8 Steps to Prioritize Customers and Prospects

One area of business that is important to manage is prioritizing customers and prospects.?Fortunately, it’s also the area of a sales job that will make the biggest impact on sales performance. From my personal experience as a salesperson for 30+ years, plus my experience in consulting with over 300 companies and training tens of thousands of salespeople, I’m convinced that this one area holds more potential for making dramatic and immediate changes in your results than any other.

It’s the first consideration for working effectively.?Becoming more effective starts with deciding which customers and prospects to invest your precious time.

Check Your Attitude First

Start with an attitude check.?Too often salespeople spend time with customers who like them, who are easy to see, or who have become friends. All these are nice, and certainly, there is a place in every sales territory for those kinds of customers.?But if those customers aren’t high potential, then investing time in them isn’t smart.

Other salespeople allow their days to be controlled by the problems, interests, and whims of their customers without regard to their potential.?They spend all day responding and reacting to whoever is on the phone or asking for their time.?Again, there is a place for this, but those salespeople who allow this reaction to customer inquiries to shape their days are not working smart.

An Attitude Adjustment

Working smart requires a proper attitude. The attitude is this: I will make?cold-blooded business decisions?about where to invest my time.

Why cold-blooded??Because we’re naturally drawn to people who are easy and comfortable for us to visit. We like to be among people with whom we are warmly regarded.?But just because a group of customers makes us comfortable, doesn’t mean that we should spend our time there.?We need to eliminate that natural propensity for the comfortable call by instilling an attitude of cold-bloodedness.?We need to make decisions about where to invest our time on some more logical, hard, and fast, money-related criteria.?We’ve got to apply cold-blooded logic to protect ourselves from ourselves, and to make the most effective use of our most precious asset – our selling time.

Let’s consider this together. Some prospects and customers have more potential than others do.?It doesn’t take a rocket scientist to figure that one out.?But what is the implication for our behavior??If some prospects and customers have more potential than others, shouldn’t we then spend the most time with the highest potential?

Of course. That makes sense.?So, did you spend most of your time last week with your highest potential customers and prospects??Probably not. Let’s change that.

The Pareto Principle

There is a basic principle to human labor that says most of your results will come from only a small portion of your market.?You are familiar with the?Pareto Principle , for example, which states that 80% of your sales will come from 20% of your customers.?A number of years ago, I came across a similar principle put forth in the book,?“Everything I Need to Know About Success, I Learned in the Bible,”?by Richard Gaylord Briley.?Briley described the?5/50 principle , which states that 50% of the jobs and affluence in a society will be generated by the work of 5% of the population.?I’ve applied that to businesses and sales territories and found it to be invariably true – 50% of the business comes from 5% of the customers.

My personal experience supports this insight.?In my consulting practice, on about a dozen occasions, I’ve been a part of a project in which the client analyzed the net contribution to company profits by each customer. This is an attempt to allocate all the company’s costs to all its customers in a fair and objective way, and to determine which customers are most profitable for the company, on a net, not gross profit, basis.?In every case the results have been the same.?About 10% of the customers provide all the profit for the company, and subsidize the business for the other 90%!

This project is a little different than what we’re talking about.?It focuses on analyzing the net profitability for the entire company, while we are discussing your personal return on investment for just your sales territory.?Regardless, the principle is the same: The overwhelming majority of your business will potentially come from a handful of your customers.?So, when we say, “Some prospects and customers have more potential than others,” what we really mean is that “5% to 20% of your customers have 50% – 80% of your potential.”

And, when we say, “You should spend the most time with the highest potential,” we mean, “You should spend the most time with those high-potential 5% – 20% of your account base.”

This doesn’t mean that you forget most of your customers and ignore the majority of your prospects.?What it does mean, however, is that you become guided by this very practical rule for cold-blooded decisions:??Spend 50% of your selling time on the high-potential accounts, and 50% of your time on everyone else.

Better Results = Focusing on a Few High Potential Accounts

Suppose you have $1,000,000 in potential in one high-potential account and the same potential equally spread in ten lower-potential accounts. How many hours will it take to make one call on each of those ten accounts??Include drive time, time spent making appointments, waiting time, preparation time, and so on.?Now, how long will it take you to call on that high-potential account??Considerably less.?Even if you were to call on ten people in that one high-potential account, your total investment in time will still be less.?So, just from an efficiency perspective, it makes good sense to focus on high-potential accounts.

