Time to Cut Your Sales Expenses?
Recently, I got a call from the Controller of a relatively large organization. He had been chartered by top management to look at their sales organization. It wasn’t meeting company goals, so he was doing an audit. He had stumbled across some of my articles, wanting an outside opinion. Without giving me any background, his first question was, “How do I chop sales expenses? What should the right level of sales expense be?”
I was taken aback by the question, my knee jerk reaction was, “I think you are asking the wrong question, you should be asking ‘How do you improve sales performance? That may or may not have anything to do with chopping sales expense. As to the right level of sales expense, the only reasonable answer is, It Depends.’”
The controller was quite insistent, “The sales organization is costing way too much, we need to chop expenses, what’s the right level of sales spending?”
Perhaps to make a point, I responded, “Well you can chop sales expenses to Zero, you can get rid of the entire sales organization, but will you still be able to achieve your revenue, growth, and profitability plans?”
Finally, Some Details
He got my point and started describing what had been happening. Apparently, for some number of years, the sales organization had been consistently underperforming. Sure, there were a handful of star performers who were meeting or exceeding their goals, but over 90 percent of the sales people were achieving less than 80 percent of their plan. And this had persisted for years.
When the VP of sales was challenged with this data, his response was always, “We need to spend more, I need to hire more sales people.” (Some of you will begin to see where this story is going.)
Top management had, initially, allowed him to spend more, but the results weren’t changing and the VP wasn’t changing his tune. Frustrated, they asked the Controller to audit sales and to “chop sales expense.”
In our conversation, the Controller was frustrated, “Clearly we are spending too much money, what should we be spending?”
I didn’t want to frustrate him further by giving him the only answer I could, “It Depends,” so we started discussing what he needed to do to better understand sales performance. I told him, that clearly what they were spending wasn’t producing the results they expected. They needed to understand why so many sales people were performing so badly and what were the right level of investments and leadership to get their performance back on target.
As our discussion progressed, he wanted to understand where to start, we went through a laundry list of issues:
- What is different about the top performers?
- Why are they making their numbers and the others aren’t?
- Is it the profile of the individuals, do you have the right talent?
- What is their sales process, how do they engage customers, how does that compare to the rest of the organization, where are the gaps?
As you can imagine, the list went on. To understand the situation, he really needed to look deeper into what was driving the performance they were getting.
He kept persisting, what should the right level of spending be? How could he report back to management about what they should be investing? His questions were moving past the sales performance issues, but trying to address more strategic issues about Cost of Selling and affordability.
We had a discussion about benchmarking similar organizations, looking at industry data and a number of other things. We talked about how they might look at affordability, assessing different go to market strategies and their comparative costs/performance. I asked if they had ever studied how their customers buy, to determine the best mix of sales deployment strategies. We talked about their overall company strategies, their markets, their growth/profitability goals and how those would impact decisions on investing in sales.
In the end, he didn’t have his answer. He did realize the right answer depended on a large number of factors. He realized there was no right answer, but what they might invest might be based on affordability–and that might impact their ability to meet their growth plans.
Diagnosing the Problem: Sales Management
We did come to an agreement. His company had a sales management problem.
The fact that sales management wasn’t paying attention to any of these issues. That they weren’t addressing the most fundamental performance issues. To get more revenue, they weren’t looking at how to improve performance, they were just spending more money.
The controller of an organization shouldn’t have to know all this stuff about sales performance, sales effectiveness, whether they were getting the right return on investment in selling, whether there were more effective ways of spending that money to produce better results. This is the job of top sales management. That the top sales executive wasn’t doing this and wasn’t able to support the controller in his audit was an indication he wasn’t doing his job.
The job of top sales management isn’t easy. We face disruptions in our markets, rapidly changing buyer behaviors, new competitive threats, challenges within our own companies, challenges within our own organizations, limits to our abilities to drive change, skyrocketing complexity, people issues. We never have the time, funding, or resources to achieve what we would like, ultimately we seek to optimize what we do within hundreds to thousands of constraints. And we know that tomorrow it will change again.
But it’s our jobs to be responsible stewards of the investments our companies make in selling. It’s our job to translate the company’s business strategies into sales strategies/tactics that our organizations (direct, indirect, hybrid) must execute every day.
What’s the Right Cost of Selling?
Well it depends.
Are our people and is our organization performing at the highest levels possible—there is always a necessity to improve and drive higher levels of performance. But that’s our job.
Do we have the right model—it depends, we must continue to evolve. Al Gore hadn’t invented the Internet when I started selling (It was something called Darpanet back then). But the web changes everything and how our customers buy and how we organize to sell creates new possibilities. And tomorrow, new technologies will change the answer to our deployment models.
This is what top sales execs sign up to do and must do, if they are being proper stewards of executing our company strategies in the face of our companies, doing so in the most effective way possible.
As to my friend the Controller. He didn’t get the answers he was looking for, he knows a path forward. He did get all my contact information for his conversation with the CEO next week.