Depending on the client's situation, one of the top five actions we take is to perform an A-B-C analysis of their customer base. This exercise can be valuable for many reasons that impact sales, marketing and operations.
If you are unfamiliar with this concept, essentially, the client generates a list of all of their customers showing total combined revenues and margin over a recent three- or five-year period. After this report is created, the next step is to perform a lifetime value analysis.
First, let's explore the A-B-C analysis. In looking at the report, you will generally see the following trend:
- 15 percent of clients make up 65 percent of sales = A
- 20 percent of clients make up 20 percent of sales = B
- 65 percent of clients make up 15 percent of sales = C
Note: 35 percent of your clients make up 85 percent of your business.
Second, the percentages may not be precise, but what you are looking for is where to draw the lines where you can see a separation. Once you have these lines drawn, we recommend you schedule a meeting with the sales team and management team to discuss what you have found. You want to analyze the various segments and look for common demographics of the As, Bs and Cs. Examples might be:
- Total revenues
- Number of employees
- What vertical markets
- Number of locations
- Types of services/products they purchased
What you are specifically looking for are the common traits of the As and Bs. Then, those kinds of prospects with similar demographics become your only targets for marketing and for sales prospecting. If you purchase databases, those demographics become your criteria. In your CRM system, call frequency patterns are set to connect with all the As and Bs, six times a year. Your focus becomes capturing more As and Bs, not Cs.
The reason to focus on the As and Bs is that, for whatever reason, they are in need of your services, agree to your value proposition and most likely are your best clients.
Third, look at your C customers and perform a lifetime value calculation (this formula is actually good for all clients, but focus on the Cs first). This analysis is run for the past three or five years showing the total cost to acquire a client, cost to support the client over the three or five years, and the real profit generated by the client. In many cases, we have found that companies are over-supporting a large number of their customers and many C-based clients are also the slow-paying, unhappy customers that cause the most pain.
Take an analytical approach to understanding your customer base. It will drive better messaging, increase order rates and improve your profitability -- sounds like an excellent formula to get started on 2015!
Posted by Ken Thoreson on October 23, 2014 at 11:31 AM0 comments
When it comes to how businesses pay their salespeople, there's no one-size-fits-all approach. That's especially true for many companies with diverse products and services that include a mix of products and services. Some pay commission based on sales, while others only pay on margin; still others blend both with incentives and special bonus plans.
No matter which approach you use, success depends on awareness. Your sales management team must understand your company's overall goals and structure compensation to align with them. In short, sales compensation should be not just a tactical focus for your organization, but a strategic one, as well.
Sizing It Up
Compensation plans shouldn't be developed in a vacuum. You and your sales leaders need a solid grasp of your overall industry and your organization's place in it. You'll need to factor in variables such as new product launches and major promotions, as well as consider your personnel structure.
You should also address these questions: Is your company a startup or an established business? What are sales goals? How long are your delivery cycles? What are your objectives to secure new clients, increase average order sizes and grow margins? Do you want to open a vertical market or new products? Each answer will help you design a compensation plan tailored to your company's specific needs.
Finally, take a hard look at your sales organization. For instance, do you need to attract new representatives to make C-level sales calls? Do you want to retain employees to build a long-term, client-based sales team, or is rapid turnover acceptable?
Understanding Cost of Sales
Of course, you can reduce selling costs and enhance profits by capping sales compensation, but in the long run you get what you pay for. If you hire good salespeople and compensate them poorly, expect high turnover, which comes with costs of its own. A sales plan that compensates strong performance will allow you to attract the best salespeople -- and retain them, as well.
Calculating the cost of sales (CoS) is an important part of planning a compensation package. For a quick CoS ratio, simply take an individual's salary plus commissions earned at 100 percent of quota and potential bonus opportunities, then divide by that person's revenues to obtain the percentage. A more sophisticated approach adds in marketing expenses, corporate overhead, direct expenses paid to the salesperson and expenses related to sales support costs.
Examining the Options
Compensation plans vary widely, but all should include "accelerators" -- that is, increased commission rates for employees who achieve target levels.
- Profit-Based: Commission rates change as margin levels increase. These plans are generally based on invoice, product or monthly averages of margin generation.
- Revenue/Quota: Compensation is based on sheer volume achieved over the previous sales period or on a percentage of a quota achievement.