Not only that but once you have established a presence in a high-potential account, it’s easier to sell. You can leverage your relationships more easily in larger, high-potential accounts. Get one person on your side, advocating for you, and he/she can spread the good word about you quickly to half a dozen people.?It is like the pebble dropped into the lake causing ripples to move outward from the center.?Your good contact is like the pebble, spreading every increasing ripple of good press about you. Get one good small account person on your side, and they don’t tell anyone, because there is no one to tell. A pebble dropped into a glass of water won’t make ripples for long because there isn’t enough water around it. You can’t leverage your relationship like you can in larger accounts.

Defining High-Potential Customers and Prospects

In order to implement this strategy, you need to have a workable definition of?“high potential.” Many salespeople labor under a big misconception when it comes to potential.?They define potential in terms of history.?In other words, if I asked you to show me your high potential accounts, you’d pull out a computer report showing sales history.?In reality, however, history has little to do with potential.?Just because an account has been a good customer in the past does not necessarily mean that it is a high potential customer for the future.?Potential describes what they could buy – the?future?–while sales reports record the?past.

The second common misconception is thinking that potential is only measured in dollars of sales.?In other words, an account that could buy $500,000 from you is automatically thought of as having more potential than an account that could buy $250,000.?It isn’t necessarily so.?Stick with me a moment, and consider this.

The real potential is not measured by one number, it’s measured by a ratio of two. High potential is the ratio of the likelihood of dollars received compared to the amount of time invested in order to achieve those dollars.

Let’s look at two accounts.?Smith Brothers theoretically could buy $500,000 from you next year, while Ajax Manufacturing could buy half as much — $250,000.?If we only look at total dollars, Smith has more potential.?But that view is too simplistic and doesn’t reflect the reality of the situation.?Suppose the real situation is this: Smith Brothers has a long-standing contract with one of your competitors.?That sole-source contract is not due to expire for three more years.??Not only that, but your competitor and Smith Brothers are extremely close in other ways, as the CEOs of Smith Brothers and your competitor are brothers-in-law.?You can spend hundreds of hours calling on Smith Brothers and chances are you are not going to see a penny in additional sales.

Ajax, on the other hand, has no such affinity for your competitors. In fact, the personal relationships between you and the key players there are very good.?Their business philosophy is very close to yours, and you have a good history of relationships between your company and theirs.?You know several people in key roles inside the organization, and you’ve even had lunch with the CEO.

Now, considering the reality of the situation between the two accounts, where is the most promising investment in your time??Is it Smith, with its larger dollar potential??Or is it Ajax, with its smaller potential volume??It would take me about two seconds to select Ajax.?Why??Because the potential of the customer or prospect is not one number, it’s the ratio of two.

• Potential is defined by the likelihood of dollars returned for your investment of time
• 10 hours of selling time invested in Ajax will bring you far more dollars returned than the same investment in Smith
• It’s not how much they?can?buy, it’s how much they are?likely?to buy in return for your investment of selling time in them

This is a keystone concept in your battle to become more effective.?Many of the decisions you make will rest on this understanding.?Once you are comfortable with this idea – the potential isn’t dollars, the potential is the likelihood of dollars returned for time invested – then the question becomes, “How do I determine that potential?”

Determining Potential of Customers and Prospects

Potential, as we define it above, is comprised of two components;?quantified purchasing capability (QPC), and partnerability.

Quantified purchasing capability (QPC) is the objective measurement of how much of your product the account could buy if they bought everything they could from you. It’s usually calculated in annual terms.?Obviously, each account has a different capability to purchase your product or service.?Let’s work with this to completely understand it.

One component of this has to do with how much they could buy from you.?It has to do with their capability to purchase the products or services that you sell.?For example, you may be selling radio advertising. Jones Manufacturers has an advertising budget of $20,000 for the next year, and the XYZ Consulting group has a budget of $40,000.?

