New reality - The impact of the recession on sales productivity
The impact of the economic recession of 2009 had a lasting impact on sales organizations. Although we are amidst a slow recovery, time profiles, particularly for some industries, appear permanently changed. This month we analyzed time and cost data from over 150 sales forces across three distinct time periods: Pre-Recession, Recession, and Recovery. Here are some of the key findings:
Rep Time Has Shifted To Pre-Sales. As shown in the chart above, across all industries Account Development increased 15%, and Closing is down 15%. In many cases, Prospecting time has increased, and Back Office time has decreased. The results were more dramatic in the Software and Medical Device verticals. In Software, Prospecting and Account Development spiked during the Recession, increasing from 25% to 35%, or about four hours a week. It has come down in the Recovery period to 30%. Meanwhile both Closing time and Back Office time has steadily decreased. This is probably a reflection of reps managing fewer deals and leveraging improvements in order taking processes and tools. The Medical Device industry saw a dramatic drop in Closing, Customer Interaction and Customer Service from 39% to only 29% combined. Meanwhile Planning and Account Development has increased from 26% to 32%. This is a significant shift from “post-sale” to “pre-sale” activity, resulting most likely from companies needing to focus sales representatives on driving deals.
Sales Productivity Dropped 20%. Average revenue per rep dropped from $5.3M pre-Recession to $4.2M in the Recession period. The good news is that it has largely recovered to just over $5M, which is much improved, but still below pre-Recession levels. Not surprisingly the percent of sales reps at or above quota fell from 46% to 35% when we entered the Recession. And it’s only recovered slightly to 37% in the Recovery.
Cost of Sales Increased. Average Sales E/R increased from 20% pre-Recession to 23% in the Recession. This is due primarily to the significant drop in Sales Productivity. It has come down again in the Recovery period to 21%, but remains higher than the pre-Recession figure.
A Win Takes (Almost) Twice as Long. The average sales cycle length was 4.6 months pre-Recession. It stretched to 6.7 months during the Recession period, and is averaging 7.9 months in Recovery – nearly twice as long as the pre-Recession period. Director level budgets are now at the VP level or higher. Buyers are more cautious and conservative. Most expect a clear ROI story. It’s likely that more opportunities are competitive now compared to pre-Recession, requiring sellers to invest more time defending their offerings against the competition.
All these factors contribute to a longer sales cycle and lower levels of productivity. And unlike some of the other metrics where we see some return to “normal” pre-Recession conditions, the sales cycle has only grown longer thus far in the Recovery period.
Parting Shot – These trends don’t bode well for sales leaders. If the economic recovery continues at a slow pace, sales forces will have to work even harder and smarter to maintain let alone improve sales productivity. Their challenge is our challenge as well. It’s our job to help our clients creatively address the challenge of improving sales productivity in these weak economic times. What new thinking is required to help sales leaders handle this New Reality?