Do you know your sales costs to reach your sales plan?

In an industrial society, sales costs were negligible. Sales was easy to perform when demand was ever-increasing and focus was on how to produce as efficient as possible to meet demand. Now, the paradigm shift is happening with full power where customer is the new king, leading to exploding competition and harder to sell. Not only new competitors through globalization have seen the daylight, but also new methods like e-commerce gain market share at the expense of human based sales forces.

For those organizations that stick with their sales force, sales costs are peaking. The problem is that they just don’t know how to attack them. To decrease cost, companies use the first weapon they see – to fire sales reps. That’s because salary is the only clear choice there are. But at the same time they do, revenues decrease as well.

My standpoint is, firing healthy sales reps is a totally wrong action. Why?

Because the cost of sales salary is minor compared to sales overhead costs. Before, in an industrial society, a product calculation consisted almost only of costs that directly could be connected to a specific product, such as salary for workshop workers and material needed for producing the product. All overhead costs, like the cost for sales, were very small compared with production salaries and direct material costs.

Now, in a post-industrial society, the situation is the reverse. Overhead costs, such as sales costs, are in many cases dominating the product calculation. Many products have over 80% defined just as “overhead costs”.

So, firing a sales rep for the reason of cost is not an efficient way to improve your sales department. To decrease your sales costs, you need to get into those “sales overhead costs” to really understand how to improve.

The challenge is that these overhead sales costs are hidden by a “cost fog” with no or very little transparency. But it shouldn’t be that way. I’m involved in the expertscenario initiative which propose a solution to remove the overhead fog and providing a way for your organization to implement continuous improvements and, finally, be able to attack the massive overhead costs.

sales overhead costs

The initiative, with methods like Post-Industrial Accounting Models and Management Models can be applied to all areas in your company, as well as value chain. Overhead sales costs are just one example. To make this example as clear as possible, the initiative has created an app where you may put in your sales plan – such as target revenue, average order size, no of sales reps, hitrate etc – and simulate your sales costs by the process stages Lead, Appointment and Quote, to fulfill your plan. You may also get into the details for each of the stages, to see how sales costs are distributed on different sales tasks, like meeting time, travel time, quote creation, segment prospect database, sales review etc. Very useful to start changing how to work with things in your sales process.

A certain sales plan gives specified costs not only per process stage, but also updates your product calculation, so are able to see how profitable (or not) your current products are, with sales overhead costs taken into account.

sales costs

The app is not yet launched, but you may get a great feeling how it will be working in a preview.

The app, as well as the models the expertscenario initiative provides, removes uncertainties about what costs that truly affect achievement of your sales plan. In the same perspective, you cannot overlook investments you do within your sales organization either. It may be investments in “soft” refinement such as strategy, process, human resources, CRM etc. Today, most of these investments are accounted upfront – the entire investment the first year – as an overhead lump sum. Instead, the right thing to do would be to spread the investment on several years the investment contribute to the value for the sales organization.

A clear picture of what sales costs you really have is still covered by the overhead fog. Why this is done, I don’t really know, but one clue is the fact that people sometimes don’t like to be measured too much. Better then, thinks leaders, to just spray those costs over entire organization than actually get the picture of what’s working and what’s not.

Believe it or not. It’s soon 2018…and still we are hiding from the scary truth…

The good news is that all I’ve written above is within the framework of GAAP (Generally Accepted Accounting Principles) and the models were already featured in The Hidden Treasure Chests (1993), written by Bert-Olov Bergstrand and Christer Lundgren. The Hidden Treasure Chest has the Swedish Association of Graduates in Business Administration and Economics signature.

 

 

 

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Driving your car at full speed looking in the rear view mirror?

There are reasons the rear view mirror is much smaller than the windscreen. Are you heading to a defined destination it’s no sense turning back, taking another way. If you’re lost, you may turn back but the car’s front will still be turned forward. You’re losing time, but hopefully the turn you take is leading to your final destination.