However, you don’t sell all types of advertising, you sell only radio advertising.?And Jones has decided to put 100% of their budget, or $20,000 into radio advertising, while XYZ has decided on 5% of their budget, or $2,000, for radio.?Jones Manufacturing, while smaller and having a smaller advertising budget, actually has a QPC that is ten times larger than the bigger and more prestigious XYZ Consulting group.?So, in terms of QPC, Jones far outranks XYZ. The first rule for calculating QPC, then, is understanding that it only measures the account’s ability to purchase YOUR products and services.

What about the account that is already buying everything they can from you??Does it have any QPC??Sure.?Remember, QPC is an annual measure of how much they can buy from you in the future.?So, for example, you may be selling cleaning supplies to Quik-Clean Janitorial Services.?Over the years, you’ve built a great relationship with them, and they buy everything from you.?Last year, they bought $75,000 worth of your stuff.?They expect to grow their business this year, and they’ll probably buy $80,000 of your supplies.?What’s the QPC??$80,000.?QPC is a measurement of how much of your products or services the account could buy annually if they bought everything they could from you.?It focuses on the future, not the past.?So, when you calculate QPC, you don’t dwell on what they bought in the past, you calculate their capability to purchase in the future.

Notice the word “Quantified” in the title of this measurement.?The word is there for a purpose.?It means that you have some logical, defendable way of determining how much they could buy from you.?Too many salespeople rely on intuition and gut reactions and are often misguided.?In this economy, you must be better than that. “It looks pretty big” is not a logical, defendable measure of purchasing capability.

How do you measure QPC??

The easiest way is to ask the account and have them give you an honest and accurate answer.?In some industries and with some accounts this is the norm.?You may be selling production machinery, for example.?When you ask the purchasing agent what their budget is for capital expenditures on production equipment next year, they may just tell you.?Or, you may sell, as I did, hospital supplies. When you ask the materials manager how much they spent on surgical gloves last year, he could probably tell you, down to the penny.?Then, you could ask him if he expects that to increase, decrease or remain flat, and by what percentage.?Then do the math, and bingo, you’d have a very good measurement of QPC for surgical gloves.

While asking is always the easiest way to get this number, it doesn’t always work.?Some accounts don’t know, and others know but they won’t tell you. In those cases, you have to use other means.

One way is to mathematically calculate the QPC based on some formula driven by a measurement that you do know. In my days of selling hospital supplies, for example, we knew that, on average, an occupied acute care bed in a hospital used a certain amount, say $20.00, of needles and syringes per day.?So, if you were calling on a 300-bed hospital, and you knew they averaged a 90% occupancy, then you could calculate how much they would spend on needles and syringes each year.?Let’s do it.?Three hundred beds, times 90% = 270 beds occupied on an average day.?Multiply that by 365 days a year, and that equals 98,550 occupied bed-days.?Multiply that by the $20.00 per day, and the QPC for needles and syringes in that hospital is $1,971,000.

Where did we get those numbers??Trade journals and industry surveys yielded the $20.00 per day number.?The annual report or hospital website may tell you how many beds the hospital has as well as its average occupancy rate.?So, in this case, a few minutes of research unearthed a calculated QPC number. We calculated the QPC mathematically, based on some numbers we did know.?We could do that for every category of product we sold without ever having said hello to the first person in the hospital itself.

One of my clients, whose company sells industrial supplies, calculates the QPC based on the number of cars in the employee parking lot, and the type of business.?For example, he knows that in a tool and die shop, each car in the employee parking lot means a certain number, let’s say $1,000, of annual cutting tools usage.?So, a tool and die shop with 15 cars in the employee parking lot will typically buy $15,000 worth of cutting tools.

That’s another example of the technique of calculating the QPC mathematically, based on some numbers that you do know about the account.

As a variation on this, you can infer the QPC deductively, based on some numbers that you know about a larger group.?My company sells sales training.?Let’s say we’re trying to calculate the QPC for sales training for a medium-sized distributor of fasteners.?We know from industry surveys, for example, that most companies spend between 1.5 % and 3.5% of their payroll on training.?We also know that the average fastener distributor salesperson makes about $50,000 per year.?We know from D&B reports that this particular company has sales of about $30,000,000.?Finally, we know, again from industry surveys, that the average salesperson in this industry manages a territory of about $1.75 million.?

