Why a return to your old sales model may not be good enough.

Published by Mark Hughes, CEO 1000 Steps. Leaders in High Performance Sales.

June 2020

Many industries in many parts of the world have enjoyed a sustained period of growth, or at least stability, since the last financial and economic shock during and immediately after the GFC.

Of course there are examples of industries that have been significantly disrupted by technology and/or new competitors, but in the many cases, the steady systemic growth of industries has ensured that companies that were able to maintain their market share have been able to steadily increase their volumes and thus sales revenues.

This has bred a widespread, conservative, steady-as-she-goes mindset.

Post COVID, many industries will be faced with a systemic contraction. That means that the pie of available sales revenue will shrink. Thus, if your market share remains constant, then your volume and revenue will decline according to the decline in the market, as illustrated in Figure 1. And if prices correspondingly fall, then your revenue loss will accelerate as will your gross margin.

This should be a sobering thought for you.

Figure 1.

Pre-COVID

Industry A - Total Industry Sales                          1,000,000 units

Company B Sales – Market Share @10%             100,000 units

Post COVID (Industry sales contract by 20%pa)

Industry A - Total Industry Sales                             800,000 units

Company B Sales – Market Share @10%              80,000 units

Company B Post COVID Sales Reduction              20,000 units

Let’s take a few minutes to break this down and point to possible solutions. Firstly, how is market share calculated? The obvious initial answer is:

Market Share % = (Company Sales / Total Industry Sales) * 100

However, there is a more insightful answer as follows:

Market Share % = {(Units Company Quoted / Total Industry Sales) * (Company Sales / Units Company Quoted)} * 100

(Units Company Quoted / Total Industry Sales) is known as the Participation Rate %

(Company Sales / Units Company Quoted) is known as the Quote Conversion Rate %

So, Market Share % = Participation Rate % * Quote Conversion Rate %

These two factors are critical to your company’s sales performance and yet it is surprisingly common to find that they are neither understood, nor actively monitored and controlled.

In simple terms, your Participation Rate indicates the rate at which your company is quoting relative to the rest of the market. This is a function of both the quality and quantity of activities that are taking place inside your sales process.

Quote Conversion Rates are more commonly measured and good information can be extracted from lost sales reports to help you understand what is happening. As a side note, it is undesirable to win business through discounting, so a value-based sales approach can be critical in supporting your price position, avoiding price leakage while supporting conversion rates.

Lets now return to Figure 1. If you forecast that the Total Industry Volume is likely to reduce by 20% (to 800,000 units as in this case), then in order to secure your pre-COVID sales of 100,000 units, you will need to secure a market share of 12.5% ie. (100,000 / 800,000) *100.

That is a 25% improvement on your previous market share.

Achieving that will not be easy, especially given your desire to maintain price levels and of course relative to the no-doubt similar ambitions of your competitors.

So where do you start?

In my experience, the key metric is Participation Rate. In other words, your sales force is going to have to increase the quantity and quality of its sales activities such that it is able to increase Participation Rate by the 25% required to achieve the 12.5% market share target.

In order to do that, it should also now be obvious that you cannot simply return to your old normal. That is not going to work even if you try 25% harder.

To achieve the necessary shift, you are going to have to rework your entire sales model. A good start is to review your historic sales metrics and to upwardly revise these in order to achieve your new sales targets.

Now, if you know that your Participation Rate needs to increase by 25%, what impact will this have on all of the metrics that feed into this number? For example, given market share growth implies customer acquisition, what does this increased target mean for your lead generation and new/first sales meeting targets? Of course, these numbers will need to increase too. This may require you to question your target market and to determine whether these need to be expanded. These decisions likely will impact your marketing mix.

It is almost certain that you will need to sharpen your business development processes and skill sets. Who and how will you source your leads? Who and how will you nurture them? Who and how will you secure the first meetings?

Similar questions need to be asked of your sales process. As your salesforce needs to achieve higher productivity, then it will also require superior efficiency. What does an effective introduction/first meeting look like? How will your team secure high-quality discovery or fact find meetings? How will value-based proposals be built?

These processes will need to be best practice. Better than before. And they need to be followed consistently by everyone in the sales team. Without this as a foundation, then the reality is that you will not be able to drive a 25% productivity improvement across the board.

Finally, how can you as the leader, put yourself in the best position to monitor and control the performance of your sales team in real time (and not after it’s too late)?

The answer to that is CRM.

There are many CRM systems available and a number of well-documented prerequisites to secure meaningful value from your investment. In the context of this article, key among them is to secure that your CRM system is able to track your business development and sales activity metrics according to your processes and the associated targets. Armed with this data and information, you will be able to quickly identify where the quantity and quality of sales activities are dropping below the required performance levels.

It is clear that many businesses will not survive through the post-COVID era. We also know, courtesy of Charles Darwin, that, those who survive “are not the strongest or the most intelligent, but the most adaptable to change.”

Change is most certainly now upon us. Now is the time to adapt your sales model to a new reality, because to simply return to normal may not be good enough.