Frank V. Cespedes: Sales Management That Works

Introduction: New Sales Realities

You cannot manage a profitable response to market changes unless you understand changing buying behavior and the corresponding impacts on business-development tasks.

Selling involves a complex combination of factors: a coherent strategy, relevant hiring practices and incentives, and ongoing performance management that motivates the right behaviors in the face of many changes outside the control of your company.

For over a half century, buying has typically been framed in terms of a hierarchy-of-effects model: moving a prospect from awareness to interest to desire to action.

But research (and probably some reflection on your own experience) indicates a different buying reality. Rather than moving sequentially through a funnel, buyers now work through parallel activity streams to make a purchase decision.

BUYING IS A PROCESS OF PARALLEL STREAMS, NOT A LINEAR FUNNEL

Explore. Here, buyers identify a need or opportunity and begin looking for ways to address it.
Evaluate. Buyers take a closer look at options uncovered while defining the need or opportunity.
Engage. Buyers initiate further contact with providers to get help in moving toward a purchase decision.
Experience. A formal buying decision is made and buyers use the product, perhaps in pilots or proof-of-concept trials for new technologies, and develop perceptions about its value.

Buying is now a continuous and dynamic process, not a linear funnel. Understanding where customers are, how they navigate between streams in your market, and how to interact with them appropriately in a given stream is now central to effective selling.

One reason the sales force remains so important is that most products and services are parts of a wider usage system at the buyer.

In other words, solution selling and account management skills still matter. But how this is done by effective salespeople — that is, the sales tasks — is changing.

The nature of references has changed. In the past, the seller would cite a few satisfied customers.

Now, through the web, customers can connect with each other.

Also affecting sales tasks are activities like content marketing and lead generation by email and other means. Traditionally, these activities were part of marketing’s domain, not sales. But these lines are blurring.

Buying streams mean prospects now touch your brand and company at many different points (online, offline, marketing collateral, and so on), and each touch impacts sales tasks.

Despite advances in technology over the past decades, most sales models are incapable of dealing with the reality that buying is so often continuous and dynamic — an ongoing motion picture.

Aligning buying and selling is a process, not a one-shot deal.

As firms confront new buying processes, required sales competencies change.

Yesterday’s distinctive sales strengths have become today’s minimum skill requirements in more industries. This has implications for hiring, training, compensation, and performance evaluations.

Cross-functional coordination — and its evil twin, misalignment — is pervasive in selling efforts today. The same surveys found that while seven of ten salespeople say it’s critical to have a single view of the customer across departments, fewer than one in five (17 percent) rate their companies as great at providing this capability.

A study of messages on Twitter, Yahoo, and others found that more than 90 percent did not diffuse at all, about 4 percent were shared once, and less than 1 percent more than seven times.

Moreover, interactions between online and offline channels have important implications for revenues and costs. Shoppers who pick up their online orders in a store spend more — about an additional 25 percent.

Shopping has always been a social as well as an economic transaction since the Greek Agora, Roman Forum, Grand Bazaar in Istanbul, Le Bon Marché in nineteenth-century Paris, malls in the twentieth century, and through decades of global internet use.

Online ads were clicked by only 0.06 percent of viewers, and an estimated 60 percent of those clicks were accidental.

“Predictions are always risky, especially about the future.” But it is now and likely to remain a multichannel world. Buying behavior should drive selling, as retail history itself shows. Department stores were a response to the commercialization of women’s fashion in the late nineteenth century, so stores offered multiple brands and pioneered consumer credit via installment-payment plans. Malls responded to suburbanization in the twentieth century. There’s always been “disruption”: in any market, some figure it out and others do not.

Effective selling is ultimately an organizational outcome where people and performance management practices fit your sales process, pricing approach, and choices about go-to-market partners. It’s the fit of people, process, and pricing and partners that drives sales productivity.

People. Who you hire, how, and what you do in training and developing salespeople are more important and expensive than ever.
Process. Looks at choices in constructing and reconstructing a replicable process of sales efforts and the implications for customer selection, call patterns, conversion analytics, developing a deal profile, compensation, and using data to understand buying journeys and inform relevant sales activities.
Pricing. Examines how pricing can build or destroy profits in a changing landscape, the importance of price testing in today’s information-rich markets, and how to link pricing with your value proposition, sales model, and selling behaviors.
Partners. It’s an omni-channel world where prospects and orders touch multiple points in the distribution channel for most products and services. Selling now also means working with channel partners that are influential during the buying journey and after the sale.
Productivity. Because of the central role of customer acquisition in a company, changes in selling requirements have wider organizational implications.

PEOPLE

Hiring

Once hired, ramping reps up to full productivity now takes, across industries, more than nine months.

Although hiring in sales is as or more expensive than many capex decisions in companies, it rarely gets the same attention.

More than 50 percent of US college graduates, regardless of their majors, will work in sales at some point in their careers.

Unlike GAAP principles in accounting, the mechanics of an NPV calculation in finance, engineering equations, and the laws of physics, selling jobs vary greatly depending on the product or service sold, the customers a salesperson is responsible for, the relative importance of product or technical knowledge, and the people contacted during sales calls.

Categories like hunters and farmers are, in my experience, often used by managers as post hoc rationalizations for their hiring choices, not ex ante hiring criteria.