Same in business. Things that have happened cannot be changed. If you’re not perfoming very well, you would make some minor or major adjustments. You’re losing time, but hopefully you are on track again after a while.

The Point is; can you afford losing that time? And how complex is it to turn around?

Driving a car at high speed; it can be dangerous stopping in very short time, as well as in business. It’s not that easy turning a business around as well, communicate your decisions and making people follow a new path believing it would be the right way to go and let them bear your enterprise towards your targets.

And, when you’re finished, will you still be the market leader? Have your competitors disappeared out of sight in front of you? Has the world been changing so fast your decision still is relevant? Finally; is it really possble doing the turn at all?

Geting the message? If are going wrong, adjust your path or turn around. You’re  losing time and momentum but the alternative may be driving into a rock wall. Contradictory, the only tool avoiding going wrong is to follow the trace of yourself of past events – the history. In sales, that means The Report.

Moment 22? No.

Since you cannot change the history, could you then change the future? Well, not really, but if you would understand what forces – and the impact of them – a little better, you would have a good chance seeing obstacles and signs early and be prepared how to act.

That’s called Scenario Management.

Scenario management or Scenario Analysis was initially used several decades ago. Implementations in areas like aviation and the military are common. Most implementations have been in rather long term perspectives, but I’m sure the method would work fine also for a more short term tactical perspective as well, as in the Sales Scenario App.

Scenarios

Scenario management is an alternative or complement to your existing sales report showing what has happened and maybe some sort of insight why it did. The scenario management process will help you:

  1. Be prepared for events that may come up
  2. Learn what driving forces would have an impact on your business and
  3. How to control them

It’s important to notice, the scenario management will not tell you the exact picture of the future, but rather a number of alternative developments that may happen. The nice thing is that in your work establishing these alternative outcomes, scenario management will also show you the paths to the outcomes.

By having the paths, you may act more proactively, eliminating going wrong. In driving the car, that’s the huge windscreen showing alternative ways to go, possibibities, obstacles, dangers etc, in time to act, being prepared for events coming.

And that’s all about driving a sucessful business, isn’t it?

Best Regards,
Stefan

Feedback makes your decisions better!

In Sales Scenario – your Sales Tactics App there are many things that will profoundly change the way you make sales decisions.

While running scenarios of the future, you ask yourself questions of the type ”what if”. As I mentioned before in this blog it’s much harder to ask the right question than give a proper answer. In your management team, members are gathered with different experiences, background and skills. That’s the basic requirement for such team.

The R&D Manager will inform about what impact the new product line has on the average order size, the Finance Guy about the cost for the sales organization, the Marketing Lady how many leads are possibly to generate, the CEO about the new targets. These expert’s experiences are the terrific foundation for creating your accurate what-if questions.

Get feedback.

First thing is to formulate the objective. That’s what problem to solve. Today it’s only less than one and a half month to go until end year’s target has to be achieved. The Standard Question at this time is: ”Do we reach our targets?”

Chat

The Sales Scenario App may show you that every sales rep has to initiate 9 new opportunities (instead of 7) every week from now on until year end to achieve the agreed targets.

So the objective is: How can we secure fulfillment of end year targets?

One of the future scenarios – what-if questions – may be: Is 9 new opportunities per sales rep really possible? In the Sales Scenario App you have the option to really make collaborative decisions by inviting your management team, friends or experts for comments or likes:

Furthermore; if you get an invitation but can’t answer by yourself (or need a more detailed perspective), you may invite another friend or expert in turn. That’s really collaborative!

The Sales Scenario App is on AppStore today. Happy playing what-if questions!

