Part II SALES FORCE ACTIVITIES Chapter 3 Sales

Part II SALES FORCE ACTIVITIES Chapter 3: Sales Opportunity Management

Sales Opportunity Management Generating New Accounts Managing Existing Accounts Sales Versus Profits Personal Time Management

A PROCESS FOR GENERATING NEW ACCOUNTS : n A recent survey conducted by consulting company Towers Perrin indicated that 33 percent of sales executives cited acquiring new customers as their biggest opportunity for growth (see Figure 3 -1). n No matter how strong your products, how great your customer service, or how aggressive your sales force, businesses lose customers every year when companies are bought and sold, management changes, industries consolidate, and global economies fluctuate.

A PROCESS FOR GENERATING NEW ACCOUNTS : n Few companies can afford to neglect new business development. Indeed, according to recent research findings, firms who have developed effective customer acquisition capabilities are more profitable than those who have the capability of developing close customer relationships, but are not good at acquiring new customers. n The key to building sales through prospecting is to spend time with prospects that are likely to become good customers. Therefore, an important first step in acquiring new customers is for salespeople to build a good prospect profile.

What Creates Satisfied Customers? Mergers and Acquisitions 10% Introducing New Products 42% 15% Acquiring New Customers 42% Increasing Business with Existing Customers Figure 3 -1: What’s the Best Way to Grow?

Two ways to grow sales:

The Process For Generating New Accounts. There are three steps to generate new accounts: 1. Building a Prospect Profile. 2. Building a Prospect List. 3. Qualifying Prospects.

1 -Building a Prospect Profile n Not all businesses will want or need your product or services. n Some prospects will clearly be a waste of your time, while others will not buy enough to make it worth your time. You must first decide what factors determine who is a good prospect. n This means building a prospect profile, which is simply a profile of what the best prospect looks like. A starting place for building this profile is a review of the target markets for your products, as specified in your marketing plan. n If a target market has not been clearly identified, a new salesperson may need to rely on the past experience of other salespeople in the company by asking them what types of business became their most valuable customers

1. Building a Prospect Profile. Examples of demographics frequently used to build a prospect profile includes: n Size of the Business. n Customers’ age or background n Business Product Specialty. n Geographic Distance from shipping points.

2 -Building a Prospect List n With a prospect profile clearly in mind, the next step is to develop a list of prospects matching the profile developed in the first step. The traditional method of generating prospects is through cold canvassing. n Cold canvassing involves contacting prospective customers without appointments; that is, salespeople call on firms or knock on doors until they find good prospects. Direct sales organizations such as Avon Products have had success with this approach. n Salespeople selling office supplies, air conditioning, paper supplies, and insurance also use it with some regularity. Cold canvassing is used in these situations because the target markets for these products are fairly broad. n The drawback to this approach is that a salesperson could waste time soliciting low-quality prospects. Canvassing may also be more efficiently accomplished by telephone. .

2. Building a Prospect List. How to identify good prospects? 1. Direct Mail 2. Trade shows 3. Directories 4. Internet 5. Referrals

Building a Prospect Profile n Direct Mail. n All companies receive direct inquiries about products or services from potential customers. Direct mail is an excellent vehicle for locating prospective customers. n The use of e-mail inquiries has made it possible to dramatically increase the speed with which companies can respond to a direct mail inquiry, which helps to increase the rate at which inquiries are converted to sales.

Building a Prospect Profile n Trade Shows. Trade shows are also an excellent vehicle for generating good prospects. It is estimated that more than 145, 000 firms participate in over 8, 000 trade shows at a cost of$10 billion annually. n Directories. Special direct inquiry directories and open-to-bid announcements are important sources of leads for many firms. Like (champers of commerce ) n Internet. The Internet has revolutionized the process of selling and qualifying prospects. One of the hottest lead-generating tools today is Web casting n Referrals. With referrals, a satisfied customer is asked to provide the names of others who might be interested in a product. In some cases, the person may also supply an introduction of the salesperson to the prospects. The advantage of referrals is that the person can say things about the salesperson and the product line that might not be as credible coming directly from the salesperson.

3 - Qualifying Prospects n Regardless of the process used for generating a list of leads, salespeople ultimately must qualify a prospect, that is, determine if the prospect is likely to be converted to a buying customer. n Note that the salesperson needs information about customer needs, buying authority, and ability to pay. n Needs. Qualified leads are those that have a use for the seller’s goods or services and are planning to buy in the near future. n Buying Authority. salespeople often have problems identifying who has the authority to buy within an organization because of the number of people involved in making a purchasing decision. n Ability to Pay. Finding prospects that want a product and also have the authority to buy will not be productive if they lack the financial resources to buy.