- Balanced: Compensation is based on margin, revenue and a third component, such as quota attainment.
- Team: Bonuses go to all team members when quarter-to-date (QTD) sales goals are achieved.
There are many variations and we recommend multiple combinations based on the objectives of the organization.
Here are a few final considerations to keep in mind as you customize your compensation plan:
- In new organizations focused on expanding within existing markets, the compensation plan will differ dramatically from that of an established company in the same industry. A mature, market-dominant company that receives a large percentage of its revenues from a small, loyal customer base can offer lower commissions and, perhaps, lower overall salaries. But a newcomer to an existing market probably needs to offer higher compensation to attract top-performing salespeople who can build a strong customer base.
- New organizations in new markets need compensation plans reflecting the volatile environment, usually with higher-than-average base pay.
- Companies in transition or undergoing a turnaround typically experience a higher CoS ratio; they may be best served by flexible plans incorporating morale- and team-building components.
- Organizations positioned for high growth should develop plans covering brief, six-month periods. This will let management test theories and change direction while allowing the sales team to adjust accordingly.
No question about it: Creating an effective sales compensation plan is hard work, but the effort typically pays off in both improved sales performance and achievement of your corporate goals.
Posted by Ken Thoreson on October 07, 2014 at 11:43 AM0 comments
Last week, during a client's sales meeting, we got into a discussion regarding pipeline values. Needless to say, the number of prospects and dollar values were insufficient to achieve the overall corporate revenue objectives. Several of the salespeople blamed marketing for not generating enough quality leads (ever hear that before?) and, as the discussion of "territory development" evolved, several of the salespeople said they simply didn't feel it was their responsibility to prospect because of the futility of cold calling/phone calling and event marketing.
In many organizations, marketing is expected to develop leads via a well-messaged, nurturing campaign with a quality database with an objective to set up the salesperson with a highly qualified opportunity. In this format, there may be a series of marketing campaigns, telesales people and a well-designed CRM reporting system.
In other organizations, there is limited marketing of this nature, with an expectation that sales will build relationships that lead to additional business opportunities. The question is: As a sales manager, how should you structure your sales team's expectations around prospecting?
First, it depends. What is your sales process? Are you selling large accounts with a complex sales cycle or are you more transactional, with short sales cycles selling to small business? Are you territory-based or open territories? Your business type will alter what works.
Second, it is my belief that salespeople need to prospect continually. The real question is how. Below are a few ideas with brief descriptions (brief simply because of space; if you have questions on the specifics, just ask!).
- Networking: Every salesperson should attend one event a month. This is not negotiable.
- Circles of Influence: Develop a list of individuals who can influence your sales opportunities or who can refer business to you. Depending on your business, these could CPAs, commercial real estate brokers, contractors, architects, et cetera. Each of these individuals needs to be contacted at least once a quarter.
- LinkedIn: Read my blog on Acumen power networking or ask me for it at Ken@AcumenMgmt.com.
- 20/20 Plan: Each salesperson sends two distinct direct mail pieces referring to your products/services to 20 suspects -- 20 pieces one week, 20 the next week. In the third week, the salesperson calls the 20 suspects. This process is repeated each week.
- Thought Leadership Events: Schedule one breakfast event a month with a topic based on thought leadership marketing. This event is driven by marketing, but the salesperson is responsible for calling/inviting individuals to the meeting. This gives the salesperson a reason and message to communicate to their prospects/suspects.
- Referral: The salesperson should ask their customers for referrals twice a year.
- Bus-Ecosystem: Each salesperson should develop relationships with three to five other salespeople who sell non-competitive, but related products/services into common marketplace.
- Who-You-Know List: Each salesperson should create a list of everyone they know -- friends, business associates, professionals. This is a good sales meeting idea to come up with "titles" of individuals your sales team might know. Then, make sure they know what you do and what problems you solve using a personal letter.
- Review Calendars: A good thing to do this time of year is to review your calendars for the past 12 months. You might find someone you had forgotten to follow up on.
That's a good list to start with. What prospecting ideas are you using that are working? Care to share? Let's build up a comprehensive list so that everyone can finish the year strong and be positioned to make 2015 your best year ever.