Sales Decisions have never been easier

Finally, we’re here. I’m very proud to announce Sales Scenario – your Sales Tactics App. It will profoundly change the way you make sales decisions. Instead of reading prepared reports or analyzing fancy charts, you and your team will actually run scenarios of the future to find the best way forward, by asking yourselves “What if …” The result will be better and more well-grounded decisions, which in long term will mean significantly higher profitability for your company. In my last post I told you:

“There are modern solutions, that in one single tool let you run and elaborate among future sales specific scenarios as many times a week you need to, invite and chat with your management team, friends or experts – when they got the time to – and get inspiration from top sales gurus, to make better and more well-grounded decisions that are already implemented from start, so you can stay as the leader in your specific market.”

Let me introduce the core principle of Sales Scenario App. The Tactical Perspective. In The App you fill in sales figures of where you are today (for example revenue achieved so far), where you need to go (for example your end year revenue target) and the chart in the app will tell you what to do. TacticalThe App will calculate backwards in your sales process based on your input. The amount of required numbers in the stages in the process are decreased according to the actual efficiency – the hitrate. An example. Opportunities. The chart will show both how many (in average per sales rep) opportunities that are achieved the current date and how many every sales rep has to create from current date to target date (typically year end) to reach the target. Current - Target In this case every sales rep has created 7 new opportunities every week (the green column in the chart), but from now on until target date they have to create 9 new (the orange column), otherwise the target would not be met. But is that amount really possible? If not, start play with the scenario by adjusting one or several constraints. Or run several scenarios, until you find the best. That’s more dynamic than a report or fancy chart, isn’t it? It’s like running a chart. Summary. The core principle of Sales Scenario is that good decisions are not made in isolation in response to an individual’s idea or individual piece of data. They require shared knowledge and analysis of a combination of different pieces of information. It adds future dimension as well by running several scenarios and asking the “what if question”. The Sales Scenario is available on AppStore today. Please let me know what you think! Best Regards, Stefan

Sales Decision Making Revolution is Coming

When I first got in touch with sales management decision processes many years ago, decision making was a task for essentially an individual – the boss – based on a static sales report. It was up to his or her experience, management style or even gut feeling if the quality of the decision was high or low.

However, the lower quality of the decision, the longer implementation time for the decision itself. And the longer implementation time, the longer payback time for the anticipated good effects; if the effects at this time were relevant at all or out-paced in the fast moving business environment and hard competition.

Later, tools like tele or video conferencing systems entered the market. Those systems gave possibilities to discuss topics to decide upon. However, the basis for decision had to be prepared and sent out to team members in advance, providing actually no possibilities for alternatives to evolve.

Then came the internet based collaboration plug-ins like webex, teamviewer, gotomeeting, lync and many more. You now, all these softwares with their thousands of buttons, no standards, fuzzy Icons – all with one thing in common; you never remember how to use them. Yes, you may collaborate, chat, show your screen, but there is no context content with alternatives and you need all team members to be online at the same time. That’s a challenge even without time zones…

Now many talks about the social things; like LinkedIn, Twitter etc for collaboration. It’s not collaboration in my eyes, more like Inspiration. You can comment, share or Like, but It’s too open to get into your real sales problems.

Today, vendors like Qliktech, Cognos, Microsoft and IBM and many more provide you with sales reports showing the history, not the alternatives for tomorrow. The charts are colorful and you may understand them. They show detailed answers based on Big Data, but not to your questions. If you ask for the future, they will ask for your big bucks to prepare static alternatives to discuss around.

The worst thing is that you need to discuss your current situation and your alternatives several times a month, because things are happening so fast and you need to act – not react – to be on track.

There are modern solutions, that in one single tool let you run and elaborate among future sales specific scenarios as many times a week you need to, invite and chat with your management team, friends or experts – when they got the time to – and get inspiration from top sales gurus, to make better and more well-grounded decisions that are already implemented, so you can stay as the leader in your specific market.

Stay tuned – in the next days I would like to introduce the biggest news in the Collaborative Decision Making market history.

It will revolutionize the way you make sales decisions.

BR, Stefan