Since I created Hellomrlead I have observed step by step how costly it is to have a business meeting, and when I talk about cost I am not only talking about effort but specifically about money. In our company, we charge for business meetings. To be more efficient we had to go step by step through the process and measure the cost in hours and its conversion and that is why I decided to write this article, not as a roadmap but as a reflection on how we structure the sales departments and how we evaluate their economic and opportunity cost.
Today a salesperson in an SME company costs around 40k to 70k per year (company costs including income tax and social security) minimum, without counting other costs such as benefits and compensation or travel and per diems on these trips.
He works about 22 working days per month in a period of 11 months, since between national holidays plus the corresponding vacations, that is the time left to work.
242 working days (discounting vacations and holidays) where we assume that your main task is to close sales.
We usually set a sales target, a quantitative figure by which we will measure your expertise, performance and for which we reward you financially, since the base salary (that 40-70k is just that, a base salary).
Hire less and save
Let’s do an exercise of imagination…. Our salesperson will be called Marcos…
Marcos has a salary negotiated with the company of 50k per year + 40k incentives. That means an annual expense for the company of approximately 62k (only for the base salary).
Marcos sells an IT solution (turnkey) whose average annual ticket is 20k for the company that decides to buy it.
Marcos’ company, ACME Company, has decided to set an annual target for Marcos for his first year at the company of 500k.
That means 25 effective sales in a year, but that year is no longer a year because as we know, Marcos will be on vacation like all Spaniards between single and consecutive days about 30 days without working.
Therefore, the 25 effective sales should materialize at a rate of 2.27 sales per month.
Marcos has been told by his sales manager that the sales cycle is only 45 – 60 days from the time the offer is presented, but he has no idea how long it takes from the time he starts prospecting until he reaches the offer presentation stage.
Marcos started working on January 2 with enthusiasm and began prospecting, searching through the company’s databases for opportunities or contacts that he could take up again, even bringing his own portfolio of contacts from the sector.
He dedicates his time during the first month to four main tasks:
- Create DBs to work on that must be debugged and enriched (35%).
- Make introductions via email and LinkedIn (40%).
- Answering to all those who give him «ball» via mail and LinkedIn (20%).
- Report your activities on the different accounts in the CRM (5%).
I categorize this phase as Prospecting. And we have people dedicated to just these four tasks full time.
The second month again is still dedicated to «seeding» (repeating last month’s tasks) and:
- Calling all those who opened your emails but did not reply (30%).
- Answering all those you started writing to last month (10%).
- To make your first meetings (10%)
The tasks of this phase in Hellomrlead are executed by a full-time Sales Development Rep.
Two months almost lost…
You are in your third month and while you are still «seeding», «prospecting» and «qualifying». prospecting» and qualifying opportunities (the new tasks he started to perform last month) he finally performs the task he was hired for that will lead him to achieve the desired goal:
Making commercial offers (10%).
But he is at the close of his first quarter and reviews his journey:
- 8 commercial offers made.
- 0 sales.
- 3 months consumed of your 11 effective months of sales you have.
At this point of the quarter, if sales were an arithmetic fact or something linear, you should have at least 6 sales.
His speed is not enough to achieve the desired goal, if we analyze his task distribution and the time allocated we will see that only 10% of all his time has been dedicated to make commercial offers, which implies that he is talking to the person who decides, raises solutions to the potential customer’s problems and generates an opportunity.
Let’s do the accounting
His probationary period, which was 3 months, ends and then he becomes permanent and the CEO of the company makes accounts…..
Marcos costs 62k per year to the company, which means 32 €/hour (to understand how we got this figure… 62k / 242 effective working days / 8 hours).
At the moment we have already invested 16,896 € to achieve 8 commercial offers and no sales, if we continue on this path we will certainly not meet the objectives of 25 sales, it is arithmetically impossible…
In 8 months (discounting August) 25 sales cannot be made unless sales effort is parallelized and Marcos is focused on generating offers, and not 8 but 16 offers per month.
Some people call it Sales Forecast or Predictive Sales, I call it mathematics…
Divide and win
A customer is a fruit that is born (prospecting), develops (qualification) and matures (sales) and in each of its stages it should have a different profile in the company that takes care of it and accompanies it in its natural process of maturation.
This is what defines the acquisition cost of an opportunity, with the numbers we have seen before Mark those 8 budgets have cost 2,112 € each.
How can this number be lowered?
But now let’s assume an alternative scenario:
- Marcos is only in charge of generating commercial offers and following up on them, as well as closing.
- The CEO of ACME Company set up a team of people at a cost of approximately €3k per month to help Marcos generate 16 commercial offers in those 3 months.
- That team is responsible for generating the DBs, sending messages via email and LinkedIn, and following up by phone to schedule meetings for Marcos.
- Marcos spent the same 16,896 € and the contracted company 9k€, that is to say 25,896 €.
- But when dividing the 26k€ invested between the 16 opportunities, the cost per opportunity has been 1619 €.
The savings are significant but this is not the most significant data….
The sales cycle, we have said that it is 45 to 60 days… That means that by September we should aim to close all the offers presented, so the weight of offers presented without a doubt Marcos if he wants to close his quota of 500k, is concentrated in the second and third quarter.
…And that is where the support to Marcos by this prospecting and qualification team makes the most sense because it gives him speed and focus.
And the impact is…
In the second quarter, this tandem of an external company and Marcos have achieved these figures, typical of commercial inertia:
- 22 commercial offers (+35% more offers submitted than in the previous quarter).
- 8 of the bids submitted in the previous quarter were closed (50% of the budgeted amount).
- 2 were postponed to the end of the year (12.5%).
- 6 were lost (37.5%).
If this simple progression continues for the third quarter:
- 29 commercial offers submitted.
- 11 of the bids submitted in the previous quarter were closed (50% of the budgeted amount).
- 6 have been postponed to the end of the year.
- 9 were lost.
We reached the last quarter of Marcos. He has 19 bids won out of the 25 he had been given as a benchmark to achieve his sales target.
He is only 6 more away from achieving it and has accumulated 8 proposals in the backlog that he was told would close by the end of the year. His probability of achieving the target, excluding opportunistic last minute sales as a matter of unallocated budget, is much higher.
Now let’s look at the bottom line:
- Revenue achieved by 500k companies
- 100% achievement of the commercial target
- External commercial support expenses 36k
- Mark’s salary and bonus 90k + company expenses
- +50 offers presented at a rate of 50% conversion to sales.
There are three sayings that I love and I think they apply perfectly:
- Shoemaker to your shoes. We hire a salesperson to make quotations and close sales.
- He who grasps too much grasps too little squeezes. If a salesperson spends only 10% of his time presenting offers, how do we expect him to achieve 100% of his sales target?
- Fruit, few and well ripe.If a salesperson concentrates on correctly following up 50 opportunities, it is very likely that he will achieve a 50% conversion rate, but to do so, he must dedicate time to qualifying, understanding the customer’s needs and preparing meaningful and well-targeted offers.
And you will say, what a load of crap to sell Hellomrlead, but in reality I am not selling you my company and its solutions but the process and organizational model in which I believe… Who I lend it to you is secondary, since the first decision you must make is how you want to work.