Differences in individual sales performance are very wide in most firms. The top 20 percent of salespeople often account for 50 – 60 percent of their company’s revenues. As one study notes, if 20 percent of your salespeople are making 60 percent of revenue, that’s a 3x multiplier; and since the remaining 80 percent bring in only 40 percent of revenue, that is a .5x multiplier, meaning that the top sellers are 6x more productive than their peers.

In business, there’s no such thing as performance in the abstract. There is only performance in a given context — here, not there — and much of selling depends upon the relationships, knowledge, and mutual trust that the rep establishes with others in the company.

The effects of successful talent management seem to be cumulative: good people learn from each other. Again, this is especially true in sales, where modeling behavior is a key driver of how people develop.

Decades of research consistently show that managers overrate their ability to predict someone’s performance and fit for job tasks on the basis of interviews.

People are inconsistent in making summary judgments of complex information.

To be more consistent in making judgments, many companies now routinely use personality assessments in the hiring process. The DiSC profile, which allegedly measures traits like dominance, influence, steadiness, and conscientiousness. Research has not identified personality traits that consistently correlate with selling performance.

Selling effectiveness is a function of the task(s) and the fit of the person with that role.

In sales, people must work with others in their companies; they represent their company and its products to prospects; a poor hire not only is costly but can also do collateral damage to your brand while representing your firm; and in a high-performance organization, managers should feel personally accountable for their hiring decisions.

Good hiring starts with knowing what you are hiring for in terms of key sales tasks.

Understanding the customer-conversion process and where the salesperson (versus marketing or a customer success team) has the most influence.

At InsideSales.com, cofounder Ken Krogue did that and increased sales productivity. Rather than having one rep responsible for lead generation, scheduling meetings, running demos, closing deals, and managing upsells, Krogue split the job into smaller pieces. Krogue eventually created a model where SDRs generate leads, business development reps (BDRs) schedule demos and do outbound calling, and AEs then focus on getting that prospect from demo to close.

The structure of your go-to-market channel should affect sales hiring profiles. In selling to retail trade customers, for instance, there is typically a range of tasks that can be grouped into three categories:

Volume-influencing activities
In-store service activities
Supply-chain management activities

Because sales tasks are determined by buying contexts, not the other way around, what you do and don’t need in a sales hire differs greatly by industry.

Hire for the task, not the title. But many companies do precisely the opposite.

My colleague Joseph Fuller and his research partners found that degree inflation (the difference between the demand for a college degree in job postings and the educational background of employees actually performing those tasks) is a growing phenomenon, and sales occupations are the biggest category affected by degree inflation.

Especially in sales, where on-the-job learning is a big driver of development, you should embrace a more expansive view of talent, with less weighting given to degrees and more to the tasks involved.

Complement interviews with role plays, task assignments, and whenever possible, job trials and internship-type hiring scenarios. Selling is about behavior, not only attitude.

More firms are using algorithms in hiring and for “people analytics” more generally.

Some now use a video-interview service called HireVue in which an AI program analyzes candidates’ facial expressions and language patterns.

As the old saying goes, “You hire your problems.” Exit interviews at most firms show that a primary cause of poor performance and turnover is job fit.

You’ll never have enough stars for all positions, and you should allocate the best sales talent to those areas that have both high impact and high variability.

In activities with low impact or little variability, you don’t need stars and should not overpay, either in money, time, or untapped market potential.

A common problem is hiring the right person at the wrong time. In many SaaS businesses, for instance, sales activities with high variance and impact early on are about initial customer acquisition in a land-and-expand approach. As the market develops, key activities tend to shift toward reducing churn, working with engineering on custom applications for higher-potential accounts, and upselling or cross-selling additional services. Allocation of sales talent should change accordingly.

Training and Development

Companies spend an average of $ 1,459 per rep on sales training — almost 20 percent more than they spend per capita in other functions. Yet, when it comes to equipping sales teams with relevant knowledge and skills, the ROI of training is disappointing. Surveys report a steady decline in the share of sales reps achieving their quota.

Onboarding is usually a one-off session where reps are expected to absorb a lot of information in a short time. Then, additional training is often limited to new product introductions or annual kickoff meetings to set quotas.

Moreover, training programs tend to focus on a particular selling methodology. Although methodologies can play an important role — encouraging consistency, disseminating best practices, and providing common metrics to monitor and evaluate — the same methodology is rarely relevant across different buying-selling situations.

Salespeople need training that is specific to their unique needs and tasks.

Research finds no clear cause-and-effect links between personality characteristics and sales success.

Selling is not a science, reducible to ex ante rules and certain personalities.

Salespeople learn by doing as they accumulate a base of experiences across buying contexts. Then, successful salespeople organize these experiences into categories of selling situations and apply the appropriate tool(s) to the relevant situation. This is called adaptive selling: the ability to alter behaviors according to the nature of the customer.

When people must respond to changing circumstances, learning involves the ability to retrieve a relevant model or rubric, and this ability is reinforced or reorganized with each iteration.

People need clear expectations about what they will learn and why, so they understand the gap between their current capability level and the level associated with proficiency. This may seem obvious but consider how much sales training fails to meet this base condition.

Andy Paul, author of a smart blog about sales, puts it well: “Sales training is primarily concerned with the ‘how’ of selling. Sales education is about the ‘why.’ Sales education provides a seller with the context to effectively put into use what s/he has learned in sales training.

Effective learning matches the content and goal to the current capability of the individual and the desired outcomes.

