Under-utilization is everywhere. It affects all aspects of our economy. Airlines boast an 83% passenger load factor, the highest since 1945, yet that still leaves 17% of plane seats empty. Thirty-seven of every hundred hotel rooms are unsold every night. The best man-made solar cell only converts 15% of the sun’s energy (even leaves fall a little short converting ~90%). How about brain power? While the saying “you only use 10%” is an urban myth, we all know we can do better.
The typical sales force is also under-utilized, with only 41% of sales reps hitting their annual number. That means more than half the sales force falls short each year. Consider these other somewhat disturbing facts:
Under-utilization is costly. The typical company spends 20 cents of every dollar of revenue to fund the sales force. Nearly half of this number comes in the form of sales rep compensation (base plus bonuses and/or commissions). The impact of an under-utilized sales force for a typical company can be significant, ranging from 5% to 25% in sales each year. For a $500M company, that represents unrealized sales between $25M and $100M.
Average versus Great. The difference between average and great is bigger than you might expect. Consider two companies, an average company with typical levels of under-utilization, but still growing at a rate of 6% per year, compared with a great company that enjoys a higher degree of utilization and thus realizes growth of 11% per year. Assuming they both start at $500M in revenue, over a 10-year period the great company grows to a size that is 51% bigger than the average company:
How to address under-utilization. Start by applying the basic principles of business improvement, which, assuming you have already designed, built and are managing a sales force, begins with measurement. Just as passenger load factor doesn’t tell the whole story of an airline’s health (passenger yield is arguably the more important metric), the percent of reps hitting quota is insufficient when evaluating the sales force. Instead you should evaluate a broad range of metrics. Consider the following categories and example metrics that comprise the Alexander Group’s Sales Effectiveness Index:
How should you optimize? While companies should aim high in all categories, practically speaking that’s a challenge. You can’t build a car that boasts both top speeds at the race track and the best off-road handling ability. Striving for excellence across all the categories must be balanced with focused effort to improve and excel in the areas that enable you to best optimize your sales organization for your business. Your sales strategy and leadership must be tailored to align with your company’s unique business strategy and goals. The metric categories don’t change, but the emphasis will. A consumer brand-centric business model selling mobile phone services with moderate growth goals may call for optimizing for customer retention and profitability with a highly efficient, low-cost sales model consisting primarily of sales associates tied to customer satisfaction and store sales. Likewise, a fast growth, enterprise-focused cloud solutions business may call for optimizing around investment, configuration and sales productivity to help realize fast growth.
The company must support the sales force. The common tendency when examining sales results and effectiveness is to focus on the sales reps. However, the greatness of a sales force is directly related to the company’s willingness and ability to support and enable it. Just as a company will struggle to innovate without sufficient investment in R&D, you cannot develop and maintain an effective sales force without the proper investment and leadership. W. Edwards Deming, famous for his work in business transformation, noted one of the key obstacles in business is the habit of “placing blame on workforces who are only responsible for 15% of mistakes where the system designed by management is responsible for 85% of the unintended consequences.” The sales workforce is no different.
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Original author: Paul Vinogradov