Do You Really Understand Your Customer's Problems?

I have the opportunity to speak with the sales leaders for a lot of small and medium-sized businesses. One common sales challenge I have been hearing a lot lately is that sales people are not having consultative dialogues with the customer. As a result, sales cycles become longer or win rates drop. Let me paint the picture.

If you are a seller—it’s happened to you.  If you are a sales manager—you see it all the time.  A seller is working on an opportunity with a new prospect and all signs indicate that they are going to buy.  Then after a long period of silence from the prospect, the seller is told that the purchase or initiative is going to be put on hold.  The salesperson can’t figure out what went wrong and instantly scrambles to put the deal back together (sometimes making things worse).  The sales manager is confused as to why business that was once forecasted in the pipeline has seemingly disappeared for no reason.

While the customer may give the seller several reasons on why they decided not to go forward, chances are that the seller never truly understood the factors that were impacting their buying decision in the first place!

Think about the last purchase you made where you felt you had a positive experience with the salesperson.  Did the sales person introduce themselves and immediately tell you what they thought you needed? Did they ask you questions to better understand your situation and accurately diagnose your needs?

Here is a good way to test yourself to see if you understand your customer’s real problems.  Think of a specific opportunity you are working on and name two or three challenges that your prospect wants your capabilities to help them resolve. In most cases, this is the easy part.

Now comes the hard part. Ask yourself, “What bad thing will continue to happen if they don’t do business with us?”  It could be that their revenue won’t grow, they will lose market share, miss a goal, etc. Obviously, it varies based on product or service.

But if you can’t answer the question, chances are your prospect can’t either.
The basic principle here is to diagnose before you prescribe.  When you can answer the question, “what bad thing will continue to happen if they don’t do business with us?” you are ready to provide your prospect with a recommended solution. Challenge yourself to answer that question for your clients. They will reward you with their business.

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Recurring Revenue within Existing Accounts vs. Acquiring New Customers

What Happens When Sales Organizations Focus Exclusively On Recurring Revenue within Existing Accounts vs. Acquiring New Customers?

We have all heard of – and many of us follow - the supposition that selling to existing customers is easier and a more cost effective way to generate revenue and thus a great way to grow business. Based on a recent observation I would like to offer a contradictory theory to this widely held perspective.

At SPI we have recently started working with a client that is a venture capitalist. The principals of this firm worked as executives in some of the top software companies in the world so they focus on their comfort zone; acquiring and turning around failing software companies. Among all of these failing companies that get acquired I have observed a consistent theme:

Apart from having no repeatable sales process, misalignment of their marketing efforts, and ineffective pipeline management they had little to no focus on selling to new customers and spent all their time servicing the existing by pushing renewals and upgrades. In fact, the only new logo business would come via unsolicited RFP’s (Tenders). And we all know the low win rates associated with sellers who live their lives as “Column Fodder”. Of course, based on the “compensation drives behavior” theory the sellers were compensated on this approach. To drive renewals sellers would do things like discount high profit items, namely services, to get the additional licensing revenues. In my humble opinion their poor performance was preordained by their approach.

I cannot and will not advocate a complete reversal of their approach but I will make the obvious recommendation that balance is the key to their salvation. Not backing the truck up to their loading dock and dumping your products and then running like hell for the next logo, but a “healthy pipeline” of net new and existing customer opportunities supported by effective and attentive customer service is the best practice.

To Play or Not To Play

“To Play or Not To Play”

…that truly is the question. In the workshops that I facilitate, I often ask the group, “who finishes first in a hand of stud poker”…rarely do they get the answer correct. I hear things like the person with the best hand or the person who bluffs the best, of course the answer is…the person who rakes in the money from the center of the table, duh! Then I ask…who finishes in second place…ever more rarely does this get answered correctly. I hear things like everyone else or the person who was in it until the final bet, of course the answer is…the person who folded first, as they are the one who lost the least.

Folks if you can’t win DO NOT play. It is as simple as that. Now I was not a great salesman, OK maybe I was. But one of the things I learned very early was to not waste time on opportunities that I could not win. I remember sayings such as “It’s not whether you win or lose, its how you play the game”… in the sales world that’s a bunch of crap. I will tell you winning is the only thing, for me. As soon as I decide I can’t win, I am gone faster than a soccer mom driving to Starbuck’s. If you can’t win, don’t play…have I already said that? I know you are afraid to disengage because some chance of winning is better than no chance. Here’s what I would tell you, if you spend time on opportunities that you can not win, you are stealing from yourself. That wasted time will never be regained, it is lost FOREVER!

What? You say your pipeline is not full and if you disengage, your manager will make you pppppprrrrooossspppeeecccttt? I know that is hard for me to say too. So, when is it easiest to walk away from a bad deal? - when your pipeline is full. So get off your duff and fill your pipeline with “latent” opportunities. Don’t know what latent means, look it up in your Solution Selling® dictionary. Oh, you say your prospecting consists of aggressively waiting by the phone for someone to call you to buy something…great! Thank goodness you don’t work for me.