People learn to handle unpredictable, changing environments through repeated practice. Adults learn best when they can apply new information or a skill and see the results.

This is crucial in sales where learning involves behaviors, not only knowledge. Talking about selling is not the same as selling.

In sales, the ultimate feedback comes from the customer: you win or lose the sale. But that is an outcome, and the purpose of training investments is to increase the odds of sales success.

Good managers make account planning more than a recitation of next year’s bogey; it’s also a discussion of what is and isn’t working at that customer in terms of getting access to more senior decision makers, introducing a new product, cross-selling, or another goal.

An underutilized vehicle for reflection in sales organizations is win/loss reviews. In most firms, win/loss analyses focus on losses and a scenario where the rep attributes a loss to “too high a price” and the manager says the rep was “outsold.” But wins are as important to understand as losses.

What the military calls an after-action review (AAR) is a simple, disciplined approach that helps to focus on going-forward learning, not just apportioning credit or blame.

To improve the ROI in sales training, you must identify the skills that matter in your business.

First, you must understand the externals. Value in any business is created or destroyed in the marketplace.

The best way to identify the skills most relevant to your business is to consider how your segment focus, products, customers, and salespeople — even within your own firm — differ from others.

Sales tasks differ significantly within the same category.

Using “product” as a training focus is dangerous. At one level, firms know this. It’s common in sales training to distinguish features from benefits.

In the SMB segment, inside sales is often a stand-alone function with few or minimal cross-functional issues.

In SMB accounts, the business owner is often the buyer and decision maker: point, click, done! But in enterprise accounts, the decision-making process is more dispersed.

A simple matrix developed years ago by Igor Ansoff helps to clarify generic growth options for most firms. Ansoff’s point was that growth scenarios generally involve selling the same products to current or new customers, or selling new products to current or new customers.

The next step in getting better training ROI is to focus on core skills and tools that prepare reps for the situations they’ll encounter in customer interactions.

Three areas that require training in most sales forces: customer discovery interviews; structuring and conducting sales conversations; and closing a sale.

Especially in B2B contexts, in changing markets, and for new-product initiatives, customer discovery interviews are often part of sales responsibility.

Set Objectives and the Visit Team. A sure way to do poor visits is to impose too many agendas. Set realistic expectations about the knowledge that can be obtained through customer interviews.
Develop a Discussion Guide. A discussion guide is not a questionnaire. Rather, think of it as a going-in agenda with sequenced topics and conversation starters.
Conduct the Interviews. The interviews are the main event and require asking useful questions about priority topics. Asking questions is a subtle skill that usually comes with experience, but training can help reps to acquire that skill or at least avoid common mistakes. Cindy Alvarez, a consultant who has helped many firms to plan a program of visits, makes an important distinction: “Customer development isn’t asking customers what they want; it’s seeking to understand what they need, how they work, where their pain points and highest priorities are. Customers may not be able to articulate what they want, but they can’t hide what they need.”
Debrief and Follow Up. A final and often overlooked step is to debrief while impressions are still fresh. A customer visit can yield many insights, but making sense of information does not occur automatically.

Customer discovery is about understanding what and to whom you are selling. Conversations with particular prospects are where sales do or don’t happen.

Context. This dimension, which is about setting the stage, is often overlooked. The result is that the prospect may expect a conversation about X, while the salesperson talks about Y. Or, even worse, the salesperson begins a call with an unfocused PowerPoint presentation about his company and its products. A useful tool for establishing context is what David Mattson of Sandler Training calls the “up-front contract,” which has the following elements:

Purpose. Make sure that buyer and seller are on the same page about the purpose and desired outcomes of that call.
Time. Confirm the time actually available for the call.
Buyer’s agenda. Ask the buyer what topics they want to hear about and any questions they have that you want to make sure are answered.
Seller’s agenda. Let the buyer know what you are going to ask.
Outcome(s). Tell the buyer what you’d like to accomplish by the end of that call.

Content. This dimension requires a salesperson to think through what she wants customers to know, beyond what they already know, about the product, the seller, and the data, referrals, or other information relevant to supporting her messages.

Contact. This dimension refers to what a rep must learn to do and to communicate, verbally and nonverbally, in their interactions throughout a sales conversation.

Closing is vital, and many business developers, confusing a good conversation with a successful sales call, fail to get the order. A decision to alter behavior is not simply made in response to a persuasive or good ROI message, but throughout a persuasive message. Successful closing requires more than comprehension and agreement; it requires commitment to behavioral action, and incremental commitments are vital. Effective closing is the consummation of previous commitments made by the prospect, not a high-pressure response to the seller.

It is difficult to train and develop someone who is a poor fit for the job in the first place. Hiring and training are linked in their impacts on performance.

Linking recruiting, hiring, and training processes can support growth and help to build a sales team for long-term success.

Any sales force is composed of people with different temperaments, capabilities, and learning styles. Effective training addresses that heterogeneity if you control what you can control.

It’s not the customer’s responsibility to make selling easy; it’s the job of effective training to help align selling skills with actual buying behavior in your market.

As Aristotle said a long time ago, “Excellence is a habit.” In addition to the right people and developmental initiatives, you also need repeatable performance management practices,

Performance Management and Coaching

The venerable maxim still applies: “People join companies, but they leave managers,” because performance feedback and coaching are crucial for professional growth and development.

People’s level of motivation is largely the result of how they are managed. Especially in sales, how you allocate and manage resources and people often has more impact than how many resources you allocate.

