Managing the sales process

Making and implementing decisions that cause sales productivity to increase.

by Bill Hodgdon

The word “manage” — stripped of all negativity — means to decide. If no decision needs to be made, then no management is required. Managing the sales process means making and implementing decisions that will cause sales productivity to increase.

What is sales productivity?
Sales productivity is an effect. It can be measured by revenue or gross margin produced, but an effect cannot be managed. Only causes can be managed. Thus, we have to focus on the causes of sales productivity. 

There are only two causes of productivity – sales activity and sales skill. Sales activity is usually defined as making sales calls. Sales skill is defined as how the salesperson performs when talking to prospective customers. So, while businesses want to improve sales productivity, they cannot do it by focusing on sales, they can only do it by managing the causes that produce those sales. 

In order to manage causes, they must first be measured. So, the important question is, “How should sales activity and sales skill be measured so they can be managed to produce sales growth?” Two questions must be answered:
1) Are my salespeople generating enough sales activity?
2) Are they using the right sales skills to cause wins fast?

Measuring sales activity
Sales activity is normally measured by the number of calls or the number of proposals. These are not good measures because the best salespeople don’t make the most calls nor do they submit the most proposals. Making sales calls is a cause but we need a better measure in order to manage sales activity.

Salespeople make calls to identify and win sales. A sales goal is something specific that you want to sell to an account that the account is not buying today.  

Let’s say you expect a salesperson to produce $1.8 million in sales this year. How much business should he be pursuing? You need to know the win ratio, which is sales won divided by total sales quoted (say 33 percent), and the average cycle-time-to-win (say three months). This salesperson needs to actively pursue at least $1.35 million worth of specific sales goals at all times during the year. The calculation is the monthly revenue goal of $150,000 divided by the win ratio of .33 and multiplied by the average cycle-time-to-win of three months. 

Here’s the logic. The salesperson must produce monthly revenue of $150,000. With a 33 percent win ratio, on average over a year, about $450,000 worth of business will be decided on each month, and this salesperson will win one-third of it. But, if $450,000 of business is decided upon each month, then he better be finding $450,000 worth of new opportunities each month. That’s why we multiply $450,000 times the cycle-time-to-win.

This is the correct measure for sales activity because it is predictive of sales productivity. It is a leading indicator of future sales. If this funnel falls below $1.35 million, then a decision can be made to drive more in before missing the sales revenue goal!  

This is often an eye-opening analysis because salespeople rarely appear to have enough prospects in the funnel. This is partly because they don’t know the win ratio or the cycle-time-to-win and partly because many orders come in through inside sales. Nevertheless, it is an absolutely crucial analysis to conduct in order to increase the productivity of your sales team. Once again, the formula for calculating sales activity is:

Measuring sales skill
Measuring sales skill is more difficult. Since an excellent salesperson is effective at many skills, how is a business to know what to measure? Remember, winning the sale is not the measure of sales skill, it is the measure of sales productivity.

You can measure sales skill by accepting the following premise: Businesses buy products and services to produce better business results. You may think you are selling solutions to problems, but the customer is buying an increase or a reduction in a business result.

Most salespeople know their customer’s problem. Very few know the current measure of the problem or where that measure needs to be in the future. The most skillful salespeople learn the numbers behind their customer’s needs and problems. 

A business result is a measure of performance the customer uses to manage some aspect of their business. If you accept the business results premise, measuring sales skill is simple. While pursuing a sale, the salesperson is expected to achieve a few key milestones. A milestone is not an activity — such as a demonstration — it is a result, such as learning the current business result the customer wants to improve.

Here are generic milestones for a distributor sales force: 
1) Identify a problem, need or project. 
2) Learn the current operating results. 
3) Discover the desired business results.  
4) Evaluate the crucial features.
5) Submit the initial proposal. 
6) Win or lose the sale.