Posted by Ken Thoreson on September 29, 2014 at 11:55 AM0 comments
Whether it is a January kickoff event, a Monday morning sales meeting or a quarterly salesperson review session, sales managers must sell the need to plan for success.
Planning for success means you build a sales organization that is not opportunistic in account management, prospecting, et cetera, but focused on a methodology to ensure success. It also means that there is an expectation or attitude from management that is transmitted to the team that "we" will be successful, "we" are winners, "we" are better and "we" work together.
This is part of the emotional makeup that creates an atmosphere that separates the average-performing organizations from top-performing sales teams. In preparing to speak at a sales award banquet this week, I thought about what kind of message I wanted to leave with the audience, and I realized that this may be a common concept that all sales leaders must reinforce to their teams.
What do you need to create this environment? The answer is a sales management system that reinforces what you expect and a leadership and management style that is focused only on accepting high performance in all aspects of life. This means every salesperson must have:
- a yearly salesperson business plan
- Top 15 account plans (if appropriate)
- a rolling 90-day sales training plan
- formal monthly/quarterly salesperson reviews
- sales contests that drive fun, recognition and teamwork
- measurement systems that promote success and show effectiveness
Every salesperson wants to be successful, as does every sales manager. Everyone has good ideas, but execution becomes the key differentiator in success. You have to work on the methodology, but you also have to focus on the emotional aspects of success. The difference in success is three simple words -- "and then some." For example, the difference between average performers and top performers are:
- Top performers do what is expected...and then some.
- They meet their obligations fairly and squarely...and then some.
- They are good friends, helpful neighbors...and then some.
- They are thoughtful of others, considerate and kind...and then some.
- They can be counted on in an emergency...and then some.
As you go about your week, make sure you do what is expected...and then some.
In my book, Leading High Performance Sales Teams, we discuss these ideas and others in greater detail; you can listen to a podcast of the book in our store. Listen to a new interview podcast on sales management here.
Posted by Ken Thoreson on August 11, 2014 at 1:30 PM0 comments
A friend of mine recently asked me where I had been lately. When I mentioned that in July I had been in San Diego, Washington, D.C. and Fort Lauderdale, Fla., and that I was leaving again this week for Las Vegas, he just shook his head and said, "I don't know now how you do it!"
I seem to have a lot to juggle, as do many people, but what keeps me on a fairly busy travel schedule is more than simply work -- it's a passion. It has been 16-and-a-half years since I started Acumen Management Group and the basis behind the company still drives me.
For the first time, I will share a portion of my business plan. It's only one section and my purpose is not to reveal what I believe in, but hopefully to give you an idea to either share your values with others or, more importantly (if you don't already have them), to develop them for your company and/or yourself.
What Value We Bring
We work to leverage and add additional insight to our client base, allowing existing management and sales management programs to operate more productively. We may introduce new leadership and new programs to achieve the goals of the organization. Our experience, national exposure, existing programs and on-going relationships will accomplish more for our clients ensuring their success.
- At every meeting our goal will be to build a better relationship.
- All commitments will be documented and completed on time.
- Client confidentiality will be maintained on all aspects.
- Our client's time is money and will be valued accordingly.
- We will at all times seek to add value-when this stops our work is finished.
- We will seek to have fun and fulfillment in our role and company.
These concepts are important to me and provide me focus, purpose and describe my passion. Notice that there are both personal and professional aspects within these statements. I believe that is important for a successful leader.
Passion is a topic that drives life; without it, the day-to-day events become simply a passage.
I know a woman who is almost 80 years old but continues to hike in the Smoky Mountains and swims almost every day; her passion is fitness. On Friday, I saw a video on Facebook of a 95-year-old woman who actively dances and can still shovel snow. These women have found personal passion to keep life active. Personal passion aligned with professional passion is a critical factor for success.
I get a kick out of coaching individual people, giving them ideas and tools to make their companies more successful. The ability to impact an audience and light a spark that ignites change in individuals' lives continues to excite me -- it's a passion that allows me to put up with the stress of airline schedules and hotel nights. But it is also fun. I have said it many times: If you are not having fun, change your life. In my keynote I normally state, "You can't change the way you have lived your life, but you can change the way you live your life!"
What is your passion? What is driving your life? Have fun and enjoy your summer.