A global survey by McKinsey indicates that most CEOs don’t find the performance management process in their companies helpful in identifying top performers, while over half of their employees think their managers don’t get the performance review right.

Peter Cappelli and Martin Conyon examined seven years of appraisal data from a large US company.

When they looked at employees’ actual performance outcomes, Cappelli and Conyon found little evidence that good performers in one year would be good performers the following year.

To provide useful feedback, you first need to have, and know how to use, performance data.

The purpose of appraisals and coaching is twofold: an accurate and actionable evaluation of performance, and then development of that person’s skills in line with sales tasks.

Sales is undergoing a sustained data revolution. Among other things, sales managers now receive more scrutiny from other executives with access to that data.

But data, even self-correcting data as in some AI programs, is never the same as the answer to a management issue. Peter Drucker in an article aptly titled, “The Manager and the Moron,” emphasized this: “The computer makes no decisions; it only carries out orders. It’s a total moron, and therein lies its strength. It forces us to think, to set the criteria.”

Context matters in diagnosing and evaluating performance.

Most of us believe that we are above-average drivers, but we’re not. The same is true with coaching.

One reason for this gap between self-perception and reality is that many sales managers believe coaching is about sitting down with a rep to examine sales results and discuss pending deals. It takes more than that.

Another reason is that few people are willing to admit they don’t really know how to give developmental feedback that is focused on behaviors and actionable options versus “get better” exhortations.

ZenRecruit used an insidesales model. Most leads were generated by content marketing, search engine marketing, paid media, retargeting, and email marketing — all directing prospects to ZenRecruit’s website.

A common cause of prospecting issues is the salesperson who spends too much time on unqualified opportunities. Coaching here can usefully focus on better customer-selection criteria.

Sales performance issues at any point in customer conversion are typically intertwined, and coaching is about breaking this Gordian knot with behaviorally appropriate advice geared to that individual.

The performance issues differ by rep and in terms of sales tasks, raising distinct questions and improvement initiatives relevant to each rep. A one-size-fits-all approach, or a focus limited to outcomes, will not be effective and can be counterproductive. Overly general feedback increases feelings of defensiveness, rather than openness to behavior change, because it involves broad and unfocused judgments. Good coaching helps to clarify the differences inherent in any sales force and lets both manager and rep then concentrate on behaviors that can be improved.

Sharon Ruddock is chief learning officer for sales at SAP. Comparing a rep’s performance on digital learning assignments with that rep’s deal history over time helps to indicate why and how the rep would benefit from coaching about objection handling or how to prepare for executive-level conversations. Ruddock’s team works with sales managers on their coaching skills, forecasting, and ability to diagnose performance and learning opportunities with their people.

Sales managers who complete the program have increased their team’s win rate by 28 percent and the average value of closed deals by 23 percent.

SAP’s practices reflect the reality of adult learning: the importance of periodic reinforcements and targeted , micro-learning lessons that are sharp, concise, focused on behaviors, and easy to access and revisit via flash drills and visual good-practice examples.

Customers expect an organization to present them with a single, coherent face. For much of the past few decades, the message has been to break down silos via reorganization, cultural change, and superior leadership capabilities. But that is a rough, lengthy, uncertain road. Another route is to begin where value is created or destroyed in most firms — in the external market with customers — and in your performance management practices, use tools to increase collaboration by making your organization easier to navigate and your people better and more willing navigators.

Performance management includes how you communicate sales goals relevant to strategy, the metrics used to measure activities and results, and procedures for building capability and allocating talent.

PROCESS

Constructing and Clarifying Sales Models

Every company has a sales model — a process of selling efforts, based on implicit or explicit choices. The issue is whether your sales model deals effectively with target customers as they buy today, not yesterday, and reflects correct strategic choices in a process that can be communicated and scaled.

Like perishable goods in grocery stores, every sales model has a sell-by date; markets don’t stand still, and neither should your go-to-market process.

Buyers in many categories now begin their buying process online via websites, social media, Amazon, or other vehicles.

New tools enable sales to perform many awareness activities previously handled by marketing.

Any sales model creates — for better or for worse — a feedback loop that affects selling and resource allocation in other aspects of the business. Think about core activities like forecasting and quota assignments.

An effective sales model should make the abstract — “profitable growth” — tangible and help sales managers to prioritize what they should be optimizing for in customer acquisition efforts at a point in time. Is it volume, margins, or (in many early-stage ventures) discovering product-market fit?

If we use an auto analogy, sales efficiency initiatives, like CRM and KPI dashboards, improve the engine’s horsepower. Sales optimization decisions — like customer selection, aligning reps with the sales model and business strategy, and sales force deployment across opportunities — set the direction in which the car will travel.

The issue is knowing what data is important and how to use it in the relevant sales model.

The foundational elements and issues in a sales model are:

Customer selection and qualification criteria.
Clarity about the buyers and the buying process at target customers.
The go-to-market economics.
The outputs of a sales model are the capabilities and call capacity of the sales force.

Clarifying the sales model is important because interactions with customers affect core elements of enterprise value creation. So, if you are a CEO, CFO, or other C-level executive, make sure you understand the sales model in place at your company.

Understanding a sales model is a key part of effective financial oversight as well as sales management.

Every firm is always making it easier or harder for different types of customers to do business with it.