Happy Selling!

What does an ideal sales pipeline look like?

One of our clients asked us recently: “What does an ideal sales pipeline look like for our business?”  They were looking for reliable standards that sales managers could use to evaluate future business from each of their sales professionals.

As we’ve discussed previously in this blog, the old rule of thumb for pipeline coverage — a 3-to-1 ratio of total value of all opportunities in the entire pipeline to the sales goal — doesn’t hold up very well anymore.  While the old 3-to-1 pipeline coverage ratio worked well during the extended cycle of worldwide growth throughout the 1990’s, it has become outdated today.

Evaluating only the pipeline’s total un-weighted value relative to a sales goal doesn’t tell us very much about what the pipeline contains. Consider this: if you win only 10% of your sales opportunities, then you better have a 10-to-1 pipeline value to goal ratio.  If your win rate is 50%, a 2-to-1 ratio will do the job.  If all of your opportunities are in the early stages of your sales process, then you will need many more opportunities than if they are all in the final stage of your sales process (…assuming that you have a defined sales process, of course).

If aggregate evaluations of pipelines produce distorted views of sales potential, then what criteria should sales professionals use to determine the health of their business development?  After working with hundreds of clients, we’ve found an approach to defining an “ideal” pipeline that incorporates the following key elements:

• Sales Cycle Complexity (Quality)
• Days in Stage (Speed)
• Yield Probability (Volume)

By understanding each of these elements, salespeople can determine what their optimum pipeline should look like, and then adjust their selling behavior relative to how well their pipeline conforms to this standard.

Understanding Sales Cycle Complexity

In general, the more complex the sales process, the longer it will take to develop and close business.  Strategic products and services that deliver high value to customers, are mission-critical to customer operations, and which require multiple evaluators and decision-makers in the buying process almost always have longer average sales cycles than products and services that are simple point solutions and which require only a single decision-maker.  Understanding how your customers buy is therefore the first step in defining your ideal pipeline, as this indicates how many stages buyers must complete before coming to a buying decision.  Each stage represents a milestone in their decision process, the completion of which can be determined by identifying an appropriate verifiable outcome - a customer-exhibited behavior that tells sellers if they are in alignment with the buyer - for each stage.

For example, your buyers might go through five stages in their decision process, in general:

• Develop Business Strategy
• Determine Needs
• Evaluate Alternatives
• Select Solution / Evaluate Risk
• Resolve Issues / Finalize Contract

Your sales process should align with each of the stages in your customers’ buying process.  So, using the above buying process as a guide, your corresponding selling stages might be:

• Create Opportunity
• Qualify Sponsor
• Develop Power Sponsor
• Prove Capabilities
• Negotiate and Close

Of course, your sales process could have more or fewer steps, depending on how your customers prefer to buy.  And you could have different variants of sales process, depending on your portfolio of solutions and the kinds of customers you serve.  However, settling on a standard process that conforms with the majority of your typical sales opportunities will help define the ideal shape of your pipeline.

Understanding Days in Stage

Once you’ve established a buyer-aligned sales process, you can then determine the average time in cycle that your typical prospects take to move through each stage.  For example, if your average sales cycle is about four months, and if you generally engage with customers in the Qualify stage, then your average time in selling for each stage might be:

• Create Opportunity - complete
• Qualify Sponsor: 15 days
• Develop Power Sponsor: 25 days
• Prove Capabilities: 45 days
• Negotiate and Close: 35 days

Total number of days in a typical sales cycle: 120 days

The number of sales process stages and each of their average durations tells us the length of the total pipeline, and a general level of effort required at each stage.

Understanding Yield Probability

As opportunities move through each stage of your sales process, they get closer to a buying decision, and therefore, have a higher probability of closure.  We can therefore assign a yield probability to opportunities that complete each stage of the pipeline, to represent the likelihood of winning.  (This assumes that you are qualifying opportunities at each stage of the sales process, and that unqualified opportunities are being filtered out.) 

Your yield percentages for your sales process might look like this:

• Create Opportunity: 0%
• Qualify Sponsor: 25%
• Develop Power Sponsor: 50%
• Prove Capabilities: 75%
• Negotiate and Close: 100%

Ideal Pipeline Volumes

With a well-designed buyer-aligned sales process, you can develop standards for the ideal volume of opportunities flowing through the pipeline that take quality, speed and volume into account.  The following formula determines the ideal amount of opportunity potential that should be in each stage of the pipeline:

(Goal x (Average Sales Cycle / Time Remaining to Goal) x (Average Days in Stage / Total Days in Average Cycle)) / %Yield in Stage = Ideal Amount for Stage

Sounds simple enough — but don’t worry, a well-designed CRM system should be able to calculate this for you!

