I turned down a quote request last week, somewhere between $400K and $1.8M for the year. I seem to turn down a lot of opportunity these days.
The key problem was that they were defining what they wanted to buy by a sales target. Don’t get me wrong, unlike every other agency I don’t dodge a target or fail to hand over actual paying customer contracts. When I did the maths on the cost of customer acquisition to get to their target, I estimated the sales activity at $4M on the low end, and up to $38M.
A founder is often too close to their product, they can’t see their product without bias, through the eyes of a potential customer that genuinely doesn’t care. Sales takes, time money and effort.
The sales agency conundrum
This is the sales agency conundrum. Their budget, even from commercial managers and professional procurement managers, comes with a target that is rarely built on sales acumen. In 30 years of business development I rarely see even top BD and commercial managers nail this. The customer always undervalues how hard sales is and how much effort goes into it.
We need to wear both hats, salesperson and expert. We know we need to ask, not tell. Every week I moan ‘find the itch, don’t pitch’. But in this case we need to tell, not be asked. Or more specifically, we know the hard learned lessons they don’t and in this rare case say to a prospect ‘actually you’re wrong’.
So as an agency our job is to hold our and your value high. As I mentioned to them, the very reason you have come to me is because you perceive me to be a best in country commercial operator. It would be a failure of that very expertise to accept their money and throw salespeople at their problem.
Just as an example, a different prospect set us a goal to be in front of 2 CEOs of Fortune 500 companies each day. I did the math and replied I would need a team of about 50 full time, hard nosed BD. They replied no, that is silly our budget is $300 a week.
The 7 Ps in the sales pipe
This is why they say sales is linear, a bog standard sales pipe looks like this. I don’t care how many calls, or activity my team make, I care if they are moving a prospect along the buyer’s journey. Did they progress them to the next stage?
Push. Advertising, marketing, PR, SEO, top of funnel activity to generate familiarity and trust.
Prospect. Create prospect lists.
Pitch. Cold call for introduction, discovery, market research, raise awareness and interest, qualify out, and book meetings.
Present. Attend meetings, run a pitch, product demo, presentation, build trust, more discovery, more education.
Proposal. Produce a proposal of service or tender.
Pursue. Follow up, negotiate contracts and close sales.
Please. Deliver and account manage.
Now this is a generic sales process. Some companies have way more stages, some less, but this is sales 101. Every company also needs some variation of this. They may not need prospect lists, some prospects fall into the pipe at proposal, the proposal may take minutes or weeks, and this is where the expertise and old dog intuition come into it. We have a range. On the low end, if this is easy, we will not need to do this many times. On the upper end for each stage we may need a lot. This defines the role. A lot of presenting may need an on the road rep. A lot of pitching may need an inside rep. I won’t go into it just understand, there are seven basic stages and a scale of difficulty for each.
This is why you want a sales generalist, not an industry specialist. The generalist can benchmark a stage or process across multiple industries, and not accept an industry bad practice as best practice.
Multiplication, not addition
This is the part people get catastrophically wrong. All of this is not addition, it is multiplication, so their equation comes up short.
Push. Advertising, marketing, PR, SEO, top of funnel activity to generate familiarity and trust. May need tens of thousands of emails sent, or large advertising budgets, or a team of 20 handing out brochires for two months.
Prospect. You need to spend time researching and identifying potential customers. An average inside sales team may need 5,000 prospects with mobile numbers and email addresses per rep in your CRM. At 50 calls a day, this only is a 6 month call cycle.
Pitch. My dad used to say of his 150 telemarketers that if they did 500 calls a week and got one appointment per week, they were a golden haired wonder of the universe. At the upper end, I have personally seen teams that need 14,000 cold calls to get one appointment.
Present. Do you need to present to the board or run a product demo, do you need to travel to their offices. If you are qualifying calls really well you may need to see 2 prospects to get to a proposal of service. The upper end of this is hundreds.
Proposal. Some companies can churn out quotes in seconds, professional services many need lengthy PowerPoint proposals, construction tenders can take a team weeks. Most industry average 1 in 3, because most companies get 3 quotes, so statistically you are at 33% to win.
Pursue or procure. Called different things, it just means follow up, negotiate and close deals. Average follow ups in all industries is 8. Most salespeople give up at 1.
Please. Customer service is usually the biggest culprit for under and over costing.
How you actually work out sales effort
The trick to working out cost of sale; is to start at the sale and work backwards, going back up the pipe to the stages before. If we flip the above pipe into a pyramid we get:
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- 1 sale, to get to that we needed
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- 3 quotes (1 hour each). Each quote needed
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- 2 meetings (3 hours each). Each meeting needed
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- 100 cold calls (16 hours). Each cold call needed
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- 3 prospects researched
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- 5,000 emails sent (20 hours of marketing)
Now multiply each activity and you will roughly get to the sales effort to get to a sale. One sale is 3 quotes, 6 meetings and about 600 cold calls. Line by line:
| Activity | How many | Hours | Cost at $100 an hour |
|---|---|---|---|
| Quotes | 3 | 3 (1 hour each) | $300 |
| Meetings | 6 (2 per quote) | 18 (3 hours each) | $1,800 |
| Cold calls | 600 (100 per meeting) | 96 (16 hours per 100) | $9,600 |
| Prospects researched | 1,800 (3 per call) | included in calling time | included |
| Marketing | 5,000 emails | 20 | $2,000 |
| Total | 137 | $13,700 |
Cost in hours at an assumed $100 an hour. Metrics are for estimation purposes.
If we look at old mate’s target of 2 CEOs per day, the cost of customer acquisition is probably around $5 million a year. I am not prepared to sign a contract to provide you this target because you are offering me $1,500 a year to produce $5M in sales effort.
Working out the cost of sale has additional layers of complexity on top like; salaries, commissions, office space. Then Customer Acquisition Cost has another layer over that that involves lead generation, marketing, website, logo design etc. It is so fiendishly difficult that I have spent hours trying to train AI to scope a sales campaign properly. This is why we don’t commit to a number the client produces as a target alone.
More of this kind of thinking lives at www.outsold.com.au/blogs.