Posted by Ken Thoreson on July 28, 2014 at 3:10 PM0 comments
One of the traits that leaders must have or develop is a mind that is creative. In many of my keynote programs, I discuss creativity and the need to "break out and grow" as you build a "Gourmet Life."
The day-to-day pressures and various situations that you face are ever-changing and appear at a rapid pace. The ability to consider various options, offer unique perspectives or provide your team with fresh ideas is critical to your success. The great news is that you can develop your ability to be creative.
One well-known method is leaving a specific problem alone for a time, rather than working on it immediately. It is sometimes best to let your mind relax and focus on something else and, like magic, a solution to the first problem may appear. This is why many ideas may come to you as you lay in bed or take a shower, or even simply during a walk. Creativity happens not with one brilliant flash, but in a chain reaction of many tiny sparks while executing an idea.
Jackson Pollock is known as a creative abstract artist. He would throw paint onto a canvas as if his designs were spontaneous inspirations. In fact, Pollock spent years learning to control his pours/splatters to achieve the effect he was looking for.
You can expand your ability to develop creativity by brainstorming with individuals outside of your normal environment. One example is J.R.R. Tolkien and C.S. Lewis, who in the 1920s and '30s, battled around religious and literary ideas with the "Inklings," a group of unfashionable Christian professors from Oxford. Their creative stories were actually the result of discussions, debates and planning.
It's all about creating ideas, evaluating them and executing on them. Creative leverage attempts to combine left-brain and right-brain activities. What are the steps?
- Start from scratch. Don't let existing factors color your thinking.
- Make sure there is emotion. This helps stimulate the brain.
- Take risks. Challenge yourself to look at unique ideas that may stimulate other ideas.
In my keynote program, I share the 13 actions a person can take to enhance their creativity. If you need to expand your creativity, you can find books, workshops and coaches to build your power. As a salesperson, sales leader or manager, you can build a better life by adding some spark to your thinking power.
Posted by Ken Thoreson on July 07, 2014 at 3:28 PM0 comments
In my eight years selling for two different companies, I experienced four or five sales managers. As you can imagine, they each had a different style, patience and skill level. I can remember that those first six months as a new sales manager were a challenge. I took over from two previous sales managers who were now reporting to me and three other salespeople, for a total of five on my team.
I had participated in various sales training programs and I had a few perceptions of what a sales manager should do, but obviously I was scrambling and, at the same time, trying to achieve sales objectives.
Luckily, I received some assistance. The president of the company I was working for in Minneapolis gave me advice and also sent me to Boston to spend two days with "Dave," whom my boss called "the best sales manager" in the United States. I spent time listening to Dave and understanding his approach and systems, and then flew back.
Afterward, as time went by, I made mistakes, learned lessons, faced tough circumstances from firing, recessions, leadership-vs.-management topics, and actually did some things correctly. Amazingly, seven years after meeting Dave, I ended up working for him as a VP of sales running a North American sales operation. The next eight years I spent working at the street and corporate level, fine-tuning sales leadership and management challenges. I have seen hundreds of entrepreneurs attempting to manage their sales teams, first-time sales managers thinking they knew the job, and organizations under-achieving their opportunities and missing their objectives.
So what can a first-time sales manager to do? I can only give a few tips in a blog, but over the next few weeks I will continue to provide more insights and tips. To be open, my new book is also about to be published on the topic. It's titled "Slammed!!! For the First Time Sales Manager." Readers of this blog will gain insights, ideas and tips from that book, all for free. The book will be an e-book found on my Web site at AcumenManagement.com and at SalesGravy.com.
There are four sections in the book and 57 chapters. Be prepared for a ton of content and ideas that have faced me over 20-plus years of sales leadership challenges. The four major sections are:
- Personal Leadership and Growth Development
- Executive Leadership and Strategy
- Creating and Maintaining a High-Performance Culture
- Sales Leadership: A Year-Round Job
The reason I have 57 chapters is the first issue facing new sales leaders is Time Management. New sales leaders are quickly faced with the needs of the sales/marketing function and with directing their teams. Next, they need to work with their fellow peers on the management team. The third element is the demands of senior management requiring information and accountability. Each chapter is designed to provide a quick insight into certain issues facing the first-time sales manager.