Customers differ not only in their preferences for products and services, but also in the way they respond to marketing and sales actions. Understanding customer heterogeneity is crucial, and if you don’t choose customers, competitors will choose for you.

Customer selection also affects time to cash. Especially in long-selling-cycle businesses with multiple RFPs and a buying process involving diverse decision makers and influencers, a sales model needs clarity about how to “separate the suspects from the prospects” earlier rather than later.

This link between target customer and sales requirements is not unique to retailing or consumer businesses. Via his “crossing the chasm” framework, Geoffrey Moore has documented this link as tech firms seek to grow beyond early adopters to more mainstream customers in a market.

To construct a coherent and scalable sales model, therefore, you need to disaggregate the big issue of customer selection into a more manageable message that your sales team can use in prospecting and qualification of prospects across different segments at a point in time.

A deal profile provides guidelines and parameters that salespeople can use in prospecting and in conversations with prospects and that sales managers can use in practices ranging from territory and account assignments to incentive compensation. A deal profile — a set of guidelines and performance practices that would link the approach used by its salespeople with those target customers.

The first component is figuring out how to define success for the selling company as well as the customer.
The deal profile also specified ways for reps to communicate ongoing value to customers.
Pricing and compensation processes were a third component of the deal profile.

A coherent sales model is about clarifying the links between customer selection and required selling behaviors. A deal profile is a basic building block in that process.

“Buyer persona” and “buying journey” are the current terms for time-honored good practice in sales and marketing: knowing who buys your product (persona) and how they buy (journey).

If a firm has a deal profile, then it has the rudiments of buyer personae: profiles of archetypal customers based on a synthesis of findings from data, customer interviews, and other research.

Personae typically include biographical details that make them seem like real people, while emphasizing their responsibilities, pain points, and how they tend to gather information about addressing those needs. Personae help sellers to create and test hypotheses about key buying criteria.

Ultimately, any effective sales model must align with the relevant buying journey(s) as that process works today, not yesterday.

Mapping the buying journey helps to keep a prospect’s information needs, desired outcomes, and product evaluation criteria central to selling efforts.

In many B2B sales contexts, mapping the buying journey is essential to understanding the role of a given persona in the buying center.

The heart of a superior value proposition is the seller’s ability to increase the benefits and/or decrease those costs for the buyer.

Managing, Maintaining, and Reconstructing Sales Models

Every business has a customer conversion dynamic — that is, a set of activities from lead generation to closing and often post-sale service.

Most sales organizations are currently a ground – zero example of Nassim Taleb’s comment that “there is plenty of information. The problem — the central issue — is that the needle comes in an increasingly larger haystack.”

Founded in Belgium in 2011, Showpad is both an enabler and example of the issues and opportunities uncovered by conversion analytics. Showpad sells software that generates reports on how sales reps interact with the content available to them, indicating, for instance, what collateral is used, how many times, and even how long the sales rep spends per slide or per page.

Many sales outcomes have their root causes in other activities in the sales model, and you won’t know that without conversion analysis. Instead of isolating specific cause-and-effect links that you can test and improve, you’ll only be looking at outcomes and, like many sales managers, rely on unfocused “sell better” exhortations as your approach to growth. Once you do isolate cause-and-effect links, however, you can improve a sales model along multiple dimension.

As part of a wider application of analytics in its organization, Microsoft looked at the time sales teams spent interacting with their accounts and the number of individual contacts they were connecting with. Microsoft adjusted its sales model, reducing the number of enterprise accounts per seller to allow each team more face time across its account portfolio.

In many firms, established sales-client relationships are driven by legacy assumptions and therefore are susceptible to inertia over time.

As a combination of online and personal selling becomes the norm in sales models, conversion analysis is more important. Conversion analysis is also important for understanding where in-person selling efforts have the biggest impact.

There’s no one-size-fits-all form of conversion analysis, and your sales model should not be premised on a search for the perfect metrics. So much depends on context. But a deep dive into the conversion process inherent in your sales model is the prerequisite for a dialogue about its strengths, weaknesses, continuous improvement, and, when necessary, reconstruction of the model.

One more time: technology is not replacing sales, but it is changing buying and therefore sales tasks. One change is a shift in many industries to subscription-based models. They are now common in many SaaS categories, telecommunications/cable and media companies, health and nutritional categories, digital publishing, and — just starting but likely to grow significantly — in a variety of equipment and device sectors where internet-of-things (IoT) technologies are spreading.

Changing to a subscription business means reconstructing a sales model in several core ways: an inside-sales group often becomes more prominent instead of — or in addition to — a field-based sales force; marketing and sales interactions increase, and content marketing is a primary form of lead generation; and post-sale service becomes more integral to customer acquisition and lifetime value.

Inside-sales models tend to work best when the buyer is making a stand-alone purchase and has budget authority versus an integrated system purchase with a more complex buying and product-usage process.

In a subscription model, sales and marketing are more interrelated, especially in lead-generation activities via content marketing initiatives. You Have Under Three Minutes to Communicate Content. Buyers are now bombarded with messages, and the average viewing time for web-based content in this study was 2.5 minutes. Try to get your content into two-to five-page documents.

Mobile Devices Are Important but Overhyped.

Recognize inherent differences between marketing-and sales-relevant content. In the former, the goal is often to establish awareness and interest; for sales, the goal is to get the customer to sign a contract.

There Is No One “Best Day” to Send Content.

Buyers, especially B2B buyers of a subscription service, want to know what others are doing with your product, not only what they might do to improve a business outcome.

