The Most Expensive Sales Model – But Tradition Keeps People Applying It
Over the last few years, companies have had to rethink their strategies and look at ways of reinventing themselves by being smarter and most of all more profitable. With deteriorating profits and top-line revenue, action needed to be taken, and for some still does. Many have made deep cuts into their organisational operational costs whilst others have reshaped their organisations completely taking a new model to the market that meets the demands of business today.
Some companies have responded well to the challenge, others have been too slow to respond, and some have taken an approach of what is referred to as shifting sand. They have shifted problems around the business (shifting sand) and it may well be they have created quicksand for themselves.
Often the last area of change is sales as companies find operational cost-cutting a less painful and confrontational experience. Sales forces are a more difficult area to change as you are dealing with personalities that interact with your customers.
Sales forces, more than most other parts of an organisation are steeped in legacies and following on from the past being an accepted practice. Often the changes are around headcounts and territory re-alignment or software implementation. But are these deep enough to bring about sufficient change to drive growth?
We would argue that most companies fail to look deep enough in to the sales organisation to have sustainable growth.
The top-performing companies distinguish themselves by the way they approach traditional areas of business. They look deep into the sales organisation and find ways of differentiating themselves, ways of increasing profitability, and operating with maximum efficiency ensuring the best outcomes are achieved. They challenge legacies and quick-fix or soft changes to achieve real deliverables. They seek business models that drive growth and profit simultaneously. They take quantum leaps forward ensuring a lead position in the market.
The business model you apply to your sales organisation will define your future as it is the primary driver of profit for many companies. The sales organisation encompassing salespeople, sales management, systems and processes, and all activities that lead to sales being made. Simply following a legacy from the past is just not good enough.
One of our clients challenged their legacy to realise a 400% increase in EBIT after looking deep into their sales organisation
An excellent example of legacies can be seen in one of the most traditional business/sales models operating in the market today; the account manager.
The goal of this sales model is to maintain the company’s existing relationship with a customer or group of customers so that they will continue using the company for business. The account manager is expected to build client relationships by acting as the interface between the customer and the company. They are there to resolve issues, ensure their needs are being met and there is a smooth flow of transactions between the company and the customer. The reality is most of their time is spent as a customer service person on wheels as they do very little actual selling.
Traditionally the customer base grows through organic growth, being that as the customer grows, their account grows. It has little to do with the skill of the account manager, as the growth is totally market or customer-driven.
Some companies identified the issue of these account managers being overly focused on existing business and elected to adopt the rationale of hunter-farmer in their business. Hunter’s being responsible for new business whilst account managers continuing to farm the existing accounts. Those companies believing that if they focus on existing customers that will stop their attrition and another person can be dedicated to hunting new customers they can add to the existing pool.
The hunter’s role is in effect to plug the hole caused by attrition and add new customers to the overall customer pool. The hunter compensates for the account manager’s lack of performance in the sales process. Account managers are typically only effective once the sale has been made and repeat orders commence to flow.
This model has served companies well for a long time but now those companies are suffering from the cost of operating this model.
Business demands have changed and how companies do business has changed, particularly over the past few years. People look to be serviced differently, as they have changed the way they like to purchase and interact with vendors/suppliers. They look for more value to be added by vendors/suppliers.
The ability to prevent attrition has been removed from the hands of the account manager as the buyer demands have broadened, markets diminish, and change more rapidly, but companies continue to sustain a model based on the account manager.
From a customer’s perspective, the customer sees an account manager as a person to service their needs and be available on-demand to resolve their issues and respond at their beck and call. It is often questioned if the customer is managing the account manager or the sales manager is.
Companies ask account managers to increase revenues within the accounts, but the customer often becomes offended when the relationship is changing from servicing to sales. The account manager senses that change in their customer and the relationship they established and quickly return to being customer service. The customer has been trained to interact with the account manager in a specific way and a change to the relationship can be seen as a breach of trust.
When companies send in the hunter to drive more growth, the customer is immediately on alert that they are about to be sold. The person is the one who does the selling and asks them for commitment. Depending on the degree of pressure applied or tactics used, it can have a negative or positive impact on the account. New business customers are also sensitive to the hunter approach.
This entire sales model is built around ‘serving and retaining the customers’. This is not to say we don’t advocate servicing and retaining customers, but we do challenge the thinking behind this model. How much cost are you incurring when you apply this dated business model and what relationship has really been formed with the customer?
In the last few client reviews completed by us for clients, some startling facts have surfaced where the traditional account manager model is operating.
- The customer sees the salesperson as a customer service representative only and was unsure of discussing more business-related subjects (forecasting, margins, etc)
- The salesperson was reluctant to test the relationship by taking on a more sales-focused role.
- The training provided to account managers was often ineffective due to the above two barriers
- Hunters capable of signing new deals were scarce and companies often experienced large pipelines quickly dissolving under analysis.
- The attrition rates were equal to or greater than new customer acquisitions
- All teams were behind sales goals/budgets and this was accepted by the company to a certain point.
- Quick-fixes of training, software, and territory re-alignment had been attempted but no real deliverables had been realised in the top and bottom line.
These companies had all identified the need for change but were not able to find the levers that would deliver sustainable business and growth in the future.
Deep sales organisation analysis through a Sales Improvement Review was conducted and each one was able to find real deliverables that would increase profitability. One company in particular analysis results were:
- 54% capacity to grow new business existed within the sales force that had already been reduced in size.
- 76% of their customers were costing more to service by account managers than revenues being achieved
- Resource allocation was out of alignment by 40 degrees
- Customer service would be improved significantly in responsiveness and problem solving minimising exposure to customer nutrition
- The EBIT would be directly impacted by a 400% increase when the sales organisation was managed effectively to a new business model
The company has commenced making changes to its sales model and is now realising steady increases in profitability and resolved their attrition rate on customers.
The ability of companies to relinquish past practices and adapt to new models to their sales organisation has a direct impact on not only their own profitability but their ability to retain customers and secure new customers in the future.
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© 2011 Adele Crane. All rights reserved.