Some hints on time management:
- Protect your time and your to-do list. Don't take every problem your sales team gives you and put it on your own to-do list. Listen to the issues, ask them for three ideas to resolve their issues, and then suggest to them the best activity that will resolve it. If your to-do list expands beyond your capability to even react, then your team will lose respect for you and stop accepting your coaching.
- If you are meeting one-on-one on a regular basis, do so early or late in the day.
- Start your sales meetings early in the morning -- that means 8:30 a.m. at the latest. (One-on-one meetings can start at 7:30 a.m.)
- Make a certain number of sales calls with each team member every month. This will help you understand the salesperson's skill level more accurately.
- Plan your sales training meetings for the entire quarter before the quarter begins. Train on sales skills, product/service knowledge and sales operations.
The first-time sales manager faces many day-to-day and quarter-to-quarter challenges. Our job is to help everyone become successful. Let me hear your thoughts on the lessons you have learned by commenting below.
Posted by Ken Thoreson on June 10, 2014 at 9:47 AM0 comments
How do you capture the attention of your sales team on a Monday-morning sales meeting? You need to plan the meeting effectively and make sure your opening has impact. Today, I announced: "There are only 10 days left in June!" I did this for several reasons:
- I wanted to wake up and shake up everyone's thinking at the outset of the meeting.
- It was important to create a sense of urgency in everyone.
- I created a theme for the month.
If you are a first-time sales manager or even an experienced one, having a Monday-morning sales call for any size team takes preparation. You cannot begin without thinking about the outcome and intent of the meeting. With my clients, we use a sales meeting agenda and stick with a standard format. This keeps everyone on task. Also, keeping everyone involved is important and getting to the point is critical.
In today's meeting, we had 15 people with the vast majority on telephones. We covered a lot of topics in less than 40 minutes with good communication.
Creating a sense of urgency is critical. As a first-time sales manager, staying focused on achieving sales objectives is an important aspect of the job. Making sure your sales team is increasing their sales tempo is a must. I sometimes find salespeople making one appointment per week per prospect. If they are hot, see them twice a week!
Move the opportunity faster. If you are always waiting until the last week of the month or quarter to achieve your objectives, it will grind you down and your odds of success will decline. Keep an attitude of "What can I do today to move this sales opportunity forward?" as the mantra that each of your salespeople must feel and keep focused on. (Hint: Create that as a sign and hang it in your sales area.)
I have written often about creating a theme for the month or quarter. Themes can be fun or serious, but they always are focused on selling. Creating an atmosphere of performance takes leadership, attitude, fun and support. As a new sales manager, maintaining that balance is an important function of your job. In my new book, "SLAMMED!!! The Guru's Guide for the First Time Sales Manager" (out later this month), there are nine chapters on building a high-performance culture.
What else can you do to increase the sense of urgency of your team? Let me know and I will post your comments. If you would like a copy of a Monday-morning sales meeting agenda template, send me an e-mail at Ken@AcumenMgmt.com.
Posted by Ken Thoreson on June 02, 2014 at 9:58 AM0 comments
"Giving back" means how you help make the world a better place. People who use the mantra understand that doing what is expected -- and then some -- makes the difference in improving others' lives, as well as their own.
During the last few months, I have been writing about life enrichment, which is a descriptor for the general message of my keynote program, "Gourmet Living: Building a Menu for Your Life." This week, as I fly to San Diego, I'm reflecting on the "giving back" portion of life enrichment.
There were three reasons this topic stuck out. One, I am in the middle of cleansing an unused laptop and I will be shipping it to a person I have known for over 14 years. At 25, she is struggling, but has found a quality part-time job, begun to set goals, is raising a 5-year-old daughter alone and is building her life. Recently, I have helped her buy a car. Hopefully, she can use the laptop to improve her education and connect to the world.
Second, this past weekend, my wife and I opened out home to a local women's association that ran a "home tour," in which a multitude of people tour several homes in our community to raise money for a variety of local charities. We spent money to obviously make our home shine, but the local ladies' association will raise close to $10,000 on that event alone.
And third, during the last the last two weekends, I played (poorly) in two fund-raiser golf tournaments, with a third fund-raiser tournament scheduled next weekend. The first was for the arts, the second for the local volunteer fire department, and the one next weekend is for the golf course itself.