Siebel Systems, Inc. : Assessing the Opportunity Is There an Opportunity? Can We Compete? 1 Customer’s Application or Project 6 Formal Decision Criteria 2 Customer’s Business Profile 7 Solution Fit 3 Customer’s Financial Condition 8 Sales Resource Requirements 4 Access to Funds 9 Current Relationship 5 Compelling Event 10 Can We Win? Unique Business Value Is it Worth Winning? 11 Inside Support 16 Short-Term Revenue 12 Executive Credibility 17 Future Revenue 13 Cultural Compatibility 18 Profitability 14 Informal Decision Criteria 19 Degree of Risk 15 Political Alignment 20 Strategic Value

MANAGING EXISTING ACCOUNTS n Generating new customers is important, but many sales and marketing managers feel that the companies that will prosper will be ones that maintain strong customer loyalty. Determining whether an opportunity justifies an allocation of precious sales resources. n When Is an Account Too Small? n An important starting point in managing existing accounts is determining the minimum opportunity on which you should be spending your time. The individual salesperson is in an excellent position to determine the long-term value of a customer. n This analysis involves two steps: calculating a personal cost per sales call and a breakeven sales volume. We turn our attention to these analyses in this section.

Cost per Call. n The first step in addressing the minimum customers size issue is to calculate the costs of making a sales call. Cost per call is a function of the number of calls you make per day, the number of days available to call on customers, and your direct selling expenses. n Direct selling expenses include such expenses as compensation, travel, lodging, entertainment, and communications. These expenses are referred to as direct selling expenses because they can be attributed to an individual salesperson. In other words, the company would not have incurred these costs had a salesperson not been present in the territory. n How does the cost per call of $171. 50 compare with that of other salespeople? According to one survey, the average cost per call for all salespeople is $164. 70. 9

Table 3 -1 Computing the Cost per Call for an Industrial Products Salesperson Compensation Salary, commissions, and bonus Fringe benefits (hospital, life insurance, social security) $69, 035 $10, 985 $80, 020 Direct Selling Expenses Automobile 8, 000 Lodging and meals 6, 250 Entertainment 3, 250 Communications 4, 500 Samples, promotional material 1, 750 Miscellaneous 1, 700 Total Direct Expenses 25, 450 $105, 470 Calls Per Year Total available days 260 days Less: Vacation 10 days Holidays 10 days Sickness 5 days Meetings 18 days Training 12 days Net Selling Days Average calls per day Total Calls per Year (205 X 3) Average Cost per Call ($105, 470/615) 55 days 205 days 3 calls 615 Calls $171. 50

Breakeven Sales Volume. n Breakeven sales volume is the sales volume necessary to cover direct selling expenses. It is necessary to calculate breakeven sales volume in order to determine the minimum size customer that should be pursued. n Calculating the breakeven volume requires that we know the number of calls necessary to close a sale and what direct selling expenses are budgeted to be as a percentage of total sales. n Determining the number of calls needed to close a deal may be based on your own experience or that of other salespeople in the company.

Sales Opportunity Management Key to Productivity Breakeven Sales Volume (Cost per Call) x (Number of Calls to Close) Sales Calls as a % of Sales

Table 3 -2 Selected Statistics on Cost per Call and Number of Calls Needed to Close a Sales Costs as a Percentage of Total Sales $ 46. 00 4. 6 10. 3% Chemicals 165. 80 2. 8 3. 4 Construction 111. 20 2. 8 7. 2 Electronics 133. 30 3. 9 12. 6 Food Products 131. 60 4. 8 2. 7 Instruments 226. 00 5. 3 14. 8 Machinery 68. 50 3. 0 11. 3 Office Equipment 25. 00 3. 7 2. 4 Printing/Publishing 70. 10 4. 5 22. 2 248. 20 4. 7 3. 6 Industry Business Services Rubber/Plastic Cost per Call

An Example: Chemicals Cost per sale call= $165. 80 Calls needed to close a sale= 2. 8 Sales Calls expenses of sales = 3. 4% Breakeven Sales Volume = ([$165. 80*2. 8]/0. 034) = $13, 654

I Cannot Afford to Lose This Business n I Cannot Afford to Lose This Business. Having performed a breakeven analysis, how can a salesperson use this information? n Should a salesperson not call on customers or prospects whose sales volume does not exceed the minimum sales volume? n People, and companies too, are rarely inclined to turn their backs on a sale.

Three Methods for Setting Account Priorities n Breakeven account analysis provides a starting place from which to determine the minimum-size account that should be called on. n This analysis does not fully address the issue of how much time should be allocated to prospecting and how much to existing accounts in a territory. n Following are four methods for setting account priorities along with the situations in which each is most appropriate.

Setting Account Priorities. There are four methods for setting account priorities: 1. Single- Factor Model. 2. Portfolio Model. 3. Decision Model. 4. Sales Process Model.

Three Methods for Setting Account Priorities n Single-Factor Model. The easiest and probably the most widely used model for allocating salespeople’s time is the single-factor model. This model examines a single customer characteristic, usually sales volume, to arrive at an initial allocation of sales calls. n The main limitation of single-factor models based on sales volume, procedure, that they may not include all the factors that should be considered when evaluating an account’s sales potential and life-time value. n Also not considered is the opportunity to obtain greater account penetration (a greater share of the account’s total purchases), vulnerability to competitive efforts, or account profitability.

