When sales success means you are underperforming
A company that consistently achieves its sales targets must be performing at the top of its game mustn’t it? Predictable revenue is certainly valuable to a potential investor or buyer; and in some cases, consistent sales target achievement may well indicate that the company has an excellent sales force. But there are times when consistent success is hiding a deep problem that limits profits.
Take the case of Annette Picard, sales director of a business unit of a large consumer goods company. For the past six years, Annette’s team had achieved its sales revenue targets, results that made her the best performing sales director in the group. Nearly every sales person reached their personal target every year and motivation was high as the team enjoyed high bonuses and commissions, as well as the accolades that went with being the firm’s most successful sales force. Anne was feted by her colleagues and had become a celebrity at the annual management conference.
Despite her success, Annette had recently begun to have doubts. A new division General Manager had been appointed and, although at first the two women had got along well, recently there had been some tension as the General Manager felt there was still a lot of opportunity in their market and wanted to agree to a more ambitious budget than the one proposed by Corporate.
Annette had used her influence to resist the higher budget – her track record of success meant that the Chief Financial Officer trusted her judgement and was beginning to question the wisdom of the General Manager’s optimism. But she had begun to have doubts: maybe they could achieve more; maybe she and her team were coasting; maybe their history of success meant they were unwilling to take on new challenges where there was a risk of failure. Either way, Annette knew that the future was more uncertain for her: either she agreed to a higher sales budget or she opposed her General Manager which could have serious consequences for her career. She decided to take the initiative and find out if her sales force were as good as she thought, or whether their success was hiding a problem.
How to tell if your sales force is underperforming, despite achieving its sales targets
The prerequisite is an open, objective mind that will allow you to see things as they are, not how you’d like them to be. If you have that, then there are clues that you can look for. Here are a few examples.
Clues from company results
You are losing market share even though you are consistently achieving sales targets.
You look at results from a narrowly defined market segment whereas competitors who trade in other segments are actually performing much better than you.
A high proportion of revenue comes from a small number of customers.
Clues from the planning process
The planning process leans heavily on bottom-up projections provided by the sales force.
The planning process gives more importance to what has been sold it the past rather than current market size and trends.
The board relies too heavily on sales force projections when deciding on the corporate plan – more ambitious projections from marketing or finance, for example, are not considered.
There is tension between sales and other departments who a have more aggressive outlook?
Clues from customer mix
The share of business from existing clients/customers is higher than industry norms.
New client/customer acquisition is lower than expected or than your competitors.
The share of revenue from new clients is lower than industry norms.
Contract win rates high (which could be a sign that the sales force tends to pursue only “certainties”).
Clues from customer management practices
There are a lot of “special relationships” between sales people and their customers.
You have a few very deep customer relationships.
Sales people want to keep relationships exclusive, resisting joint calls with colleagues and other forms of cross-function collaboration.
Clues from sales force organisation
There is a high proportion of long serving sales people.
Staff turnover in the sales force lower than industry norms.
Clues from sales force remuneration
More sales people are achieving their target than is normal (a sign that targets could be soft).
Sales compensation levels are higher than average for your industry.
Sales people regularly earn variable pay elements (bonuses and commission) at the highest levels.
Sales activity levels are low, despite the results, in terms of meetings per week, prospecting calls per week.
Sales force costs are higher than industry average.
Annette Picard took the initiative. She proposed to her boss to appoint a consultant to conduct a thorough, objective assessment of the sales system and the sales force to determine if they really were operating at their full potential or if there was room for further growth. By the time the final report was presented, it was no surprise to her that the sales force had been underperforming, despite achieving their objectives.
Annette implemented several of the recommendations for change, and over the next three years was able to increase sales much faster than market growth rates (and much faster than her own historic growth rates). She was still the toast of the annual management conference - her colleagues were impressed with her vision and courage to change a winning formula and to achieve even more impressive sales as a result.
Implications for business owners
If you are planning to sell your company, an underperforming sales force means you’ll achieve a lower selling price for two reasons. First, your current profits will be artificially low, meaning any buyer will be getting a bargain. Second, future profits are at risk – especially if you are losing market share – which means any potential buyer or investor will apply a lower multiple when valuing your company (Value = Profit x Multiple).
Changing results means changing culture – from risk averse to managed risk taking; from complacent to ambitious. Achieving this kind of change takes time so, if you are thinking of selling, you need to start changing the culture now.
Implications for investors or potential buyers
Don’t be fooled into thinking that your target company is worth more than it is. Complete a thorough sales due diligence to determine whether they are trundling along in the slow lane or genuinely going for it.
There could be a huge upside. If the sales function is cruising, you will be able to increase revenue and profits and over-deliver your investment case.
Peter Reynolds has 30 years’ experience in sales leadership and general management in Europe and Asia, and can help you spot an underachieving sales force to help deliver increased revenue and profits.
You can email Peter on email@example.com or call him on +44 7857 264720.