How to improve sales effectiveness?

3 minutes read

When I talk about sales effectiveness, I talk a lot about selectivity. It means deliberately choosing not to work with some customers to be able to allocate enough time and energy to deal with the customers who value your product and services at a higher level. Therefore, your effectiveness will increase.

One of the most common reactions I receive is “I agree, but it is not easy to make the shift. We don’t have time because we still need to deliver our budget.”

Here are my comments about that:

First, “We don’t have time” means you do not care enough. If you say that you do not have time, you do not have it on top of your priorities list. It is not like I have 24 hours a day and you have 15 hours. Having no time means that achieving your short-term targets is a bigger priority than establishing a sales effectiveness plan. Or you do not suffer enough to be forced to change your priorities yet.  

The second point is it is not easy to implement. If it was easy, everybody would have done it so far, and you would be already out of business. It is counterintuitive to refuse some large deals just because they are not profitable enough; it may sound strange to go back to market to prospect for new customers while you already have a historical customer database. It is a bold move and a painful process to say no to your historical customers.

To help make this shift, below are some tips I think can be helpful:

  1. Know your most and least profitable customers:
    • Rank your customers according to the profit margin (not the sales volume).     
    • Draw two lines; your current average profit margin and your desired average profit margin. All customers below your current average profit margin are “profit dilutors.” You may want to stop working with them as quickly as possible. All the customers above your desired profit margin are “star contributors.” You may want to increase the business volume with them, and you might need to be creative. 
    • Progressively shift your time and energy from “profit dilutors” to “star contributors.”
    • You do not have to make any change for the customers in between. You may eventually look for a slight price increase to make sure that they do not become “profit dilutors”
  2. Know how much your customers cost you:
    • Set an hourly fee for your time. Make it extremely high, such as $5000. You will not communicate to your customers, but you will know that your one hour costs $5000.  
    • Go back to your customer ranking list, and next to each customer, write down the time you spend with them. Then do the math to see how much it costs you. And rank them from the most costly to the least costly.
  3. Finally, cross the first ranking with the second one. You will have four categories of customers:
    • Low profit – Low cost
    • Low profit – High cost
    • High Profit – Low Cost
    • High Profit – High cost

Although ideally, you should stop working with Low profit – High-cost customers and work only with High profit – Low-cost customers, it is not that easy in practice. You don’t want to make dramatic changes because you still want to stay in the market. You can identify your current mix and work to improve this mix progressively to drive the change smoothly. If you count on incremental progress, you will see the benefits of compound improvement.

The starting point of all is a mindset change. Only you and nobody else can make this decision. Beyond all excuses and explanations, you need to understand why your customers are your customers. Then start working on the data.