OK, let’s do the math.?$30,000,000 divided by $1.75 yields a likely number of salespeople of 17 salespeople.?Multiply the 17 times $50,000 yields a likely sales payroll of $850,000.?Let’s use a 2% estimate of how much they are likely to spend on training.?That’s the midpoint in the 1.5% to 3.5% spectrum.?So, $850,000 times 2% yields a QPC of $17,000.?What’s the QPC for sales training in this account??$17,000.

Now, granted that number isn’t as accurate as going into the account and them telling us what their budget is (if they have one).?However, it’s significantly better than shooting from the hip and saying, ”They’re a pretty good size.” It meets our criteria: it’s logical, defendable, and quantifiable.

Precision in Calculating Potential of Customers and Prospects

We can be even more precise than that, taking our understanding of the customer’s QPC to another, deeper level.?Let’s try to calculate the customer’s QPC per?category?of product or service that we sell.

There’s a powerful reason for this.?The more precisely you can measure the prospect or customer’s QPC, the more sharply you can define your strategy, and the more effective you will be.?Remember, one of the rallying cries of good sales time management is FOCUS, FOCUS, FOCUS.?You can’t focus well if you don’t know what the target is.?Once you have a precise view of the target, you can more easily focus on it.

Let’s assume that you sell computer equipment.?Your product offerings include these categories:?PCs, printers and peripherals, and maintenance services. You’ve called on Able Consulting Group and discovered that they just invested in new PCs throughout the office.?QPC in the PC category is $0.?However, they held off on adding new printers, and are planning to upgrade 20 printers in the next six months.?You calculate 20 times an average of $250.00 each, and that equals a QPC for printers and peripherals of $5,000.?You also know that the company has 50 PCs and that the average annual Preventative Maintenance fee per PC is $50.00.?So, 50 PCs times $50.00 equals a QPC of $2,500.00 for services.

Understanding how much QPC there is, and in which categories helps you to do two things:?Make cold-blooded business decisions about how much time you should invest here, and develop a strategy for getting that business. Knowing that the business is in printers and service will generate one strategy, while if the business were in PCs, you’d formulate a different strategy.

Calculating Partnerability:

The X Factor in Prioritizing Customers and Prospects

Understanding QPC is essential. But that’s only half of the issue.?Remember our previous discussion of Smith Brothers and Ajax Manufacturing.?Smith had twice the QPC of Ajax, but there was virtually no chance of getting that business.?That was because of factors other than QPC.?In the case of Smith Brothers, the account had a long-term sole-source contract with your competitor, and the CEOs of Smith and your competitor were brothers-in-law.?So, it wasn’t the QPC that influenced our decision about that account, it was a combination of other, softer issues that lead us to the conclusion that we should not invest major selling time in Smith Brothers.

We can lump all of those other, softer, more subjective factors into a measurement I call?partnerability.?The practical potential of an account is part QPC and part?partnerability. Partnerability?is based on subjective analysis about the likelihood of the account eventually becoming a partner. The issues that comprise patentability are things like:

• How is the chemistry between the two companies, and between yourself and your contact people?
• Is the account just a price buyer, or is it open to creative proposals from you?
• Is it a progressive, growing organization?

Notice that these are subjective, softer issues than the hard numbers of QPC.?However, they are just as important to you in determining the account’s practical potential.

You may have one account that has huge quantifiable potential, like Smith Brothers, but because of the philosophy or personalities of the decision-makers, no foreseeable?partnerability.?That account would not be a high-potential account.

Let’s say you have a very large account that offers tremendous potential. At the same time, you know the business is very competitive, that every other competitor is working for that account. The account has long used one of your competitors and he appears to be very solid in the account. The account ranks low in potential partnerability. A sober assessment means that you’ll have to invest countless hours, maybe years before you can have any realistic opportunity to sell anything.

On the other hand, what if you have a much smaller account that you have a realistic possibility of closing some business after just a couple of calls??Which one would rank higher on the “potential dollars returned for time invested” scale??Obviously, the second does.

That’s the kind of cold-blooded analysis that helps you to organize your time in a very effective way.

One key is to have some way to calculate partnerability that is more defendable and quantifiable than just a salesperson’s intuitive hunch.

