I recently have had the opportunity to engage with a few customers, globally. These customers are from different industries and different countries yet all are having the same challenge – increasing sales. All of them have been experiencing for a few years now, a situation of sales stagnation and/or small fluctuations around the same revenues. The question I was faced with is – What can we do to increase sales?
Normally questions like that have two different answers for two different horizons of time – short term, and long term. In the short term it is mostly about exploiting opportunities, in the long term it is about building a real competitive advantage.
The amazing learning these experiences gave me is primarily about the short term. I was surprised to learn the extent at which the constant quest and invested effort in growing sales results with sales stagnation. Yes, these companies experience sales stagnation as a result of their focus on increasing sales. And after seeing it too many times, I believe that this phenomena is not limited to these companies but widely spread.
The story – These companies have been at about the same top line sales between 3 to 5 years. Over these years these companies invested effort, money and management attention towards increasing sale, including: The development of new products, launching activities in new markets, marketing campaigns, adding sales people, replacing sales people, replacing sales management, promotions and similar. But the result kept being the same – sales do not grow (and even at times, shrinks).
When reviewing the current reality in terms of sales for all of them the following facts were identified:
- Sales funnel is filled with big number of opportunities in different stages of the sales process
- Each sales person is handling multiple opportunities in each stage of the sales process
- Sales process is relatively long (from the opening of an opportunity to conversion to orders)
- The company’s conversion rate from opportunities to orders is quite low (ranges from 1,2% to 10,12%) if measured in number of opportunities converted
- The company’s conversion rate from opportunities to orders is very low (ranges from 0.1% to 1,2%) if measured in $ value of opportunities converted
- Often times, during the sales process, prospects demand non-negligible operational support towards making their decision
- Often times, during the sales process, prospects demand non-negligible support from Engineering/ New Product Development
- A non-negligible number of customers completely stop buying every year
- A non-negligible number of customers reduce their magnitude of business from year to year
Looking at these symptoms it becomes clear that companies are determined to increase sales through generating more and more opportunities. It seems that there is a fundamental belief that the only way to increase sales is trough having as many sales opportunities as possible. As long as statistics remain the same, the more opportunities are open, multiplied by the conversion rate -> the more orders/ customers buy. The key working assumption here is that the company cannot affect meaningfully it’s conversion rate (or at least is not very confident that all the actions it takes can meaningfully increase the conversion rate.
What are the negatives of working base on this assumption? Well, looking at the sales team effectiveness it is obvious that sales people operate in a multitask environment, juggling many balls in the air, and one clear effect of this is that some balls will fall to the ground. If we combine the fact the commonly sales people get incentives based on sales than it stands to reason that sales people will have a natural preference to those opportunities that can faster convert to sales. Unfortunately it is quite common that the easier converting opportunities are those that contribute less to the selling company – low value, high volume type of orders. So, some of the opportunities are lost because of accidental poor attention, and others because deliberate poor attention. As a result the company looses some good opportunities and wins some less favorable ones leading to poor conversion rates both in quantity and value.
Many sales opportunities require operational support, at times the demand to support a potential customer is urgent as both the customer as well as sales people tend to act as if the speed of the response is a critical decision making factor (which may, or may not be the case). It is not rare then that sales put pressure on operations to answer a customer need, mostly these sales period needs, are small in quantity and attention requiring (as if they were the “normal” operations business there would have been no need to involve operations, isn’t it?). As a result, it is not rare that effort is directed towards the sales opportunity on the expense of attention to ongoing business leading to missing commitment to existing customers and at the same time, still not providing good enough service to the prospect. The result? Annoying existing customers and not impressing the prospect finally leading to the prospect not buying and current customers reducing their business volume, or even leaving. A similar situation happens with respect to Engineering/ New Product Development.
The multi tasking, the waiting for response from operations/ engineering/ NPD and sometimes finance/ top management result in elongating the process. As a result too often by the time the company provides a response to the customer, the opportunity is no longer valid. The result again, is lost opportunities, and commonly good ones.
To understand the magnitude of the phenomena please consider the following data from one customer – Annual revenues for the last 5 years are about $40 Million, at the moment the pipeline contains about 600 opportunities that have already received quotations at a value of $400 Million. These opportunities are managed by a sales team of 15 people, so that each is handling about 40 opportunities with quotations, there are at least the same number more opportunities that are in phases of the sales process that come before the issuance of a quote. Out of the 600 quotes, 22 represent about $250 Million. Do you think this is an extreme example? I urge you to review your situation, it is very probable it is not too different.
Bottom line, these companies do not suffer from lack of opportunities to grow they suffer from being so preoccupied with growth to the extent that they cannot see these opportunities and thus, being blind to them, these opportunities are lost. The good news is that competition is exactly the same, therefore the cycle repeats itself, yearly.
It does not have to be that way. It is possible to manage this whole process so much better, before there is even a need to be concerned about the second phase of finding a real way for creating and sustaining a competitive advantage.