I am certainly not bragging or using this blog to promote what Ken Thoreson does. I have been blessed in many ways, but I feel it is important to help others in whatever way you can. In our community, people volunteer thousands of hours a year and in many small ways to improve the quality of life locally and nationally.
The outcome: As you improve the quality of others' lives, your life will become enriched and you will become a better person and more fulfilled.
My challenge this week is for you to ask yourself what you can do or are doing, even in a small way, to improve our world. Give back! Let me know your actions and recommendations in the comments below or in an e-mail.
Posted by Ken Thoreson on May 05, 2014 at 2:20 PM0 comments
This week, I had two conversations reminding clients to make sure that they are focused on building their summer pipeline. In one case, the client was excited about the event it just completed and the opportunities it found, but it had no events scheduled for May or June.
It is the job of sales leadership to have a 90-day-and-beyond vision into their company's pipeline and planning. Now is the time to make sure you are making extra efforts in your sales and marketing plans to increase your visibility.
What kinds of programs or activities are you launching in the next 60 to 90 days to make sure your summer is busy? Below is a list to help you think through your options. I would like our readers to add their thoughts and ideas, as well, in the comments section or in an e-mail. Let's all work together to ensure mutual success.
- Hunt your customer base. Hold customer-appreciation events and make sure your have a plan to contact each customer and offer additional products/services.
- Ask your vendors for ideas and find out what other organizations are doing to increase activity.
- Schedule events for regional access; if you cover a large area or even a single city, schedule morning events in two separate areas, one day apart. As an example, one might be on the north side of your city, the second in the south. As you prospect, make sure clients know of both events; that makes it easy for them to attend.
- Buy a new database and create a fun mailing. Use oversized postcards.
- Have each salesperson block a minimum of two hours a week to prospect fresh opportunities.
These are just a few to start the dialogue. The key is to make it happen now!
What are your ideas?
Posted by Ken Thoreson on April 29, 2014 at 2:28 PM0 comments
A sense of urgency and creating momentum are critical to the success of any sales organization. As a daily mantra for my clients' sales teams, I like to suggest "What can you do today to create an order?"
Many sales teams wait for situations to occur to eventually close an order. Great sales teams create situations that cause orders to occur. These situations may be chaotic or a well-planned series of events, others are developed with the skill of a brain surgeon during discovery, and others are just plain salesmanship.
A good friend of mine, Jeb Blount from Sales Gravy, likes to use these questions with his clients:
- Are your prospects listening to you?
- Do they trust you?
- Do they like you?
- Are you making them feel important?
- What is the impact you will have on their business?
Making sales happen requires you can answer these questions correctly; these critical issues are missing in many sales management one-on-one sales opportunity discussions.
High-performance salespeople are creative and are constantly rethinking their sales strategies and competitive repositioning. Have you touched all the bases? Are you challenging the strategy of your thinking? Are you thinking about what else you can do to win this sales opportunity all the time? Who else can you talk with or bring into this opportunity?
Make it happen now, and you will celebrate all through the summer.
Posted by Ken Thoreson on April 21, 2014 at 1:00 PM0 comments
For the past 10-plus years, I have focused on improving the performance of organizations, emphasizing their business strategy and sales leadership function. The end result is creating a culture of high performance throughout the organization.
In preparation for a keynote program, I tried to identify what high-performing organizations look like. One, their leadership team communicates openly. Two, they seem to have their personal and professional lives in balance. I have written often of my personal/professional pizza analogy, so I won't bother you with that, but if you have not taken my pizza test, send me a request.
Below, I have summarized the six characteristics of a high-performance culture (obviously, there are more details within each major category). Use it to evaluate your company, your department and your team, and determine what you need to work on to increase performance. You might use a 1-5 ranking (5 is high) and score each category, or even have your management team individually score each category and discuss it at your management team meeting.
- They are on a clear course (purpose, vision, mission, strategies, priorities with action plans).
- Their character defines qualities and values of the team (guided by clearly articulated behaviors).
- Their commitment is unwavering (people are committed to clear roles and responsibilities, and are aligned to the organization).
- There is collaboration throughout (teams openly support other teams).
- Change is accepted (the team quickly adapts to new environments).
- Coaching improves effectiveness (leaders are excellent performance coaches and role models).
How did you come out? How close to 30 did you get?
Posted by Ken Thoreson on March 18, 2014 at 1:26 PM0 comments