Salespeople need to become financial managers
Sunday, August 25, 2013/
In late 2012, we published the detailed 49 page 12 Sales Trends Report for 2013 and released a brief summary of each sales trend in December 2012. In it was the sales trend: Salespeople becoming financial managers.
Here is an extended overview.
It’s a realty that in today’s economic climate companies are devoting considerable attention to cost-cutting. However, by comparison, sales organisations are spending very little time and effort improving pricing and margin management practices.
Actually, not many salespeople or their managers have learned the skills to price their products effectively or to manage their margins more professionally. Yet, with buyers becoming increasingly aware of the difference between costs and value, the expectation that suppliers and service providers will deliver more value, at lower cost, has become the practice de jour.
The real danger isn’t in the possibility of cutting costs. The danger for companies are those sales teams and their salespeople who fail to understand the difference between cost and value or who are unable to articulate an effective value proposition or discuss the financial ramifications of purchasing decisions beyond price. These sales teams are going to find themselves under increasing pressure to drop prices in order to compete. In the process they are likely to damage already hard pressed margins.
In today’s high pressure sales environment the impact of cost cutting, price and margin management tend to be ignored. Salespeople need to learn how to respond in order to protect margins. In fact, the successful salesperson of today is more likely to be a business executive who can sell, than a salesperson who understands business. And along with the need for sound business acumen comes an innate understanding of finance and the impact of discounting, pricing and margin management.
The challenge is aggravated by the fact that many financial systems are designed to meet the needs of the accounting function in the organisation rather than sales functions. Typically these systems don’t adequately provide timely information on customer profitability at sales level. Without this information, particularly in times of volatility and intense competitive sales activity, sales managers are merely guessing margins based on variances from previous financial statements. To add to the challenge, many salespeople are saddled with manually intensive processes for price changes and approvals that are slow and result in errors and customer dissatisfaction.
What to do? For starters, companies are going to have to raise the level of training in business for professional sales managers and salespeople. In particular sales managers are going to have to learn to understand and work with these three key financial criteria:
Cost to serve: Typically, the smallest 50% of customers in a sales territory return less than 5% of revenue and gross margin in the sector. Re-designing sales territories and handing off the lower 50% to less expensive sales resources/channels (i.e. internal sales teams) will not only reduce costs, but actually improve service levels and penetration into this segment.
Cost-plus pricing: A lack of understanding of the true value of product and service offerings and how this value compares with that of competitors typically results in cost-plus pricing decisions by sales management. Without a value-based pricing strategy, companies fail to understand the multiple segments they serve and often under-price and under-serve some segments, while over-pricing and providing unwanted service to others, resulting in low margins or loss of share.
Non-differentiated offering: Even companies with well thought-out segmentation programs often fail to recognise that accounts in the same geography, size and application typically have different needs and place value on different attributes. Clear, concise account plans that recognise the value drivers at key accounts level will enable sales and account managers to design action plans that will both strengthen their account relationships and develop win-win initiatives.
Remember, everybody lives by selling something.
Sue Barrett is a sales expert, business speaker, adviser, sales facilitator and entrepreneur and founded Barrett Consulting to provide expert sales consulting, sales training, sales coaching and assessments.