Many words have been written about the state of the economy in 2008-10 and its impact on your business and the marketplace. As in all recorded downturns, the first reaction of companies as a recession hits is generally to reduce costs and restructure operations to survive. Then about 12 months later, emphasis (rightly) shifts from costs to the top line and the heat of the spotlight slowly turns to the sales force. I call this the recession business cycle. Is your sales force feeling the heat yet?
You can surely bet that one thing is different in 2010--the economy does not look like it will rise up to save you—as in the past. You and your sales force will have to act to pull yourself out of this slide, or accelerate any hint of a recovery. What to do? Or, a better initial question may be: "What is your sales force doing today?"
Wilkening & Company has developed a model and template for sales success and effectiveness called: R5 of Selling, or the 5 RIGHTs. It describes the five fundamentals a company must practice to have an effective sales force and sales process. These are both simple and intuitive. In short, the five RIGHTs are:
- Offering the RIGHT product to the account or prospect;
- Calling upon the RIGHT account;
- Applying the RIGHT amount of energy to the account and their sales process;
- Having the RIGHT sales person in the account's building; and
- Doing the RIGHT things during the sales call or in the sales process.
A full description of these fundamentals is included in our March 2010 E-Notes.
The 5 RIGHTs contain many moving parts. In its totality, there is much for a CEO or sales executive to absorb and do. But let's prioritize and identify those actions that will yield most immediate impact. Which factors (or which of the 5 RIGHTs) can you really influence in 2010?
In our experience, you will only be able to influence your sales force during the remainder of 2010 to: 1.) Call upon the RIGHT accounts and 2.) Put the RIGHT amount of energy into the sales process with these accounts (and not into other less-important corners of the marketplace). The other 3 RIGHTs can take between 12-24 months to produce actionable results.
Let's first begin by looking at actions you can take today to identify the RIGHT accounts upon which to focus your sales force.
Conventional wisdom says that a sales force should primarily call upon the highest-volume accounts to the exclusion of smaller accounts. In fact, long-standing methodologies exist for classifying the importance of an account based upon volume—i.e.: "ABCD" classification. Generally, A- and B-classified accounts have the higher sales volume amongst all accounts. Typically, they are the 20% of all accounts that account for 80% of company or channel sales. And if the 80/20 rule-of-life applies (and it always does), those select and biggest 20% of your account base should get 80% of your sales force's attention. That makes sense.
But does 2009 sales volume tell the whole story when determining the RIGHT accounts? In our experience, it tells about one-half of the story. Why? Because, you must also be aware of the future potential of each account or customer—not just what they bought from you in 2009. You must classify your accounts considering both axes of the chart below.
We have found that there are a number of ways to determine account potential or upside. Here are two we have applied successfully—
- Entity-sizing of potential; and
- Product-share sizing of potential.
Sounds complicated? It isn't. Let's briefly describe each.
Entity sizing of potential is a method that we have applied to institutions like hospitals or schools where each business entity has an underlying way of discretely gauging business activity or demand—like students or beds (the users). It is also successfully applied where you can determine the size of a customer or prospect in terms of general or specific employment.
The entity-sizing method "simply" establishes the average sales per user for your most representative accounts (say $183 per underlying user), and then assumes that all accounts (who are below that sales level--$183) can reach that level. And why not, you are already achieving it in half of your accounts?
This method identifies an upside where the "gap" below $183 (say $183 minus $120 [actual] equals a $63 gap per user) times the number of users for each underperforming account equals account opportunity. Notice that half of your customers are above average and considered "OK." The trick to accuracy with this method is in selecting a large number of truly representative accounts—typically the top 40%+ of accounts in terms of sales, but not always. This method can also be used to estimate current company share of market, as can the method we will next describe below.
The second method we call product-share sizing of potential. This method requires that the company has a core product (generally their biggest seller), that most accounts purchase the core product in some amount and that data for a few hundred accounts is available for analysis. The method establishes the following two facts regarding your most representative group of accounts—
- The demonstrated (and achieved) core-product share of sales (say Product A is 45% of average total customer volume); and
- The demonstrated (and achieved) mix of business (say for every $1.00 of Product A sales, $.38 of all other products is customarily sold).
Again, this method assumes that all accounts can reach both the core-product share and mix levels—(and again) why not, you are already routinely achieving it with other accounts. Using this method, we have found that generally 60%+ of all accounts show material upside potential for growth.
We have used both of these methods for establishing upside potential in real-client settings. It is not unusual to find potential sales upside in excess of 15% of the current sales base, without any consideration of prospective (new) account sales or price increase. Further by applying these analytical techniques, you would be surprised at how accurate and fact-based your annual sales goals—by territory—can become.
So what have you accomplished? A new piece of data has now entered your decision-making process and lexicon as it relates to identifying the RIGHT accounts for sales-force attention. You now have two dimensions for each account—their demonstrated current sales volume and their estimated potential upside sales volume (and rationale). This challenges the conventional volume-based method of classifying accounts—i.e.: ABCD. For now you can look at hierarchy of accounts from the perspectives of both volume and potential. Hence:
- Your largest (and seemingly most important) account can have little or no upside potential. How do you categorize such an account? Are they still most important to future success?
- Conversely, a very small (and seemingly unimportant) account can have very-high potential upside. Are they now very important to future success?
Do both of the above accounts fall into your RIGHT account classification for 2010? That remains to be seen as all of your accounts are analyzed and classified in a similar manner. Great start, now let's close.
Next month we'll take this subject to the next step and ask what we want the sales force to do with the RIGHT accounts, and all others.
