Sales leakage is the corrosion of revenue and profit and it has many tentacles that reach out across the business. To address sales leakage requires careful analysis and understanding of not only sales principles, but also business process and sales operations.
For many people, sales leakage is immediately hinged to the loss of potential sales for whatever reason. Most companies only look at the obvious sales leakage as the loss of not winning a tender or bid, a proposal not being successful or a deal not coming through. Those points can have a devastating effect on top-line revenue if not properly dealt with and sales management expend time and energy in attempting to minimise that loss ratio.
But for a company sales leakage goes far deeper than those obvious points.
When I talk with Chief Executive Officers (CEOs), they often report their company is doing fine. They are making quota, most of the time. They have good quarters and then sometimes a poor quarter. They comment “That is just sales, isn’t it?” For them, their greatest challenge is increasing bottom-line profitability. Many sales managers believe that sales only impacts gross margin and that is the extent of their responsibility.
The area that companies don’t place enough emphasis on is their own internal sales leakage which is costing them top-line revenue and points of profit every week or even every day. The best way to describe sales leakage is to look at the experience of a company I recently reviewed and this will give you an insight into what sales leakage actually is.
The CEO of a large industrial company had strong growth plans for the business. In consultation with the sales manager, they decided that sales training was the way to go to increase the performance of the team. This would have the team best positioned to win the business and drive sales revenue. A common approach taken by many companies to solve problems with being under quota or planning above-market growth.
The discussion then shifted when I asked “what are you doing in relation to bottom-line profit in relation to sales?” Both the CEO and the sales manager look a little perplexed by the question.
We discussed reviewing the company to find out more about the business and identify anything that could be undermining the team’s performance, being top-line, and business performance, being bottom-line. How the team operated, and how the business operated to support the sales effort. How effective was the company beyond the customer?
On meeting with the salespeople they were smart, young and enthusiastic individuals all working hard at bringing in sales quota. They needed some training as most do, but it was not going to have the major impact the company was looking for. There was more required than just the training required to deliver the planned growth. The business needed front end fine-tuning and we discussed how they had approached similar issues within their manufacturing processes. The idea was foreign to them but they had seen the results using similar principles in operations so the sales improvement review was booked.
What our experience tells us is that most companies have a degree of sales leakage; discovering what that degree is, is important.
Some leakage is easily found; some take time to seek out with careful analysis. Every percentage point that can be added back to the EBITDA is worth the energy of a review.
Through our proprietory Sales Focus Sales Improvement Review, we look specifically at the contributors creating sales leakage. Most searches find both small and big issues, some people know about, but don’t have the authority to fix, others hidden behind long-standing practices in the company. The leakage can range from sales productivity losses, unaligned business processes, job role creepage, over staffing hidden behind layers of incorrectly understood capacity, marketing spending without an expected ROI, sales leads that go unanswered, poor sales territory alignment and poor sales documentation that did not support the sales process being managed to a conclusion. In isolation, none of these points were deemed as a problem. The list can be exhaustive and when you start to put these all together you can be losing top-line revenue PLUS corroding the bottom-line.
Sales leakage has many similarities to Lean Thinking for manufacturing as we set out in our Lean Sales and Marketing services. It requires a well-planned project of analysis and identification, followed by a series of actions to address and improve.
How sales leakage develops in companies can be through a combination of:
- the evolving practices installed by legacy management,
- the business changing products, markets, and focus,
- sales personnel managed through autonomy,
- misalignment between marketing and sales,
- salespeople not being good sales citizens within the company,
- overburdened systems connecting sales to operations.
The challenge for companies is the root causes of sales leakage waste the efforts of your most valuable human capital: sales and marketing personnel. Sales leakage detracts them from the tasks they should be doing, like generating new business and signing deals and gaining continual orders from existing customers.
For the industrial company, it took 6 weeks to find and document the sales leakage and they realised an additional two points of profit to EBITDA putting over $900,000 back. Being a company with a long history and growth over that time, it had many points of where the leakage was occurring and improvements were available for them. The review armed management with the action list and recommendations for changes and improvements required.
If companies are seeking profitability gains that can be consistently applied to support growth, the review is the perfect place to start.
If you found this article helpful, follow us on LinkedIn or subscribe to Our Insights on the right-hand column of this page, to make sure you don’t miss new posts.
© 2011 Adele Crane. All rights reserved.