In subscription models, service becomes part of the sales process at multiple parts of the buying journey. The CS team is a key to subscription renewals, upsells, and cross-sells to other services.

Consultant Nick Mehta provides a useful typology of possible CS roles:

Firefighter CS. Typically found in early-stage companies, CS is the “one-stop shop”.
Sales-oriented CS. Typically found in companies with low levels of product complexity.
Service-oriented CS. Found in companies with more product complexity.
Integrated CSM. Here, sales focuses on new business, while the CS team works on both presale and post-sale activities.

Compensation and Incentives

Compensation is the single biggest chunk of the money that firms spend on selling. Further, how you pay influences the relevant talent pool and therefore who you hire and what you (should) measure.

Companies routinely confuse “strategic planning” with their annual capital budgeting process.

Within a firm, last year’s budget allocation typically serves as a salient and, in the cross-functional battle for limited resources, readily justifiable anchor during the planning process.

The same is true in advertising spending, where the budget is typically set as a percentage of the company’s sales. The same is also true in sales compensation, where inertia is common in many companies’ pay plans. Further, the plan’s structure often relies on conventional wisdom for setting the pay mix (the ratio of fixed to variable pay in the plan).

The comp plan should support your sales model, not drive it.

Many managers believe that “we pay for results, not process” and that “money talks” — that is, monetary rewards speak for themselves as motivational cues. Not true.

Executives often tout transparency and open-book practices, but compensation is typically an exception.

McKinney Blount, a serial entrepreneur and veteran of Facebook and Reddit in their startup phases, points out, “Comp transparency is a spectrum. [Not] ‘I’m going to know how much everybody makes.’ A better way to frame it is, ‘I’m going to understand why I’m paid and how I can increase my comp.’

Pay process matters. People seek relations and recognition as well as livelihood in their jobs. Make the reward a public event with a gift that gets displayed and lasts longer in memory than money does.

“Life isn’t fair,” but people’s perceptions of fairness affect their motivation and effort. This is true in any area of business, but especially in sales.

There are multiple dimensions to fairness in the workplace. Interactional fairness refers to the explanations that people receive about their compensation. Procedural fairness involves perceptions of the pay procedures — the mechanisms and metrics used, for example. Distributive fairness refers to employees’ perceptions of the fairness of pay outcomes.

The vast majority of comp plans treat the sales force as a homogeneous entity, and the debate is about the relevant pay mix for all people in that group. As an alternative, why not let individual reps select the incentives that correspond to their risk preferences and motivational makeup?

This approach should attract your attention if you’re a sales leader or compensation consultant, especially since regulations and company practices often result in de facto but less effective versions of self – selected incentive schemes.

Incentives should focus on how the salesperson makes a difference with your target customers in your business model and stage of growth.

The managerial issue in sales compensation is not whether reps will play games. The issue is establishing a win-win game for the rep and the selling company.

With pay, think of the links this way: Goals ➞ Motivation ➞ Effort (how much? what type?) ➞ Results ➞ Metrics ➞ Rewards

Pay plans are always part of ongoing management practices (good, bad, or indifferent) in your firm. It’s a mistake to decouple rewards from performance management activities in your sales model.

PRICING AND PARTNERS

Pricing and Customer Value

Most customers do seek value, and it’s the responsibility of the sales force to frame and deliver the value proposition, including price.

More firms now face the following situation: their customers have online access to product and price comparisons from multiple suppliers; they face global competition with companies that may have labor, exchange-rate, or other cost advantages; and shorter product life cycles seemingly mean that commoditization (like the expansion of the universe) is accelerating.

Most firms use cost-based pricing. Price is easier to explain when it’s based on input costs, and cost is the salesperson’s default option in justifying price to a prospect. This pricing approach is often seen as being transparent with customers. Lowering cost does not necessarily mean low cost versus competition or substitutes, and in any industry, there’s ultimately only one lowest-cost competitor. Cost-plus pricing can discourage continuous improvement and innovation.

The antithesis to cost-plus is value pricing where the firm competes on the basis of product and/or service performance initiatives for which customers willingly pay higher prices.

Performance pricers are adept at identifying the optimal zone between their product/service offerings and their target customers’ preferences, and then configuring their offerings and value propositions to dominate, not their industries, but their particular zone of value.

A single price to the average customer is usually a suboptimal approach for both the seller and many buyers.

When different customers derive different value from the same product or service, then one price means that some customers are, in effect, subsidizing others. Sooner or later, competitors, a purchasing consultant, or a good CFO will tell those customers what is going on.

Optimal pricing zones are typically tied, not to industry supply and demand curves, but to the relevant piece of business (POB). A POB is not the same as an account, which is a basis for many firms’ segmentation efforts but too broad a unit of analysis for performance pricing.

A POB is a separable buying decision, driven by a customer’s buying unit and its needs in a specific context, and made in relation to your perceived performance versus competition and substitutes. Separable buying decision. A POB occurs when a seller locates a customer need and a solution that increases willingness to pay and/or lowers a buyer’s total costs. Driven by a buying unit. Performance pricers target buying units within accounts.

In a specific context. The value of a product or service varies for different customers, different buying units, or the same buyer at different times or usage situations.

In relation to perceived performance. Delivering performance versus alternatives is key and perceptions matter, which is why framing and communicating value are so important. The essence of a deal and the driving force to buy is the perception that the value exceeds the price. This difference is “customer benefits.”