?Measuring Partnerability

It’s been my experience that a salesperson can visit an account once or twice, and make some valuable observations about the partnerability of that account – the likelihood of that account developing into a partner one day. In my seminars, I’ll often ask the group to develop a list of plusses and minuses.?Plusses are characteristics or behaviors of the account which increase the likelihood of the account developing into a partner.?Minuses are the opposite – characteristics or behaviors of the account that decrease the likelihood that it will one day develop into a partner.

1. Good Product/Service Fit of Customers and Prospects

Let’s say you offer ten products.?Brill Brothers Manufacturing company can use all ten, and all of them are important to their business.?Jones Industries can use two of your ten, and neither of the two is really central to their business.?Who is the better product/service fit??Clearly, it’s Brill Brothers.?Notice the two issues for product/service fit:

• the degree to which an account can use your product or service offerings
• the degree to which those products/services are important to them.

2. Personal Chemistry with?Customers and Prospects

This speaks to the personal relationship between you and the customer. On one hand, a professional salesperson ought to be able to build positive business relationships with anyone.?On the other, it’s a whole lot easier with some people.?If most of the important people at Brill Brothers like you, are comfortable with you and trust you, it’s going to be much more likely that they will grow into a partner with you than Jones Industries, where there is just a little tension between you and most of the important people there.?The personal chemistry isn’t the same.

3. Good Management?

You don’t invest your money in stocks that are doomed, and you don’t invest your time in losers either.?If a company appears to be well organized and well managed, chances are it’s going to grow or at least survive.?On the other hand, those that are characterized by high employee turnover, bad attitudes, sloppy and unorganized facilities, and no plans are likely to struggle in the future.

4. Compatible Philosophy

Some accounts are strictly price buyers.?That’s great if your organization strives to be the low-cost provider in commodity markets.?You’d have a compatible philosophy.?However, if your company positions itself as a value-added provider or the high-quality choice, then you are never going to be comfortable with, or important to, the “buy the lowest price no matter what” philosophy.?The more compatible your philosophies are the greater the likelihood that will develop into a partner one day.

5. Personal Respect and Accessibility

In some accounts, all vendor salespeople are viewed as “peddlers” and dealt with accordingly.?These are the accounts that give you 15 minutes in the conference room with a junior purchasing agent and then dismiss you.?Others give you the plant tour, show you their future plans, introduce you to the VP’s, and solicit your thoughts and ideas.?They see you whenever you say you have something of value to them, and they respect your insights.?That’s good.

6. Pays Well

It’s a real waste of time to invest high-quality selling efforts in an account, successfully solve some of their problems, and achieve a good sale, only to discover that your credit department won’t approve it.?Or worse yet, they do approve it, but the account doesn’t pay. Better to try to discern that before you invest a lot of your time in them.

7. Industry or Company-Specific Items

There can be a number of very specific issues that are important to your industry or your company. For example, one of my clients was a division of a Fortune 500 company.?One of their criteria was whether or not the account owned equipment produced by one of the other divisions of the company.?If so, it would be easier to talk with them and specify their supplies. If not, it would be more difficult.

Another client was a regional petroleum supplier.?One of their criteria was the distance from the customer to their nearest distribution facility.?Because of the relative importance of freight costs, if the account were geographically close to their facility and far away from a competitor’s, that was good.?The opposite was bad.

To implement this strategy, take the six general characteristics discussed above, and mesh them with at least four criteria that you create.?These new criteria should be specific to your company or industry. If you did that, you’d have a list of ten criteria.??You could rate every one of your customers on each of those ten criteria.

Think of a scale from 0 – 10, with zero indicating the worst expression of that criteria, and ten the greatest.?For example, let’s apply the criteria of “good management” to Cool Inc., one of your accounts.?This account is progressive, always looking for the next advantage, and willing to listen to any good ideas.?On the other hand, it’s a family-owned business and the CEO is dictatorial.?He does have some professional managers reporting to him, however, and that helps.?Turnover is a bit of a problem because of the CEO’s abrasiveness.?All in all, you decide that the plusses outweigh the negatives on this issue, and you give Cool Inc. a rating of “7” on the “good management” criteria.

Do this for every criterion, account by account, and you’ll come up with a way to measure and compare the “partnerability” of each account.