Using our example sales process and yield percentages above, the ideal amount of value that should be in our pipeline for the Qualify Stage, assuming that it is January 1st and our goal for the year is $1.8 million, would be:

($1.8 million x (4 months / 12 months) x (15 days / 120 days)) / .25 yield = $300,000 Ideal Amount for Qualify Stage

Using these assumptions and applying the formula to all remaining stages results in an ideal pipeline of:

• Create Opportunity: n/a
• Qualify Sponsor: $300,000
• Develop Power Sponsor: $250,000
• Prove Capabilities: $300,000
• Negotiate and Close: $175,000

Total pipeline: $1,025,000

Note that the total pipeline in this example does not equal the desired goal - isn’t that a problem?  No, because this formula takes into account the average sales cycle length and the amount of time left to attain the goal.  In the above example, this total amount of unwieghted pipeline value is less than the annual goal because there are at least three sales cycles remaining before the goal deadline (4 months average sales cycle / 12 months remaining until goal = 3 sales cycles).  When the probability of winning for each stage is also taken into account, the total projected revenue on this idealized pipeline is equal to the desired goal amount.

This formula is most useful for determining an ideal pipeline for a rolling period forward — in our example above, a rolling 12-months forward.  If you choose to look at pipeline management for a shorter period, then you will find that the formula will recommend increasingly large total pipeline volumes as you get closer to the goal deadline.  That is because it is including volumes from stages that cannot be won before the goal deadline - as a result, you should discount any pipeline volume for stages that are outside of the time remaining.

This perspective on pipeline management replaces the old “3-to-1” coverage rule that once served managers well.  This approach assumes that your sales process is aligned with how your customers want to buy, and that you are qualifying opportunities rigorously throughout the sales cycle.  As you can see, you can have total pipeline volume to goal ratios of less than 1, and still achieve your goal.

Good luck and good selling!

Solution Selling Essentials: How to Stimulate Buyer Interest, Part 2

Parts of this post adapted from the Solution Selling Fieldbook (2005, McGraw-Hill, ISBN 978-0071456074 by Eades, Touchstone and Sullivan).

Imagine that you are at a social gathering with your significant other, and you strike up a conversation with another couple that you just met. The conversation naturally progresses to talking about their family. They mention how their youngest child has had a lot of trouble at school lately. They tell you how their child has been late to class several times, turned in homework assignments late and how he has been reprimanded by teachers for talking out of turn.

If this couple shared this type of experience with you, what is your likely natural response?

If you can relate at all to the couple’s story then you might respond by sharing a similar or worse experience. The natural reaction upon hearing a story like this is to respond with one of your own.

Now, imagine how you would feel if a stranger approached you at the same party and asked “So, do you have any problem children?”

At first, this may sound silly, but in essence that is what salespeople are doing when they prematurely ask a prospective buyer to share their critical business issue - their pain - with them.

To earn the right to ask about a prospective customer’s pain, you have to share some pain with them. Sharing a customer reference story is an effective way to establishing credibility, and to share something about a potential pain, so that they are more comfortable about sharing their pain with you.

A good reference story should be expressed in this format:

• Situation: A customer job title and vertical industry
• Pain: The pain of the job title above
• Reason(s): One (or more) of the reasons for the pain biased to your product or service
• Capabilities (when, who, what): In the words of your customer, the business event, the player(s) and specific capabilities needed to address the pain: He / she / they said they needed a way…
• We provided: If the “solution” is described properly above, all the person should have to state is: “we provided… him / her / them with those capabilities”
• Result: Specific measurement is best (articulated in $ or %). The “Result” should address the pain.

So, a good example would be:

• Situation: VP Sales, manufacturing industry
• Pain: Missing new account revenue targets
• Reasons: His customers were required to place all orders via their salesperson. Salespeople were spending all of their time servicing existing customers and not developing new ones
• Capabilities: He said they needed a way… (when) when wanting to order, (who) for existing customers (what) to place their orders directly on the internet thus allowing his salespeople to have the time to develop new customers
• We provided: him with those capabilities
• Result: Over the last six months, existing customers placed 96% of all orders using the internet. His salespeople have increased the size of the customer base 10% and overall revenue 6%

Note that the most important part of a reference story is the result.  A reference story without any kind of clearly expressed results is like ending with “…and they lived happily ever after.”  Great for fairy tales, but not very useful if you are trying to stimulate the interest of a prospect in the value of your solution to their problem.

You can use reference stories in three ways:

1. At the beginning of a sales cycle, after delivering the message in your business development prompter: after arousing the curiosity of a potential prospect, a reference story is the best way to pay it off, and to begin a conversation with the prospect about their specific business challenge.
2. In the early stages of the sales cycle, as part of an introduction during the first call or meeting: reference stories are a great way to break the ice and begin a good business conversation with a prospect.
3. Later in the sales cycle, to be used as a form of proof: reference stories are a powerful form of proof of value for your offerings, after you have helped a prospect develop a vision of a potential solution.

If you don’t have any reference stories, budget some time to call your current customers, and ask them about the kinds of results they have acheived.  This also gives you a secondary benefit of potentially finding some incremental sales opportunities.

Good luck and good selling!