Achieving these milestones requires many skills. A manager’s role is to identify which specific skills need to be improved. The evidence of a sales skill problem is the salesperson’s inability to consistently achieve one or more of the milestones. The specific problem skill can only be determined by observation. 

Perhaps the salesperson is talking to the wrong people. Perhaps he or she isn’t listening or lacks applications expertise. There are many possible reasons why a particular salesperson may struggle to achieve a milestone. But the inability to achieve milestones is the indicator of a sales skill problem. That’s what makes milestones an effective measure of sales skill. They give guidance to the manager of a sales skill problem in time to do something about it before sales results are hurt.

Milestones defined
1) Identify a problem, need or project that a specific product or service will solve.

If there are no problems to solve or opportunities to take advantage of, then there can be no sales goal to pursue. However, be careful of the word “need.” A customer that states a “need” for certain product features or certain corporate capabilities is not stating their real need! A customer who identifies a problem that needs to be solved, such as too much scrap, is not even stating the real need. The real need is to improve numbers that are important to the account.

2) Learn the current operating results.

Businesses want to produce two classes of results. One class concerns purchasing, engineering, and maintenance results, such as low price, quick delivery, and easy implementation. The other class concerns the operating results – the real reason they are buying. For example, to increase quality throughput and/or to reduce operating expenses focuses on an operating result.

Milestone No. 2 involves learning the result being produced today that the customer wants to improve. If they are having a problem with scrap, exactly how much are they producing?  For this milestone, only numbers count.

3) Discover the desired business results.

These are the numbers that must be produced to justify the purchase price.  What scrap do they expect to produce once they have implemented your solution? 

Milestone No. 3 requires asking to understand the economic justification for making the buying decision. The salesperson must know the current operating results and the desired operating results in order to be in the best position to win.

4) Evaluate the crucial features.

All buying decisions eventually boil down to focusing on a relatively small number of product features and/or corporate capabilities. This milestone involves uncovering those crucial few features linked to the specific operating results the business wants to produce.

5) Submit the initial proposal.

The proposal should begin with the operating results the customer expects to produce after implementation. The balance of the proposal includes a detailed description of the specific features the customer stated would be most important in their buying decision.

6) Win or lose the sale.

This is the end of the sale, but only the beginning for the people who must make money for the customer using your solution. This customer will buy more products and services in the future. You will have the best opportunity to win future purchases by focusing time after the sale making sure the customer produces their desired business results fast. This is how you earn the No. 1 installed base position.

Don’t skip milestones
The purpose of a sales process is to be productive. Just as in manufacturing, you should not skip the milestones in a sales process. For example, salespeople should not prepare to deliver a proposal if they have not yet learned the customer’s desired operating results. This thinking keeps salespeople focused on the process of winning, and provides early clues for salespeople who are trying to move too quickly toward a sale by skipping over important milestones.

Managing the sales process
The Funnel Management tool provides a simple and valid tool to measure and manage both causes of sales productivity – sales activity and sales skill. You measure sales activity by funnel size and sales skill by achieving the milestones.

The most skilled salespeople eventually produce the highest win ratios and the shortest cycle times, which will affect the size of the funnel they must carry to ensure good sales results. Productive salespeople pursue the right sales goals and move them through the milestones toward a win. 

Mediocre salespeople may or may not have a large enough funnel, but their achievement of the milestones and progress toward a win is inconsistent at best. Some of their sales either languish for months at the beginning or the end of the funnel, and decisions on proposals never seem to get made. Both of these scenarios indicate management must become involved to improve performance. 

Don’t compare individual funnels. This is a tool to help people continuously improve. The goal is for each salesperson to improve against their own past performance – monthly revenue up and/or funnel size up, and/or win ratio up, and/or cycle time down. With the guidance of the sales process funnel, management can make better decisions, more quickly, and cause increased sales productivity for the entire team.

This article originally appeared in the 2005 ISA Business Expo issue of Progressive Distributor magazine. Copyright 2005.

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