How Do You Know Your Sales Effectiveness Initiative Is Successful?

To determine the success of a sales effectiveness initiative, you need to define measurable objectives and a baseline where you currently stand relative to these objectives. The most common objective use to measure success is a revenue objective. It can easily be measured. So can the base line easily be established. Yet judging the success of the initiative by the attainment of the revenue objective, can lead to much debate. According to “The Complete Guide to Accelerating Sales Force Performance” by Andris A. Zoltners et al. the degree to which a sales force can influence revenue varies widely. This source also warns about using only one indicator (e.g. revenue per sales person) to measure performance.

Donal Daily in a recent post on the Sales 2.0 Network blog, has suggested to also include 'non revenue objectives' when judging the success of sales effectiveness initiatives. Examples given for such objectives were among others : Better qualification or common sales language across the organization.. The reasons given for this suggestions are very plausible. Revenue is a lagging indicator. Especially when your revenue creation requires long sales cycles, it is too late for corrective actions with short term effect when you notice a deviation from the revenue objective. Tracking the behavior of the sales people through 'non-revenue' objectives along the sales cycle has a bigger chance for corrective actions impacting the outcome on short term..

Yet, I doubt that result oriented sales leaders would buy into this concept. They believe in outcome based sales force control systems. You recognize this type of leader by their actions They try to push sales people to higher performance by aggressive quota setting, lucrative incentives and tough and frequent forecast reviews.

Even with sales leaders seeing the value of the alternative use of behavioral based sales force control systems, I would not recommend the objectives as stated. As the objectives are not measurable, the success of an initiative is solely determined how these leaders judge 'better qualification' and 'common language'. of the cited 'non-revenue' objectives.

What is needed is the transformation of these qualitative objectives into measurable leading indicators that sales leaders can accept as being unambiguous with respect to their impact on productivity. Presenting a logic how these productivity indicators can lead to higher revenue, might further help with their acceptance. To stay with the example of 'a common language'; establishing a common language shortens the time sales managers need for example for deal reviews. Reports adhering to a standard template can be interpreted faster than reports structured as every salespersons feels best. Salespeople also profit from this gain in time. They spend less time in review meetings explaining their deals they are working on to sales management.

How this time (productivity) gain influences revenue is though up to managers and sales people. If managers use the freed up time for coaching and salespeople use the extra time for meaningful interactions with clients, it is plausible that at term this will lead to higher revenue. There are also many studies demonstrating the higher impact on performance of behavioral based sales force control systems compared to outcome based systems. Sales leader adhering to this type of systems should now be able to accept this additional objectives.

For people primarily adhering to outcome based sales force control systems, an extra effort is needed. They will first have to accept results of such studies and include at least some behavioral elements into their control systems before they will be able to better track the success of their sales effectiveness initiatives.

I am curious what practitioners have to say on this topic.

Those Who Measure, Measure Rubbish

is the translation of a play on words in German: “Wer misst, misst Mist”. Physicist use it to remind themselves that not all what they measure can be taken as hard facts.

Sales managers might want to adhere to this caution as well. Especially in uncertain times, it is important to have confidence, that what is measured are facts helping them to navigate through the turbulences.

Sales performance measured with company results
As the role of a sales force is to generate revenue for a company, and it is furthermore easy to measure, it is a frequently observed practice to use revenue as the primary performance indicator of the sales force. Andris A.Zoltners, Prabhakant Sinha and Greggor A. Zoltners remind us in “The Complete Guide to Accelerating Sales Force Performance” that company results are not necessary good hard measures for managing salespeople. They refer to findings from their statistical studies , suggesting that the one-year impact on revenue of a sales force at the sales territory level is anywhere from 20 to 90 percent. Admittedly, the book was published in 2001. I believe however that, with the self directed customers empowered by the Internet, the situation is probably even worse today,. But this is not the only problem. Revenue is also not an adequate indicator to understand coaching needs of salespeople.

Revenue is a lagging indicator
Revenue is the outcome of the sales process. It is the result of actions that have happened in the past. If the results are not satisfactory, we have to modify the process. For knowing where the process fails, we need measurements along the process chain, not only at the output

The root cause for missing the number might be found several months in the past. Despite this, result oriented managers tend to try to manage this outcome. directly This also means that corrective actions to curb the trend might show results much later than the patience of a sales manager lasts. Many “improvement plans” imposed to an under performing salesperson are thus self fulfilling prophecies for failure if results on revenue level are expected in a shorter time frame than the average sales cycle length.

Derived productivity indicators might be misleading
Also derived productivity ratios like sales per head or quota attainment are not necessarily good productivity indicators for the salesperson. As indicated in a previous post, quota attainment might reflect more on the ability of the sales managers to set realistic targets than on the salesperson to make the expected number.

The same is true for sales per head; especially if the manager has fallen in the trap of the law of diminished returns. This can happen when managers follow the rule that “more feet on the street” will increase revenue. In a saturated territory, there is just not enough potential for the additionally assigned sales person to bring in the expected revenue increase. So again it is more a result of a management decision than the salesperson's ability to sell.

