Managing Sales Costs
by Tom Burgum, SCORE Lancaster
Most companies avoid experimenting with their sales force because they know it’s the engine that drives revenue. No matter how patched up or spluttering that engine may be, the thought of overhauling it makes business leaders uneasy. Instead of analyzing and overhauling their basic selling processes, they often make piecemeal repairs as long as they can. They think that’s a less risky approach … but it’s not, really.
This economy drives companies to cut costs and halt declining revenues and margins. Unfortunately, fear — and the belief that it isn’t possible to be both fast and precise — often result in two common mistakes:
trimming only back-office staff and functions instituting across-the-board cost cuts, including frontline sales reps.
Both actions are likely to yield disappointing results.
You may think that reducing back-office sales staff and functions will hurt revenues less than reducing the number of frontline sales reps. But greater complexity has made support functions essential to effectiveness. Often ‘inside sales’ and ‘customer service’ are the key value-adders that differentiate one company from its competitors.
Also, not all sales efforts are equal, especially in a downturn. It’s crucial to determine where cuts will hurt customer perceptions and adversely affect their buying behavior. Analyze customer profitability and return-on-sales.
“Hug” your good, profitable customers. Work with your break-even customers to make them profitable. ‘Fire’ your unprofitable customers; encourage them to buy from your competitors!
Examine your sales process focused on creating customer value for which you get paid. Examine the customer portfolio.
How much effort – and expense — really goes into each customer and transaction? Which services does each of them need? What are their real profit margins? Which customers and markets are growing and which are shrinking? Which customers require face-to-face sales calls? How often? Which can be served via phone or online order processes? Which customers pay you on time, or take early-pay discounts? Which pay you in 60 or 90 days … and use your accounts receivable as a ‘loan?’
Understanding specific customer dynamics allows companies to focus sales resources where they get a profitable return — and cut waste, not value. By doing so, the sales force can become more effective and more efficient.