MANAGING SELLING EXPENSE
In the song “Cheaper to Keep Her”, the words spell out the trials and tribulations of whether to stay in a bad relationship or make the painful decision to cut ties.
Companies are always looking for a big finish; then the analysis begins. The bottom line seems to get all the attention. Did we make more money than we did last year? Every expense gets the once over. And the biggest expense in selling is walking around on two legs: the sales force. The compensation, training, travel and entertainment and benefits all add up to the overall expense. How can companies rationalize the investment in sales people? When do Managers make the decision to stick with an average contributor, or move them out of the organization?
The three quantitative measurements in relation to expenses that Management needs to look at are total revenue produced, margin on sales, and the mix of products sold. There are also important qualitative measurements that should be considered, and they will be addressed in the next article.
1. Revenue Production: The most common quantitative analysis done on sales people is at the macro level; did they hit their revenue number for the year? The challenge is that some of the sellers who drive revenue have huge salaries and some do not. In sports, the salary (expense) does not necessarily correlate to how well the athlete performs. In business, the total expense associated with the revenue production must make sense.
2. Margin: A week after Q4 ends, most management teams can see what the net effect of last minute discounting when the reps buckle to pressure to close year end business. The exercise to protect margins should be built into a coaching formula that includes opportunity review. Once this is embedded, the mechanism should allow managers to know the profit that reps can obtain in closing situations.
3. Product (and Service) Mix: Product mix will show if the sales person is selling the right products to the correct customers. Let’s say a sales person consistently sells low on a medical device but the consumables for the device are sold at full price. It will take twice the volume in consumables to make up for a discounted sale of the device. These numbers tell a story and will point dramatically to drags to the bottom line.
After watching Moneyball, the movie that documented the notion that winning in baseball boils down to how many players get on base during a game, you would think there is a scientific formula that could provide the answers to controlling selling expenses. The good news is, for our customers that mechanism is in place.
Once fully implemented, a well created sales process can provide managers with a lens to look at these, and the related qualitative measurements, to determine if they should invest more time in developing sales people. In this capacity, “Cheaper to Keep Her” means continuously developing the skills with the seller to bring their performance up to speed in relation to the 3 areas mentioned above. Otherwise, it may be time to part ways with that employee, and begin the arduous task of replacing them with new talent.