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The Mechanization of Business Processes

29 de abril de 2020
yvina
Photo by Christopher Burns on Unsplash

 

Since I created Hellomrlead, I have observed step by step how expensive it may be to achieve a business meeting, and when I say, I do not only speak of effort but specifically of money. In our company we charge our clients for achieving business meetings for them. To be more efficient, we had to divide the process by steps and measure the cost of each one in hours and conversion, and that is why I set out to write this article, not as a roadmap but as a thought out loud of how we’ve structured the commercial departments and how we evaluate our economic and opportunity cost.

 

Nowadays, a commercial in an SME company costs around of 40k to 70k per year (company cost included, such as income tax and social security) minimum, without counting other costs such as bonuses or travel compensation and subsistence on such trips.

He (or she) works on the order of 22 working days a month in a period of 11 months since between national holidays plus the corresponding 28-days vacations that is the remaining time.

242 working days (discounting vacations and holidays) where we assume that its main task is to close deals.

We often set a sales target, a quantitative figure by which we will measure his/her expertise, performance, and how we reward him/her financially based on the base salary (those 40-70k is just that, a base salary).

 

Hire less and try to save the money

Let’s do an exercise of imagination…. Our commercial will be called Marcosю

Marcos has a salary negotiated with the company of 50k per year + 40k of incentives. That for the company supposes an annual expense of approximately 62k (only for the base salary).

Marcos is dedicated to selling a (turnkey) computer solution the average ticket of which is 20k per year for that company that decides to buy it.

Marcos’ company, ACME, has decided to set an annual goal of 500k for Marcos for his first year in the company. 

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 for about 30 days without working.

Thus, the 25 effective sales should materialize at a rate of 2.27 sales per month.

Marcos has been told by his commercial director that the sales cycle only takes 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 presentation stage.

 

And so it begins

Marcos has started on January 2 to work with enthusiasm and he starts prospecting, looking for opportunities or contacts among the databases of the company that he can pick up, he even brings his own portfolio of contacts in the sector… 

He dedicates his time the first month to four big tasks:

  • Create databases to work upon, but before he must debug and enrich them. (35%)
  • Send introductions via email and LinkedIn. (40%)
  • Answer all those who respond to him via mail and LinkedIn. (20%)
  • Report his activities on the different accounts in the CRM (5%)

I categorize this phase as Prospecting. And we have people dedicated full-time to just these four tasks.

 

The second month again, he continues to dedicate his time to «sowing» (repeating the last month’s tasks and also):

  • Calling all those who opened their emails but did not answer. (30%)
  • Answering all those who started a conversation last month. (10%)
  • Arranging his first meetings. (10%)

This phase tasks at Hellomrlead are usually executed by a full-time Sales Development Representative.

 

Two months almost lost…

So Marcos is facing his third month and while he continues “planting”, “prospecting” and qualifying opportunities (the new tasks that he began to perform last month) he also finally performs the main thing for which he was hired that will lead him to achieve the desired objective:

  • Perform commercial offers (10%)

But he is finding himself at the end of the first quarter and reviews his path:

  • 8 commercial offers made.
  • 0 sales.
  • 3 months consumed from his 11 effective months of work.
  • At this point in the quarter, if the sales were an arithmetic or somewhat linear action, Marcos should have had a minimum of 6 deals closed.

 

His speed is not enough to achieve the desired objective, if we analyze his distribution of tasks and time we will see that only 10% of all his time has been dedicated to making commercial offers that implies that he is talking the offer to the person who decides, he proposes solutions to the problems of the potential client and generates an opportunity.

 

Let’s count

The trial period, which lasted 3 months, is ending and Marcos is about to pass to an indefinite contract and the CEO of the company does the math

Marcos costs the company 62k per year, that means €32 / hour (to understand how we have got this figure … €62k / 242 effective working days / 8 hours). 

Up to this moment €16,896 has already been invested to achieve 8 commercial offers and not even one sale, if Marcos continues with the dynamic, the 25 sales objectives will undoubtedly not be met, it is arithmetically impossible.

In 8 months (discounting August) 25 sales cannot be made unless commercial effort is doubled and Marcos is focused on generating offers, and not 8 but 16 offers per month.

Some call it Sales Forecast or Predictive Sales, I call it mathematics…

 

Divide and conquer

A customer is a fruit that is born (prospecting), developed (qualifying) and matured (sales) and in each of the stages should have a special team assigned within the company to take care of your prospect and accompany him/her in their natural maturing process.

This is what defines the cost of acquiring an opportunity, with the numbers that we have seen before Marcos those 8 budgets have cost €2,112 each.

 

How can this number be decreased?

Now let’s suppose an alternative scenario, for instance:

  • Marcos is only in charge of generating commercial offers and monitoring them, as well as closing.
  • The CEO of ACME Company assigned a team of people at a cost of approximately €3k per month to help Marcos generate 16 commercial offers in those 3 months.
  • This team is in charge of generating the databases, sending messages via email and LinkedIn, and make follow-up calls to schedule meetings for Marcos.
  • Marcos’s cost stays the same, €16,896, and the additional hired team – another €9k, that is €25,896 in total.
  • But when dividing the €26k invested among the 16 opportunities, the cost per opportunity is €1,619

The saving is significant, however, that is not more significant data… 

The sales cycle, we have said is from 45 to 60 days… That means that by September we must focus on closing all the offers presented, so the weight of offers presented without a doubt is concentrated in the second and third trimester if Marcos wants to close his 500k quota.

And that’s where supporting Marcos with this prospecting and qualification team makes more sense because it gives him speed and focus.

 

And the impact is

In the second quarter, this tandem of an external company and Marcos has obtained these typical for commercial dynamics figures:

  • 22 commercial offers. (+35% comparing to that of the previous quarter)
  • 8 of the offers presented the previous quarter have been closed. (50% of the budget stage)
  • 2 have been postponed until the end of the year. (12.5%)
  • 6 have been lost. (37.5%)

If this simple progression continues to the third quarter:

  • 29 commercial offers presented.
  • 11 of the offers presented the previous quarter have been closed (50% of the budget stage).
  • 6 have been postponed to the end of the year.
  • 9 have been lost.

 

We arrive to the Marcos’s last quarter… He has achieved 19 deals of the 25 that had given him as a reference to hit his sales objective.

He is only 6 deals away from making it and has accumulated 8 prospects that asked himto wait until the end of the year. The probability of achieving this goal, not counting opportunistic last minute sales for an allocation-free budget issue, is pretty high.

 

To sum up

Now let’s see the final result:

  • Company’s annual income 500k
  • Compliance with the commercial objective 100%
  • External expenses on commercial support 36k
  • Salary and bonus for Marcos 90k + company expenses
  • +50 offers presented at the rate of 50% conversion to sale.

 

Conclusions

In addition, there are three sayings that I love and I think they apply perfectly:

  1. The cobbler always wears the worst shoes. We hired a commercial to make budgets and close sales. 
  2. A bird in the hand is worth two in the bush. If a salesperson spends only 10% of all their time presenting offers, how do we expect them to achieve 100% of their sales target?
  3. Fruit, little and well ripe. If a salesperson is focused on following up on 50 opportunities correctly, it is highly likely that he/she will achieve a 50% conversion rate, but to do so they must spend time qualifying, understanding the client’s needs well and preparing meaningful and well-targeted offers.

 

And you might say, what an effort just to sell Hellomrlead, but in reality I do not sell you my company and its solutions but the process and organizational model in which I believe… After all, whoever lends it to you is secondary, since the first decision you must make is how you want to work.

 

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