Performance pricers mine the differences between value and price and between price and cost to identify opportunities.

In addition to monitoring competitors’ prices, you should focus your market research, the generation of creative options, and sales approaches on how you can (1) create more customer value, (2) increase customers’ perceptions of value, and (3) cut costs without decreasing customer value.

When a customer buys something, that customer always incurs acquisition, possession, or usage costs

Acquisition costs include price, but also the search and administrative costs involved in finding, qualifying, buying, and processing a purchase.
Possession costs include financing, working capital, payment terms, storage, handling costs, and other money and effort required to keep the purchased product or service available for use.
Usage costs are the time and money spent by customers to get maximum value from their purchased products or services where and by whom they are used. This can include costs associated with product defects and returns, employee training required to use the product or service, or (in many environmentally sensitive categories) costs of product disposal.

Value is ultimately in the eyes — and behavior — of the beholder.

Across cultures, however , the value of a product or service is what it does for a customer — functionally, emotionally, or in terms of perceived social impact or risk reduction.

Price is a quality signal in many consumer markets, sometimes to an irrational extent.

B2B performance pricers add value by helping customers improve their profit margins through total-cost reductions, by the ability to differentiate their products and charge a higher price in their end-use markets, or by process improvements in important areas of the customer’s business model.

Firms make money where the spread between their costs and customer willingness to pay is greatest.

Clarifying the cost to serve by POB is crucial for effective pricing.

So-called razor-and-blades pricing extracts value by identifying the bump between performance and cost in the relevant postsale market: selling cheaply or even giving away the initial product or platform, but pricing the consumables or add-ons at a premium price.

The sharing economy is rife with POBs with different pricing implications.

Identifying the relevant unit for value and pricing also affects how the firm must sell and to whom. The length of the sales cycle often shortens as you move from an up-front payment to outcome-based performance.

This is crucial: in industries with fluctuating demand and overcapacity, offering very low prices in a competitor’s happy zone can start a price war, and offering low prices in your happy zone may maintain volume for a season but trains customers to expect continuing discounts.

The best way to deal with price objections is to lessen the likelihood of objections by identifying value by POB.

Testing and Linking Price with Your Sales Model and Selling Behaviors

Testing prices should be, but rarely is, an ongoing part of effective selling.

In today’s information-rich markets, inertia is costly. A price often has multiple dimensions: base price, discounts off list price, rebates tied to volume, special offers, price for additional services, different prices by package size or product variant, and so on. These dimensions are increasingly visible to prospects and customers.

Many people associate pay-per-use pricing with tech companies of the past decade, but it has long been used in multiple industries.

The role of price, its fit with the product, and the management requirements differ by sales model.

A key assumption in a freemium model is that, if users become comfortable with the basic functionality, a land- and-expand sales effort can motivate them to pay for more capacity or features.

The relevance of freemium pricing depends on many factors. A key factor is that this pricing requires a low-cost sales model.

Freemium pricing is often part of a sales model designed to capture alleged first- or early-mover advantages. The rationale is that first movers can “buy” customers through low prices because network effects will then build the brand, attract more users, make customers sticky as more users make that product the standard, and generate scale economies in the business. It’s a go-to-market approach that emphasizes growth and market share, not profitability.

Tech companies routinely cite network effects and first-mover advantages in fund-raising pitches and press releases. The data does not support easy assertions about first-mover advantages. Many managers (and investors) confuse a networked market with network effects. Network effects where the product or service is more valuable if more customers use it.

The classic example of network effects in the economics literature is landline telephone service: a telephone was useless if nobody else had one, and its value increased with the number of people a user could call. This is called a direct network effect.

Precisely because early adopters are more willing to experiment and take risks, they are typically the least loyal customers in the category.

No seller truly “owns” early adopters or other customers in a market; they’re just renting them.

Pricing to capture network effects is not simply being able to outspend your competitors on customer acquisition because of access to capital. It’s about knowing what drives product value and therefore which customers you need.

It’s about the right customers — those who influence subsequent purchases and adoption — not any customers. This is true in many markets, offline and online.

The successful leaders are typically the first provers in their markets, not necessarily the first movers. Never forget that when setting prices, allocating sales resources, and equipping your sales force to frame and articulate the value your firm provides.

A price must be made part of a coherent value proposition that communicates, and that largely happens in sales conversations. Your reps must know how and when to present value to the right people at their accounts. For some decades now, work in psychology has demonstrated that choices are heavily influenced by how the choice is framed.

Focus on the positive outcomes.
Take advantage of loss aversion, or the fact that people weigh possible losses greater than possible gains.
Anchor the price to your advantage.

In B2B markets, finding the relevant frame is more complicated and often account specific.

Here are guidelines for selling value in that context.

In general, the higher the contact a salesperson calls on at a company, the more framing in terms of industry insights matters. If calling on a C-suite or line-of-business executive, however, it’s typically more important to frame the value in terms that relate to trends, opportunities, challenges, or evolving best practices in that market, not only at that company.

Choosing the right approach is important. Gong.io has recorded and analyzed sales meetings from thousands of deals made on web conferencing platforms. At meetings with an SVP-level buyer or higher, the data indicates a strong negative correlation between asking discovery questions and closing deals. On average, successful meetings here involved about four questions, while unsuccessful meetings averaged eight. For meetings at lower levels, however, successful sales calls averaged eleven to fourteen questions.