Alternative Indicators from the sales formula
In 2000 at the first indication of the burst of the Internet bubble, I proposed to my then employer the first version of the sale equation, built from indicators than can be influenced directly by the sales force. The potential impact of the formula was not very well understood at the time. Today it is known as the sales velocity equation. As the equation in its original form lead to wrong interpretations, I have it now reformulated to:

Revenue = ∫((# of Opportunities*average deal size*conversion rate)/time in funnel)dt

Don't let yourself be scared by the math. Essentially, what the formula says is that revenue is dependent on the number of opportunities in the funnel, the average deal size, the conversion rate and average the time it takes to get an opportunity through the funnel.

The attractiveness of these indicators lays in the fact, that when put properly into the context of the sales situation, they allow to detect on what salespeople need to be coached to improve their performance. I have built a whole sales management training curriculum around this formula. Here we have only room to illustrate the use with an example.

Take a salesperson with a lower average deal size compared to peers. Root causes for this might be lack of capabilities for up selling or heavy discounting. With this knowledge, targeted coaching can take place instead of just pounding on the table and ask for more revenue. Also training initiatives become more targeted and outcomes become measurable.

Especially in tough market conditions, the conversion rate is probably the most effective parameter to focus on. Some experts go so far as to say that managing the conversion rate is the primary task of a sales manager. The conversion rate is also particularly important in complex sales situations as it is an effectiveness indicator. In view of this, I am always surprised how few managers, of those asking me for help to increase the productivity of their sales force, actually know their conversion rate on an overall level, let alone between stages of their sales process.

Conclusion
Performance improvement will have to start with the mindset of sales managers. Especially those believing that “only what can be measured can be managed” should accept that “not all that can be measured can be managed”. Eventually they will have to accept, that sales forces cannot be managed by spread sheets especially if they are full of revenue dependent ratios as sophisticated as they might be.

A Friendly Reminder: Salespeople are Knowledge Workers?

Why do I bother you with a seemingly philosophical question at a time where things get tough and you need to stretch yourself more than ever to make your numbers? Because it is about your people. Your most valuable assets. It is through them that you will get the results. But in tough business conditions managers tend to focus on the results and put people second. I hope to make the case that your ability to improve the productivity of your sales teams depends a lot on how you see your people and treat them accordingly.

What is a knowledge Worker?

From “The Definitive Drucker” by Elizabeth Haas Edersheim we learn that the late Peter F. Drucker coined the term “Knowledge Worker” in the late 1950s. This was his term to describe white collar workers whose primary task is interpretation, translation and problem solving; so using gray matter, rather than muscles..

Does this definition apply to Sales People?

Are salespeople not interpreting a customer situation, translate this into a solution based on their offerings and thus solving customer problems? Do we not also recommend to sales people to work smarter by using gray matter, instead of working harder. If we can agree on this, then the next question to ask is:

How do you manage Knowledge Workers?

You don't; you lead them. According to Haas Edersheim, Peter Drucker was a strong advocate that Knowledge Workers should be given autonomy rather than control.They need to be given guidance and perspective. Then one best goes out of their way letting them to asses and direct their own efforts to take responsibility for their results, unless they ask for help. Getting out of the way does though not mean that the Knowledge Worker's autonomous behavior does not needs to be closely monitored. Drucker also gives us some hints what to monitor. Knowledge Workers should not be measured on efficiency but on effectiveness. If we need a definition for those two terms: Efficiency is doing the things right, whereas effectiveness is doing the right things. How this relates to sales is well explained in “Sales Force Performance” by “Andris A Zoltners et al.

Is this the way salespeople are managed?

Chances are high that is not. Over the last years, CRM systems were introduced, forcing people to follow a rigid sales process. These systems are also more focused on measuring efficiency. Activity Management as an example is one of the core elements of CRM systems and it plays into the hands of those who believe that you can only manage what you can measure. I am an engineer by profession and I remember Einstein's quote: “Not everything that can be counted counts and not everything that counts can be counted”. Now this is true for physics but I think it also applies to management.

Is your CRM systems hindering you to treat salespeople as Knowledge Workers?

Not really, if you understand it as an instrument helping you to inspect what you expect. You don't even have to initiate a major technology overhaul for your system to support this philosophy. Some tweaking by a system administrator and some new rules on how to handle the sales process will do the job with most systems.

Sales Management needs an overhaul?

I probably have angered many result oriented command and control managers with what I said. The facts though seem to speak against keeping status quo. If you follow CSO Insights work over the years, not much progress has been made in sales effectiveness. Maybe we should therefore accept that expecting different results from continuing doing the same thing is irrational to put it mildly.

Especially in harsh times with dried up pipelines it is probably better to accept that there are momentarily fewer buyers and to find ways to get more out of what you have. This means focusing on effectiveness instead of thinking about efficiency measures how your people can get more actions into a day. Look at your stars or eagles or whatever else you call your best sales people. Aren't they usually exceeding their quota with fewer opportunities in the pipeline than your average performers.

In his research carried out in the late 1980s, observing sales people involved in major sales, Neil Rackham also did not find a strong correlation between activity and results. . The focus on effectiveness is thus nothing particularly new. So why are we still struggling to accept this? In “Managing Major Sales” Rackham is telling about the harsh reaction he caused by his findings with the sales trainers of the time. Given the number of managers still focusing on measuring activities and other efficiency metrics, I cannot help to think that opponents to Rackham must still be numerous and active spreading the opinion hat “Selling is Selling” irregardless of the context.

To conclude, I would like to recommend to you to consult the post 'The “Blue Collar” Sales Person' by Will Fultz, a fellow Blogger I appreciate very much for his effort giving us first hand views directly from the front line.