople of low-leverage activities, the productivity of your opportunity management process increases dramatically.
Almost certainly, you will discover that you will not need to employ more salespeople for quite some time.
Of course, the pressing question is, who should be responsible for what?
Sales: a process, not a black art
To me, the suggestion that a salesperson should sell, does not seem like a radical one. I’m sure if I suggested to a manufacturer that his lathe operator should operate a lathe, he’d be quite comfortable with that idea!
The reason why managers have historically expected salespeople to be responsible for the entire sales process is that sales has never really been a process, in the true sense of the word.
Traditionally, the sales function has been the least scientific, least measurable, least predictable and least manageable corporate function.
As a result, responsibility for the entire function has been handed to these strange, unpredictable, (and sometimes, dare I day it, unsavoury) individuals we call salespeople.
Salespeople, understandably, have been happy to perpetuate the perception of sales as a black art. Their ownership of the entire sales function puts them in a position of enormous power. (Many sales people regard their client list as an asset that can be auctioned off to the highest bidder!)
That, however, is ancient history (or at least it should be). Today, we know that sales is a process. As a result, there’s no reason why we shouldn’t break that process into its core activities, and match each activity with an appropriate resource — just as we would in the case of a manufacturing process.
We’ve started by looking at your salespeople because they are your scarcest (most expensive) process resource.
To maximise your return on your salespeople’s time (of course, time is a salesperson’s unit of capacity) your salespeople should ideally do nothing other than that conduct appointments with near-term sales opportunities (individuals who have indicated a propensity to purchase).
We recommend that you separate the account-acquisition and the account-management functions. This is because account acquisition is a higher-leverage use of a salesperson’s time.
If possible, your most skilled salespeople should be responsible for account acquisition.
If you must have the same salesperson performing both account-acquisition and account-management appointments, to minimise multitasking, we suggest you split these appointments between different days of the week. (For example, you might schedule account-management appointments on Monday, Wednesday and Friday; and account-acquisition appointments on Tuesday and Thursday).
It should be possible for your salespeople to conduct between three and five sales appointments a day. (Contrast this with your salespeople’s current activity levels.)
We see considerable amounts of salespeople’s valuable time squandered in the name of account management.
Most account-management activities are either unnecessary or ineffective.
A classic example is the scenario where a salesperson spends his time conducting what the Americans call doughnut runs. A doughnut run is where a salesperson spends all day visiting existing clients with no apparent motive other than the delivery of doughnuts!
Your account-management activities should be planned in line with the only two sensible objectives of this function:
- Extending service utilisation (increasing share-of-customer).
- Procuring repeat orders.
Obviously, extending service utilisation is the highest-leverage activity. The procurement of repeat orders should be handled by customer service personnel (preferably telephone-based).
Where possible, your relationship with clients should be structured in such as way as to facilitate both the procurement of repeat orders and the extension of service utilisation.
To facilitate the procurement of repeat orders, you might agree to provide products on an automatic replenishment basis. Alternatively, you might provide clients with an attractive incentive to sign a service contract.
To extend service utilisation, it is desirable to have your salespeople provide a consultative service to your clients. This service should be designed to assist your clients with the attainment of best practice — as defined by methodology that underpins your basis for communication. (See our article entitled The importance of getting religion.)
If the objective of your salespeople’s account-management activities is to extend service utilisation, it’s essential that any performance metrics (and incentives) reflect this objective.
We frequently hear managers complain that their salespeople are happy to live on the commissions generated by their existing client bases.
Well … can you blame them? The question that must be asked here is: why are salespeople paid commissions on repeat sales from existing clients, when the procurement of repeat sales is a low-leverage activity?
Our suggestion would be to pay commissions for:
- The acquisition of a new client.
- The extension of an existing client’s utilisation of your service.
In each case, incentives can be calculated based upon the projected net present value of the new annuity income stream.
Obviously, your salespeople need some organisational support if they are to conduct between three and five appointments a day.
We typically divide responsibility for this support between two roles. (In smaller organisations, these roles may be assigned to the one person.)
The marketing coordinator is responsible for managing the sales process as a whole (just as your production manager manages your manufacturing or fulfilment process).
They typically provide salespeople with support in the following areas:
- All data entry (including the completion of contact reports).
- Campaign management.
- Literature fulfilment.
- Appointment scheduling.
- Preparation of proposals.
- All routine follow-up calls.
- Report generation.
The production coordinator provides an interface between your clients, your sales team and your production manager.