The relevant frame also differs based on where you are in the sales cycle. In an early meeting with a senior buyer or influencer, it’s typically important to credential yourself. Start with something that demonstrates you understand how people make decisions in that sector.

Framing value in terms of what others are doing provides “social proof” — that is, people are more likely to take action when they know others already have.

Later in the B2B sales cycle, the issue is often credentialing your implementation capabilities. Here, relevant framing often takes the form of articulating (a) your recognition of the organizational processes affected by adoption of the solution and (b) how your organization has managed that process at other relevant customers.

Price is a core profitability driver. The impact varies by industry, but studies indicate that for a global 1,000 firm, a 1 percent boost in price realization — not necessarily by getting 1 percent more on every order; perhaps higher or lower on different orders, but averaging out to 1 percent and holding volume steady — means a gain of 8 to 12 percent in operating profits.

On average the price elasticity is about 20 times the advertising elasticity.

Behavioral economists have long documented how, despite market logic, many buyers instinctively react negatively to many pricing scenarios.

Testing prices is important to resist the downward forces of gravity as a market matures, the inertia of legacy prices that reflect obsolete circumstances, sales’s common fear of price increases, and setting price either by gut feel or simply in line with category competitors.

Hermann Simon , cofounder of pricing consultancy Simon-Kucher, points to the work decades ago of Lester Telser, an economics professor who emphasized that past market data usually has only limited relevance for determining the actual shape of the demand curve today and tomorrow. Simon also points out that most companies pay little attention to pricing when times are good and markets are stable.

Managerially actionable price testing will rarely have a “scientific” result. But it can still yield insights, options, and influence.

“Optimal prices [are] those that result in maximum lifetime value (LTV).

Testing in business is a broader process than textbook hypothesis generation followed by data. It involves evaluating alternatives.

A Van Westendorp Price Sensitivity Meter (PSM), a survey method common for consumer goods.

In most firms, valuable options are often stopped by managers who optimize their function’s procedures, not enterprise value.

Building and Managing a Multichannel Approach

Sales effectiveness requires success at the intersection of company and channel capabilities with target customers throughout the buying journey.

The components of any channel are the activities utilized to move the product or service from the point of production to consumption.

There’s channel design and then there’s ongoing channel management. To align components and make these choices effectively, you must think through the implicit assumptions in your go – to – market system. Then, use the right channels for the key sales and service tasks.

“You can eliminate the middleman, but not the middleman’s functions.”

That businesses differ in available resources, and so their capacity for assuming important channel functions, as well as their relative need for direct control over different functions.

One way to think about the choices is to consider alternative uses of your people, time, and capital — that is, the business imperatives that can and should preempt resources for purposes other than selling and distribution.

It’s not enough to choose a coherent go-to-market mix. To monetize a multichannel system, you must form relevant channel partnerships. There are three key elements in doing this: reciprocity, tools and metrics, and the role of channel managers.

One estimate, for example, is that for every dollar a company spends with a SaaS platform, it will spend four times that amount with third parties like systems integrators and other channel partners.

No channel partnership manages itself, even when enabled by excellent systems. You must translate that information into knowledge and relationships that drive the time, attention, effort, sell-through, and support required. That’s the role of channel managers, a role that is often undervalued and misunderstood.

Channel managers may not be directly responsible for sales, but they facilitate information flows, contracting, invoicing, joint events with partners, and other activities that help to drive business development with and through the channel.

They typically need proficiency in areas like logistics, regulatory issues in a market, an understanding of that reseller’s business model, and how their firm’s products add value to that model as well as their own.

As always in life, you get one chance to make a first impression. The first year of a channel partnership is often critical for establishing attention and mind share.

At least four factors are relevant to maintaining an effective multichannel sales effort:

recognizing the tug-of-war inherent in partnerships and the implications
dealing with the entangling alliances that current go-to-market requirements involve
managing channel conflict
resisting channel inertia

Even with the best channel design and incentives, ongoing market changes mean that conflict is inherent in a multichannel sales effort. Many managers, however, believe the principle is to avoid conflict. That’s wrong. The key is to manage the conflict profitably.

What Senior Executives Should Know about Sales

As a great organizational scholar, James March, once put it, “Leadership involves plumbing as well as poetry.”

If information isn’t flowing between senior executives and frontline customer-contact people, then taking any or all of these steps is likely to lead to the competency traps : established routines keep the firm, and its leadership team, from gaining insight and experience with processes more relevant to changing market conditions.

Without clarity about priorities, people — especially salespeople with quotas — only pick up random cues about strategy, and alignment is then hit and miss. Over time, the company becomes a “global mediocrity”: good at many things, but not especially good at any particular things. And the essence of competitive advantage is being very good at things your target customers value and that others find hard to imitate.

Alignment is a set of processes, not a one-shot deal or teamwork speech at a meeting.

Productivity in services tends to be lower than in goods-producing industries, due to what the economist William Baumol famously labeled the “cost disease.”

In most services, however, the human component is the product or a core (not contingent) part of the deliverable. It’s harder to get a better outcome by doing more with less.

Drucker used sales as an example, noting (thirty years ago!) that salespeople “now spend so much time serving computers (and) filling out reports rather than calling on customers … This is not job enrichment; it is job impoverishment. It destroys productivity.”

In business, an innovation is a better product + strategy + go-to-market plan linked to strategy.