Increasing Revenues and Decreasing Sales Costs in a Tough Economy

In the course of my search, I've been talking to a lot of CEOs and VCs about the need to manage sales costs in a tough economy, while trying to grow, or maintain, revenue. In thinking this through, and looking back at my own experiences, I've come up with a few thoughts on how to approach this problem. (I'm also going to start taking on consulting work in this area while I continue my search.)

The Problem

In general, smart companies can take advantage of the economic downturn to make their sales forces more efficient by increasing productivity and decreasing cost through a combination of micro-targeting customers and segmenting and rationalizing sales tasks.

Many companies have faced the need to cut sales costs during this prolonged downturn. The sales force, that all-important driver of revenues, is the last thing CEOs want to tamper with, especially during a recession.

But when there are no more other places to cut, companies are forced to address their sales costs. Often, they’ll look to trim their back-office functions; some may opt for across-the-board cuts, spreading the pain across all sales functions; or – most easy but most short-sighted – some will let go of a few highly paid heavy hitters, hoping that the “B” players will rise to the occasion, like a baseball team that wins the World Series one day, and trades the players who got them there the next. And what happens the following season? They go from first to worst.

Unfortunately, these cuts are made without the benefit of a thorough analysis of the value, in revenue and cost, of all of the myriad tasks that go into selling. Nor has there been an understanding of the actual value of customer types. It’s assumed that big accounts require big sales resources, for example. But is that really true?

The Three Most Common Errors in Cutting Sales Costs

Error #1 – Cut back-office sales staff, forcing higher-paid employees to perform administrative tasks, causing a decrease in productivity and revenues, and an increase in sales costs as a percentage of revenues.
Error #2 – Cut sales staff across-the-board, without regard to impact on customers, causing lower productivity, higher cost-of-sales, and customer dissatisfaction.
Error #3 – Cut higher-paid sales staff, causing loss of highest producing reps, while mediocre reps cannot fill their shoes.

These errors are understandable, but they are avoidable. During a downturn, smart executives should be planning to take advantage of an eventual recovery by cutting sales costs intelligently, surgically, and strategically.

The Solution

There are three levers managers can apply to cut sales costs while increasing productivity and revenues. They are: Sales role definition and valuation; customer segmentation and prioritization; and nimble change management.

Define and Rationalize Roles, Responsibilities and Workflows

Analyze sales tasks for all sales and sales support staff, then centralize repetitive, lower value tasks to lower cost staff, freeing up reps to spend more time in the field. Become absolutely ruthless in defining and enforcing specific roles and responsibilities. Sales staff will resist, but in a downturn, as in a storm at sea, there is no room for ambiguity.

Segment Customers by Present and Future Value, Transaction Complexity, and Post-Sales Support Costs

Analyze the cost and complexity of finding, closing, servicing and retaining customers and segment customers according to these metrics. Surprisingly, the assumption that the biggest accounts require the most expensive sales resources is not always true. Many of the sales and post-sales tasks required for even the largest accounts can be handled by lower-cost inside sales reps.

Manage Sales Change Quickly and with Minimal Disruption

Provide clear roadmap to sales staff, solicit feedback and ideas, and reinforce change acceptance with targeted incentives, rewards, and recognitions. The caveat here is to be transparent without dragging out the process with endless discussions. For any of this to be effective, speed is critical.

These three levers, properly applied, can lead to lower sales costs and increased revenues within a short time period.

I'd be happy to discuss this if anyone is interested.

donald.best@gmail.com

What Happened to Clean Tech?

A couple of months ago, the news media couldn't seem to have gotten enough of clean tech stories, in-depth profiles of hot new alternative energy companies, and full-page ads with artful photos of wind farms set against amber waves of grain. Today, a quick look at the New York Times, Washington Post, and even USA Today gives an entirely different perception. Gone are the hopeful pieces about securing our energy future.

My wife first pointed this out to me last night. When I joined the clean tech business in November 2008, she would point out relevant news stories on a daily basis. Since I've left my first clean tech job, she's noticed a significant drop in clean tech coverage. Now, there are two alternative explanations to this. The first is that it's all about me - if I'm not in clean tech, it doesn't exist. The second is what I'll call the red sports car syndrome: as soon as a person considers buying a red sports car, all that person sees on the road are...red sports cars! Thus, when I left my clean tech job, we stopped seeing any evidence of clean tech.

In reality, while I think it is all about me (don't we all?), I do believe that clean tech media coverage has dropped significantly. OK, then...so what? I think a couple of factors are at play.

• As I learned during my tenure with Lux Research, achieving progress in clean tech developments takes a very, very long time, and the technical and policy details around clean tech can be mind-numbing. The real action in clean tech is at the junction of engineering and public policy. Not exactly a barn-burner.
• Health care reform - now there's a debate that has something for everyone. Greedy insurance companies, overworked doctors, illegal immigrants using the ER for routine care; what's not to get excited about? In the rock-paper-scissors game that is media coverage, health care wins.
• Michael Jackson? Well, yes, sort of. This summer has been a banner season for celebrity deaths (if you think that sounds ghoulish, consider that my brother runs an ongoing celebrity death pool). In media math, Famous People Dying Under Weird Circumstances = Wall to Wall Coverage (FPD/WC = W2C).

Here's the bottom line: Clean tech - that is, the development and deployment of clean and renewable energy technologies - is a financial, security, and environmental imperative. So, let the media follow what they will. To get a good handle on clean tech progress, ignore the media and follow the money, as is the case with most things in life.

Right now, one of the biggest clean tech plays is the development of the smart grid. A simple way to understand the smart grid is to think of it as the Internet for electricity. And the firms who are all over this initiative are the same people who brought us the Internet: Cisco, IBM, Intel, etc., plus a host of start-ups. In addition, the VCs and private equity firms who funded the companies that created the Internet are now aiming at smart grid technology.

In the California gold rush of 1849, the real money was made by people like Leland Stanford. When Mr. Stanford heard about the gold rush, he had a brilliant insight - most of these nuts digging for gold will go home empty-handed, but in the meantime, they'll all need picks and shovels, not to mention beef jerky. So, Leland Stanford became one of the richest men in the country, and used some of his wealth to create Stanford University, while most of the prospectors went broke. And so is with the smart grid.

Let the speculators battle over standards for plug-in hybrids, next-generation solar power, and bio-fuels (corn, anyone?). Meanwhile, the smart money will sell the picks and shovels.

Summertime Search

I've left Lux Research as of April 9, 2009 - such are the fortunes of start-ups. Searching for a job in the summer, good news/bad news: good news - I'm spending a bit more time at the beach; bad news - so are potential employers, so it seems.

I'm restarting this blog because I just read an article on how to get the most out of LinkedIn, and it strongly recommended - guess what? - starting a blog and linking it to your LinkedIn profile. Check. Now I have to find interesting things blog about.

Stay tuned.