Here’s an example of a set of criteria developed and applied to Cool Inc. We’re assuming that you are selling advertising, so our industry-specific criteria will reflect that focus.

Putting it Together:

Now, let’s combine these two measurements in a simple easy method and use them to calculate the potential of each of your accounts.?At this point, you have done two things:?You’ve developed a measurement of the account’s QPC, and you have rated them on “partnerability.”

On a yellow pad if you’re a paper person, or a spreadsheet if you are electronic, list the names of your accounts in a column. Include those suspects and prospects that you are acquainted with.

In the next column, give them a rating for their partnerability.??Use a 0 – 100 scale.?So, if you created ten “partnerability” measurements and you rated each account on every one of the ten, on a one-to-ten scale, you’d have a number that was the sum of those scores.

We’ll use the example below, using just five accounts.?In your work, you should list all of your accounts.

Let’s consider the numbers that we’ve developed.?Clearly, Cool is the highest potential account, even though it doesn’t have the largest QPC.?It stands apart from the rest, in a class of its own, with a rating almost twice as large as the next largest.?Interestingly, it turns out that the customer with the largest QPC, Jones, is really a lower priority account.

Developing ABC Categories for Customers and Prospects

What do we do with this information??Use it to categorize these accounts into three categories: A, B, and C.?When we’re finished, the number of A accounts will be approximately 5% to 20% of the total number of accounts rated.?So, for example, if you have a total of 50 accounts, somewhere between two to five of them will be “A” accounts.?If you have 100 total accounts, approximately five to 20 will befall into the A category.

So, your first step is to identify the top 5% to 20%, the A accounts.?In our example, above, we have one “A” account, Cool Inc.

Once we’ve identified the “A’s”, we are now going to go down to the C’s and gather them into a category.?This is typically the lowest 20 – 50% of the total.?Again, if you have 50 accounts, somewhere between 10 and 25 will be Cs.?If you have 100 accounts, approximately 20 – 50 will be Cs. So, step two is to identify the lowest group. In our example, above, we’ve identified Smith, Jones, and Brill as Cs.

All those that are left, usually about 20 – 40% of the total, will be Bs.?In our example above, that leaves us with Able and Ajax.?Our work has led us to this categorization:

Growth and Maintenance of Customers and Prospects

After you have done your initial analysis, and you are reflecting on the results, you may notice that, in some of your accounts, you may already enjoy almost all of the business.?Let’s say that you look at an account, for example, that has $100,000 of QPC, and compare it to last year’s sales in that account which were $95,000.?It’s clear that you are not going to gain much more sales volume in that account.?An account like this,?in which you enjoy most of the business, is?a maintenance?account.?In other words, your job is to maintain the business you already have, not necessarily to grow it.?This has a significant impact on your time management decisions because maintenance accounts usually take less time than growth accounts.?The question you ask yourself as you begin to strategize and plan your time is this:?“What do I need to do to maintain the business in this account?”

Growth accounts, on the other hand, are those customers in which you still have significant unrealized QPC.?If, for example, an account has a QPC of $100,000, but you currently enjoy only $15,000 of that potential, then you have a lot of opportunities to grow the business.?If you compare your future investment of time in these two accounts, you will probably spend more time in the growth account and less time in the maintenance account, even though they both have the same QPC.

That brings us to the second guideline for effectively prioritizing your customers and prospects:

Spend less time in the maintenance accounts so that you can invest more time in the growth accounts.

Put this together with the previous rule:?Spend 50% of your time in the high-potential accounts.

Now you have a system of making decisions about the effective use of our time.

And this system will transform your results.

Implement Strategy:

1. Methodically collect defendable accurate QPC numbers for all your prospects and customers.
2. If appropriate, break the total QPC number per account into categories.
3. Use those numbers to create a 0 –100 rating for every account.
4. Develop a list of ten partnerability criteria. You may want to modify it by market segment.
5. Use the criteria to create a 0 – 100 partnerability rating for every account.
6. Combine the two ratings into one total number. We use an Excel ? spreadsheet in our examples above.
7. Use that number to classify each account into one of three categories: A, B, or C.
8. Spend 50% of your time on the A accounts, and 50% on the others.