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The Common Misconception About Revenue Growth And Sales Teams
I love sharing real-life experiences. There are enough blogs that talk academically or from a product perspective.
I have always wanted our blog to be authentic. When I’m able to share real experiences from talking or working with clients and prospects, the stories come to life.
To me, my personal interactions serve as a reality check around the opinions, perceptions, attitudes and plans that business people are using to drive revenue. Instead of thinking, “This is what’s going on,” I get to see firsthand what people think and what they’re doing.
Today, I wanted to share a story from a prospect meeting we were in last week.
Here is a bit of the back story: We’ve been talking to them for four months. They considered several agencies and decided we were the one they wanted to work with. The meeting included, for the first time, the president and CEO (two people) from the parent company.
We had already won the admiration of the president of the smaller subsidiary, and now we had to tell our story and share our recommendations with these two gentlemen. It was the final hurdle, so to speak.
The meeting was going well, and the CEO says, “If I really wanted to grow sales, I would just add two more salespeople. I know that would work. So why should we do this instead?”
It’s a fair and insightful question. Surprisingly, it’s not one that comes up too frequently at this point in our sales process. We answered it (and I’ll share that with you in a bit), but it got me thinking.
This is a common misconception. Adding salespeople to drive sales is how most people think, but that is flawed for a variety of reasons. Let’s dig into it more.
If salespeople were machines, adding two more to your current set of 10 salespeople should increase sales incrementally. If only it was that easy.
We all know it’s not that easy. There is training and ramp-up time. One will ramp up more quickly, and one will take longer. You should know your sales rep attrition rate (what percentage of sales reps leave or are asked to leave each year).
According to recent research, the biggest threat sales organizations face isn’t losing clients but rather losing sales reps. In fact, a 2018 report by the Bridge Group discovered that the average sales rep tenure is now 1.5 years, down from three years in 2010. This might not sound bad at first glance, but if you consider that the average ramp-up time for a sales development rep (SDR) is 3.2 months, sales turnover starts to appear like a much bigger problem.
You probably also know that 80% of your revenue comes from just 20% of the sales reps, so adding more reps doesn’t necessarily mean your revenue will increase proportionately. In fact, this means there is an 80% chance that you’ll swing and miss on both reps.
Factor into this thinking recent quota attainment data that shows only 42% of reps even hit their quota. This means that if both of your new reps stick, only one of them is likely to be performing at or above target levels.
Let’s assume both of your new sales rep hires are good, ramp up quickly and want to stay. It’s very likely that if you don’t have a locked-down and documented sales process, they may end up doing whatever feels natural.
The result of this might be inconsistent or disproportional performance, and without a defined process it’s going to be hard to identify what they’re doing well and what they could be doing better.
Again, if you think simply hiring two new salespeople is going to satisfy your revenue needs and you don’t have a remarkable, educational, guided and measured sales process, you should think again.
It might work, or it might not. There’s no way to know.
Regardless of your hiring plans, you need a visual, documented and tested sales process that you regularly train your reps on. This same process needs to be built into your CRM, so your automation tools can easily support the new process.
Your deal stages and vocabulary need to support your process. Other technology tools, like video or proposal software, need to support your process. Most importantly, managers and leaders need to train to and enforce the process day in and day out.
If you have a process and even one person doesn’t follow it, you don’t have a process. If you have a process and it’s not documented, you don’t have a process. If you have a process but you don’t measure against it, you don’t have a process.
Whether you have two, 10, 100 or 1,000 sales reps, they need leads. You can make them go out and get their own leads. Again, how are they doing this? If you’re cold calling, it’s more of a “hope” strategy than a legitimate sales strategy. “I hope I get at least two people to talk to me after making 1,000 calls” — that’s not a strategy or a plan.
If they’re mining and warming up their own leads, again, it’s likely no one is doing it the same way, telling the same story or sharing the same content. No wonder it’s hard to hit goals month over month.
You may have missed it, but today people don’t want to be called or emailed by people they don’t know. Do you? Do you answer your phone when you don’t know the number? Do you call reps back immediately when they leave you messages? Do you respond to blind email outreach? There’s no need to actually answer any of these questions.
Regardless of how many reps you have, they need leads. You can have them spending their time trying to dig up leads, or you can serve up leads to them and have them shift their day from prospectors to closers, from people who are trying to convince to people who are trying to guide.
Let’s do a little math. If you have 10 sales reps and they make 100 calls a day, that’s 5,000 calls a week. If out of those 5,000 calls they find five solid sales opportunities, that is a 1% conversion rate (calls to sales opportunities).
If you close 40% of the sales opportunities you get, that’s three new clients a week. If the average revenue per new customer is $50,000 annually, you just generated $150,000 for the year in revenue. If you did that every week, you’d be at $600,000 a month in annual revenue.
That means they spend roughly 90% of their time calling and 10% of their time trying to close business. Out of 40 hours, only four hours are spent on revenue generation. The rest of the time is spent on blind prospecting.
What if your website generated 50 sales leads a week? Of those sales leads, let’s say 10 were sales opportunities. Your reps took their time and worked hard to help those prospects make a safe decision, and they were able to close five new customers at $50,000, for $250,000 a year in revenue. If you did this every week, you’d be at $1,000,000 a month in annual revenue.
Compare outbound calling and $600,000 vs. inbound leads and $1,000,000. Over 12 months, that’s the difference between $7.2 million and $12 million in new business revenue.
Do you want to make more calls by hiring more reps, or do you want to find a way to get 75 leads a week, 100 leads a week or 200 leads a week?
Let’s get back to our story. My response to the CEO’s comment about hiring two more sales reps was that he should ask a different question. Instead of asking, “Why don’t we just hire two more salespeople?,” the question to ask is, “What could we do if we let our two weakest sales reps go?”
Because if you do this correctly, you need fewer salespeople working differently. The more high-quality leads you can generate on your own, the fewer salespeople you need making outbound calling.
You can have a smaller team of people sifting through the leads and selecting the ones ready to buy today. This means the ones that look like and act like your favorite customers, the ones who are not price-sensitive and the ones you want to work with for all the right reasons.
Fewer sales expenses, more and higher-quality leads, shorter sales cycles, higher close rates and more revenue — this is how progressive CEOs think about the changes in their sales and marketing approaches in 2020.
Finally, marketing and sales is much more process-oriented than ever before. The tools, the metrics and the ways in which marketing and sales gets executed are finally more scientific.
It’s more like manufacturing, which is predictable. You put your materials in the machine and out pops a product. You know your costs and timing, and you optimize that to reduce costs and increase production without reducing quality.
This is how marketing and sales works today.
Revenue generation can be predictable, too. You create your marketing machine that produces leads. A certain number will be sales-ready and a certain number will not. Some of those sales-ready leads will be ready to buy and others will not. Then you’ll close a certain percentage and tally up your score.
Now you spend your time optimizing each part of that revenue generation machine. You’re working on driving more leads, increasing the quality, reducing the time it takes to get them to say yes and increasing the close rate, so you win more frequently — just like manufacturing.
It’s very difficult to do that with just salespeople. People are unpredictable. They quit, they take time off, they get into bad moods, they get into slumps, they make mistakes and they have personalities. The more you limit the people aspect of your business, the more predictable business will become.
That’s the main reason behind shifting your thinking from salespeople-focused revenue generation to creating a revenue generation machine that runs month over month. Use your salespeople to close leads, not to generate them.