Customer Break-Even Analysis Average Sales Volume Per Month $9, 784 $8, 153 C $6, 522 $4, 891 $3, 261 A $1, 630 B 1 2 3 4 5 6 Number of Sales Calls Per Month

Three Methods for Setting Account Priorities n Portfolio Models. (according to customer attractiveness you are invest ) n Portfolio models attempt to overcome the limitations of single-factor models by considering multiple factors when determining the attractiveness of individual accounts within a territory. Selling effort is allocated so that the most attractive accounts receive the most effort. n Figure 3 -2 illustrates one well-known portfolio model. This model classifies accounts into one of four categories by determining account attractiveness based on two criteria: account opportunity and competitive position.

Figure 3 -2: Portfolio. Model Account Opportunity Competitive Position Weak Strong High Low Core Accounts Growth Accounts are very Accounts are potentially attractive. Invest heavily in selling May want to invest resources. in heavily Drag Accounts Problem Accounts are moderately attractive. Invest enough to maintain current position. Accounts are very unattractive. Minimal investment of selling resources.

Three Methods for Setting Account Priorities n Decision Models. Although portfolio models have the advantage of using multiple characteristics to classify accounts, several shortcomings remain. n First, accounts must still be grouped into the four quadrants for the purpose of allocating sales calls. Differences between firms in the same quadrant are therefore not taken into consideration. Second, the process does not arrive at an optimal allocation of sales calls. n Decision models for allocating sales calls overcome these two shortcomings by focusing on the response of each account to the number of sales calls made over a period of time.

Dollar Sales per Quarter $20, 000 $10, 000 1 2 3 4 5 6 Number of Sales Calls Per Quarter Figure 3 -3: Number of Sales Calls Response Function

n While three previous models depend on priority , this model (sales process models) depend on opportunity. n One example of a selling process model is the sales funnel (see Figure 3 -4).

24 Unqualified 13 19 20 21 15 17 23 16 22 12 9 14 18 11 10 50% closure probability Qualified 7 5 6 8 Best few 3 1 4 2 Figure 3 -4: The Sales Funnel 75% closure probability 90% closure probability

sales funnel n n 1. 2. 3. 4. Each sales opportunity is categorized based on the level of uncertainty in meeting the opportunity: 1. Unqualified opportunities. In this case, data suggest that a possible need exists, but this need has not been verified with key people in the account. 2. Qualified opportunities. A qualified opportunity must meet four criteria: The need has been verified with at least one of the buying influences There is a confirmed intention to buy a new product or service, replace an existing one, or switch suppliers. Funding for the purchase has been approved or already exists. There is an identified time frame within which the purchase will be made. 3. Best few opportunities. All the buyers have been contacted and their needs identified, and in your judgment have been sufficiently developed to make the sale.

SALES VERSUS PROFITS n There is a tendency in sales to evaluate opportunities in terms of dollar sales. n The main point we would like to make here is that companies and salespeople need to be aware of the price, cost, and profit differences between customers and allocate their sales effort accordingly. n It is not at all unusual for there to be a 50 - to 75 -percent difference in the profitability of customers who purchase a similar quantity of product.

Customer Lifetime Value. n Customer Lifetime Value is based on the notion that the value of a customer is the sum of the customer’s discounted flow of profit contributions into the future. Calculating CLV requires knowing or making judgments about the following inputs: n • The company’s discount rate (cost of capital) n • The company’s planning horizon (3 years, 5 years, 10 years) n • The customer’s product category purchases in each period n • The average contribution from purchases n • Each supplier’s share of total category purchases

TIME MANAGEMENT n In most surveys of business training programs, time management is one of the most frequently mentioned training topics. The reason is that significant productivity gains can be made through better time management. n a 10 -percent improvement in the time its sales force spent selling would generate more than a 5 -percent increase in overall sales volume.

Figure 3 -5: How Salespeople Spend Their Time Service Calls Administrative Tasks Waiting and Travel Selling Face-to-Face Selling over the phone

The “Traveling Salesperson” Problem n On average, 17 percent of salespeople’s time is spent traveling and waiting. Careful scheduling can produce substantial savings in travel time. n The dilemma is usually stated as a search for a route through the territory that allows a n salesperson to visit each customer and return to the starting point with a minimum expenditure of either time or money. n A simple way to find a good sales call route, and one that is often very effective in minimizing travel time and costs, is to plan a travel route based on four basic rules: n 1. The route should be circular. n 2. The route should never cross itself. n 3. The same route should not be used to travel to and from a customer. n 4. Customers in neighboring areas should be visited in sequence.

Overall Time Management n Despite all the emphasis companies are putting on increasing selling time, 16 percent of a salesperson’s time is spent on administrative tasks n Following is a list of what many salespeople n consider some of the most common time wasters: 24 n 1. Telephone interruptions n 2. Drop-in visitors n 3. Lack of self-discipline n 4. Crises n 5. Meetings n 6. Lack of objectives, priorities, and deadlines n 7. Indecision and procrastination n 8. Attempting too much at once n 9. Leaving tasks unfinished n 10. Unclear communication

Urgency High Importance High Emergencies Low Personal Growth Low Time Wasters Recreation Figure 3 -6: Time Management