They have access to both your client database and your production system. They are responsible for negotiating the scheduling of jobs with your production manager — eliminating the common (and counter-productive) situation where each salesperson attempts to hustle his or her own jobs through the production system!
The production coordinator provides salespeople with the following support:
- Generation of quotations.
- All production-related client liaison.
- Receipt of repeat orders (in low-volume environments)
- Feedback on clients’ order status (where necessary).
The single point of contact myth
Whenever we suggest sharing salespeople’s low-leverage activities between marketing and production coordinators, we hear the same objection. ‘But, wouldn’t our clients rather have a single point of contact?’
The answer, at least in practice, is no, they wouldn’t!
Our experience is that clients appreciate being able to have direct access to individuals who can provide the service or the information they require on the spot. (Unless your salespeople are grossly under-utilised, they are never capable of providing this degree of accessibility.)
The fact is, clients will favour a highly efficient (low friction) interface with your organisation — even if that interface involves dealing with two or more individuals.
Before you can divest your salespeople of these low-leverage activities, you must ensure that your opportunity management process is, in fact, a process — as opposed to an unplanned sequence of ad hoc client contacts.
It will take some experimentation to design the optimal process. However, any process is better than no process at all.
The diagram below pictures the Ballistix opportunity management process.
Aside from enabling the divestment of low-leverage activities, a structured opportunity management process provides the following significant benefits:
- Increase opportunity flow (compress time between expression of interest and sale).
- Eliminate dropped opportunities.
- Enable forecasting (monthly sales projections).
- Continual improvement (identify and elevate constraints).
- Provide potential clients with a structured decision-making process.
Managing the opportunity management process
As indicated above, a structured opportunity management process enables management (continual improvement).
We suggest you manage your opportunity management process using what we call an open opportunity report, similar to the one pictured below.
An open opportunity is an opportunity under management, as opposed to an opportunity that has been won, lost, abandoned or suspended.
The most important information on this report is the total weighted opportunities and average days open.
Total weighted opportunities refers to the total dollar value of open opportunities, discounted for the probability of winning each sale. This probability weighting is determined by location of each opportunity in your process. You can calculate this weighting by examining your historical data.
Average days open enables you to monitor the rate at which opportunities are moving through your process.
On this report, source refers to the source of the opportunity, not the source of the relationship. It is likely that most opportunities will be generated by your relationship management activities (e-mail newsletters and events) or by utilisation extension campaigns directed to existing clients.
As with all processes, you should manage your opportunity management process for consistent output — and not for month-to-month stretch targets.
Contrary to popular belief, sales quotas, pep talks and internal sales promotions are counter-productive in the long term.
These activities simply time-shift the emergence of sales — producing an unnecessarily lumpy sales curve.
Of course, a lumpy sales curve reduces the efficiency of your other organisational processes and makes it harder for your suppliers to forecast your inventory requirements.
These activities can also be damaging to client relationships. They result in channel loading and depressed conversion rates, as salespeople attempt to fast-track the closure of opportunities.
Your optimal sales volume will be determined by either your production (or fulfilment) capacity or by the capacity of your opportunity management process, which ever is the lesser.
Optimal conversion rate
By now you should have realised why 100% is unlikely to be your optimal conversion rate.
It’s far easier to increase process output (sales) by focusing on improving volume, than it is by attempting to increase conversion rates.
Ironically, almost every sales improvement initiative we come across focuses on improving conversion rates.
These initiatives include:
- Sales training (your salespeople don’t need sales training, they need sales opportunities).
- Software (your salespeople don’t need sales force automation software — they’re salespeople, not clerks — data entry should be someone else’s job).
- Motivational seminars and team-building workshops (if your salespeople have a productivity problem, multitasking’s the most likely culprit, not poor motivation).
If you show me an organisation with a conversion rate approaching 100%, I’ll show you a sales process with a volume problem!
By now, you’re probably wondering what your salespeople will think of this process-oriented approach. How will you be able to convince them to relinquish control of the opportunity management process?
The short answer is, don’t try!
It’s far easier to drive change by giving than it is by taking. If you initially focus on increasing the flow of sales opportunities to your opportunity management process, your salespeople will reach a point where they’re crying out for assistance.
Once they realise that they’re grossly under-resourced they’ll be happy to divest some of their low-leverage activities — in exchange for a calendar full of appointments.
When your salespeople are each conducting three to five appointments a day, five days a week, they will have reached their optimal earning capacity.
The benefits for you are obvious. As well as a significant increase in process output (sales), you have decreased your dependence on individual salespeople. You now have a sales process that can be precisely managed — and rapidly scaled.