Is Your Field Sales Force A Valuable Asset Or An Expensive Liability?
In December 2013, it took a jury only five short minutes to hand out a 70-year prison sentence to Dana Brock, a.k.a. the Christmas Grinch, in Fort Worth, Texas for stealing some power tools from someone's garage.
She got the heavy sentence as a result of multiple crimes over the years, including stealing the Christmas lights from somebody's yard while the family was asleep inside. It seems the jury remembered the Christmas crime and passed a rather heavy sentence.
I've mentioned this because in business development, assembling army-seized sales forces and unleashing them on the unsuspecting world is an equally serious crime, although you may not get a prison sentence for it.
But buyers may well remember you until your dying day, and the only reason they show up at your funeral is to make sure you're really dead, so they can rejoice and dance on your grave.
When you look at entrepreneurial IT businesses, you see a big gap, well, the proverbial Grand Canyon in their attitudes. Some swear by growing their businesses based on large sales forces. Some others intend to grow through highly automated systems.
So, scaling through headcount vs. scaling through systems.
Who is right?
Having seen all the oddball things that I've seen as a high-tech business developer since 1998, I believe scaling through headcount can generate revenue more quickly but it's short-term, inconsistent and unpredictable.
Scaling through systems, however, generates higher profits in the long-run and it's pretty consistent and predictable.
The January 2017 issue of the Harvard Biasness Review[1] reports that American companies spend over $900 billion per year on building and perfecting their sales forces, yet the same companies deliver only 50-60% on their sales forecasts.
The same goes for sales enablement tools. An annual $12 billion is spent and the payback is as dismal as a waffle.
The promises are as bright as a hooker's promise and warmer than her heart, but the delivery is missing.
So, let's see where some of that money disappears like a grey donkey in the thick fog. More specifically, let's see how money disappears through field sales forces.
So, if you decide to build your business based on field sales force, here are some factors you may want to consider...
- Let's start with the obvious. The type of salespeople you'd ideally want to hire are already hard at work at companies where they get six-figure base pay, $250,000 or higher in total compensation, company car, expense account, dental/medical care, pension plan and an incredible latitude to manage their work. By contrast, lots of entrepreneurs passionately love micromanaging their salespeople, and high-performing professionals hate that.
- If you sell complex and expensive solutions, you sell to a group of buyers; one ultimate decision-maker plus several subject matter experts who advise the decision-maker: Lawyer, finance expert, engineer(s), etc. Since most salespeople have no subject matter backgrounds in those areas, they have to drag their companies' technical, financial and other experts with them to their presentations. Back in the day as an engineer, I had my fair share of being dragged around. That means a huge loss of productivity for those experts.
- In the high-tech world, replacing a departing salesperson can be a rather costly game. When you add up the costs of hiring new salespeople, training them and add all this to the loss you've suffered when the departing salespeople "stole" some of your best clients, you're pretty much as doomed as a lowly house mouse at gastronomy conference for cats.
- Field salespeople work on a 1-to-1 basis either face-to-face or on the phone. It means they have a very limited number of opportunities to pursue. It also means that very often they miss juicy opportunities because they focus on the low-hanging (also low-margin) fruit.
- Field sales forces, just like many things in life, operate on Price’s law, named after English physicist, historian of science and the father of scientometrics, Derek J. de Solla Price. This law states that the square root of the number of your salespeople produce 50% of the revenue. It means the more salespeople you have the larger idle work force you have and pay. With 10 salespeople, three produces 50% of the revenue. That’s still tolerable. But with 100 people, 10 salespeople produce 50% of revenue and the other 90 the other 50%. That’s a bit of a problem.
- Field salespeople are paid commissions, so they have an incentive to make many quick sales. It means, as long as they make enough money on deals that covers their personal financial needs, they often make deals under cost and flood the shop with sales either with wafer-thin or zero margins. It means, with every deal, the company goes deeper into the hole, although the salesperson still takes home a pretty penny.
- Besides the obvious that salespeople sell only 11% of the 40-hour workweek, there is 45-75% annual attrition, 49% never make quota, 27% never sell enough to cover the cost of their employment.
- Due to the long sales cycles, it takes new salespeople 6-9 months, or even more, to get fully up to speed and contribute fully. Until then, you just pay them. And what happens when they are up to speed on your dime? Well, the annual attrition rate is 43%. Within one year, almost half of your sales force is going to work for your competitors.
- Due to the long ramp-up time, you have to pay salespeople for a long time before you can say whether they are sales studs or sales duds. And after a long waiting period, it turns out that half of them are duds. 27% are beyond duds... dud squared.
So, that was one side of the coin.
The other side of this scaling coin is scaling through systems. In a systematic approach, you replace salespeople with sales copy, your little disembodied salesperson and the can and clone it.
And this is what you're likely to find...
- Unlike salespeople, copy can bring in a very high return (relative to the cost of sales)
- Unlike salespeople, sales copy can generate some quick cash. Remember, John Lennon didn't say to McCartney, "Let's assemble a sales force to sell enough records and concert tickets to buy a swimming pool!" he said, "Let's write a swimming pool!"
- Unlike salespeople, copy can perform fairly consistently and predictably, so it builds brand equity and stabilised income streams.
- Unlike salespeople, copy be used all over again for a long time.
- Unlike salespeople, copy positions your brand in the marketplace as an industrial authority (vs. a fungible vendor).
- Unlike salespeople's performance, sales copy's performance can be systematically improved.
- Unlike salespeople, copy doesn't fall for the temptation to offer discounts and special deals that can be bad for the company.
- Unlike salespeople, copy works 24/7, day in, day out.
- Unlike salespeople, copy can "revisit" unresponsive prospects at short intervals without negative consequences.
- Unlike salespeople, copy sets the buying criteria based on your company's uniqueness.
So, where is the problem?
Well, for many IT SMB companies the problem is that while they're happy to pay "real" salespeople pretty well, they want to pay copywriters only a small fraction of that.
The reason is that real salespeople work but copywriters just sit at a desk and write.
But the question is this.
Do you pay for effort or value? If effort, then something must be wrong.
Maybe coal miners and crab fishermen should be paid more than brain surgeons. After all, they exert higher effort.
But let me tell you a story...
In 1974, Martin Conroy, the then then vice president of BBD & O advertising agency, wrote a sales letter that generated some $2 billion gross revenue. Yes, with a "B".
The letter consisted of 780 words on two pages, sent out in #7 envelopes.
That was $2,560,000 per word.
The copy was selling Wall Street Journal subscriptions. It was regarded the most successful sales letter ever and no one could outperform it for 28 years.
Both the WSJ publisher and Conroy became filthy rich.
But after 28 years, Conroy's letter was outperformed by 24% by Mal Decker's letter.
It proves the point that when you use sales copy, not sales force, there is always room for improvement. And the improvement is pretty inexpensive.
A few years ago, I did a media package for an IT firm in Texas. So far, the package has generated (yes, it is tracked) $6.2 million. And all that for an initial investment of $47,300. That's 131-times return.
This is just the nature of good sales copy.
Now, tell me how do you plan to pull off this kind of return on your sales force?
[1] Frank V. Cespedes and Christopher Wallace: Executives and Salespeople Are Misaligned — and the Effects Are Costly: https://hbr.org/2017/01/executives-and-salespeople-are-misaligned-and-the-effects-are-costly