The Cost of Chaos – Part III

“Given today’s difficult economic landscape, companies cannot afford to continue using dated, inefficient, and haphazard strategies to generate revenue for their products and services. More than ever before, CEOs, owners, and senior executives in companies of all sizes and in all industries need to take a serious look at their revenue strategies and eliminate the end-of-month desperation, the excessive spending, and the dangerous dependence on a handful of rainmakers to hit their numbers.”

The Revenue Game

Imagine that you have a huge digital billboard in your office. It’s something like the national debt clock, and it’s tracking something that is just as critical to your company’s future. It’s the money your organization wastes while trying to generate revenue. The cost of failed products, excess sales salaries, sales support, ads, promotions, campaigns, demos, travel, unhappy customers, re-makes, lost deals, incorrect pricing, channel support, training.

We have a name for these losses – the Cost of ChaosTM – and your new “chaos meter” would track every minute and dollar lost from uncontrolled revenue generation. And while nothing can match the national debt clock, we can guarantee that you won’t like the numbers you see on the version that hangs in your office.

This topic is so important that we’ve covered it in a three-part series. In February, Part I dealt with the human cost of tolerating and causing chaos. In October, Part II dealt with the baseline metrics needed to gauge the Cost of Chaos. Now today, we’re providing examples of specific actions you can take to reduce these costs.

Reducing the Cost of Chaos offers two significant opportunities for your company. First, with lower costs comes greater profitability. The second opportunity is even more impactful:  greater, more sustainable revenue. After all, as an organization streamlines its generation of revenue, it frees up both human and financial resources to bring in additional revenue on a more systemic basis.

Fix the low-hanging fruit

Have we convinced you to tackle the Cost of Chaos yet? Don’t let the scope frighten you. While you’re probably facing a big undertaking, the key – like anything – is to break the evolution into steps.

In our last article, we recommended that you start tracking metrics, then suggested offered five areas in which you could focus. We chose those areas because they’re highly likely to offer low hanging fruit for improvement that, when fixed, can reverse the trend on your digital chaos meter. So today, we’re going to build on that idea by sharing how to reduce the Cost of Chaos in each of those areas. If your metrics are showing that indeed, these subjects are a problem in your company, then you know where to start!

ACTION PLAN:  REDUCE THE COST OF CHAOS

1. Fix your revenue roadmap.

Every sales process moves through distinct steps:

Investigate  >> early qualify >>  late qualify >>   solidify  >>  deliver

Companies frequently waste time and money by failing to clearly define the word “qualified.” What is a “qualified” lead that justifies the time spent to work with a prospect? Which leads aren’t qualified yet but need to be placed in a touch program? Which leads are best left behind?

The answers to those questions are not as easy as they sound. Many companies have some definition of “qualified,” but they just don’t go deep enough.

One way to test your qualification criteria is to measure your close ratio and tie that ratio to the hours spent in completing the sale. If your close ratio is weak, or if the time to close was too lengthy (think expensive) to result in a profitable transaction, then it’s time to revisit your definition of “qualify.” The purpose of a very tight, accurate and deep definition is to keep your team for wasting money chasing and spent more time closing. Both marketing and sales should be in total alignment on this definition.

Here are some questions to be asking yourself when drawing up your new, highly refined definition of “qualified:”

  • The prospect is actively seeking a solution to the problem you solve
  • The prospect understands what a solution will cost
  • The prospect is willing & able to spend that money in a reasonable timeframe
  • The prospect is a good strategic fit for your offer
  • The prospect is the person who actually approves this investment
  • The prospect has committed time and people to solve this problem and implement the solution

2. Reduce your cost per sales hour

When most companies actually calculate the hourly rate they are paying a sales rep to sell (move a deal forward when no one else can do it better or cheaper), they are shocked. If you’re honest with yourself about the number of hours a week a sales rep is actually selling, the number will likely be between 8 hours a week (best in class) to a more common number of 2 hours a week. For many companies, this figure is have four digits – more than you pay your attorney or CPA.

What if you could increase the hours spent selling by just 10%?  What difference would that make to your top line?

Here’s a time sink you can fix:  proposal writing. Let’s say a prospect has just asked for a proposal. (This is a situation where qualification is critical since prospects often ask for a proposal instead of just saying no!) The sales rep sits down at the computer and laboriously writes this document – collecting information, piecing together pricing, writing, editing, etc. This process could be done over a few hours or it may take days to get the information. Plus … do you know ANY sales reps who are efficient and happy writing proposals? All of this tedium takes time away from selling.

Challenge your team to come up with other ways to accomplish the same task in ways that are cheaper and better. What could be automated? What can be delegated? How could the process be streamlined? What information do you need more readily available? Can the proposal itself be simplified? Could inter-departmental cooperation be improved? Can the prospect participate in any way?

There are many other ways you can shave time out of your sales reps’ busy schedules. Have you considered every possible option? Where else are your reps wasting valuable sales time?

3. Make each offer complete and clear.

Glance back at the steps in the revenue roadmap and you’ll see that DELIVERY is part of the sales process. Frequently, a large potential prospect will test the company with a small initial order. The close of the larger, more profitable, work is entirely dependent on the successful delivery of the small order and the degree to which that order met client expectations.

A common cause of chaos-induced waste is when the initial delivery doesn’t meet the client’s expectations. As a result, all the time and effort to capture that new client is lost. There’s much hand-wringing and heaping of blame, often directed at the manufacturing or service arm of the company. Yet when the emotion subsides, it’s easy to see that nobody intentionally caused the problem. They didn’t wake up that morning and decide to mess up delivery and lose a client in the process.

More often than not, the blame should be directed at leadership who didn’t explain completely the client offer. Once manufacturing and service understands the thinking behind the offer, they take the necessary steps to ensure successful delivery of the sales process.

Think about your own client offers (a detailed description of the product/service provided along with HOW that product/service is provided). Do ALL the manufacturing/service folks in your organization understand:

Offer componentHow manufacturing & service can support or fail in delivery
What is important to the customer?Quality may be more important than speedy delivery
What has the offer promised to the customer?Promising convenience may dictate a different way to open the packaging
What problem is the customer trying to solve?The customer problem could be feeling stupid about not understanding industry jargon and set up the instructions are filled with that jargon
What does the company brand truly represent?Design may trump functionality
What experiences are promised in the offer?Painless returns without question or exception
What is included in the offer?Does the client receive updates automatically or upon request?

Make sure EVERYONE in the organization knows what you promise, both explicitly and implicitly. Is everyone in the organization clear about the offers being made to the customer?

4. Calculate ROI for your marketing programs.

Every marketing program (with the one exception of branding campaigns) should have an accompanying ROI goal to measure results. Step 1 is that definition of qualified lead so you know if you’re even measuring the right result.

Every company needs an agreed-upon way to measure the ROI. We won’t attempt to delve into the different calculation methods – the key is that you have a calculation that you agree upon and that you apply consistently. To do so, you must define success accurately. Number of hits, or calls, or bingo replies does not measure results. You need to calculate the profit earned from each investment. Not knowing whether a marketing effort is profitable causes untold millions in wasted dollars as companies then repeat the same ad or tradeshow or mail campaign over and over again.

Marketing programs are frequently tried and discarded based on passing fads, the latest best-selling book, or a competitor’s tactic. For example, how many of you have recently put up a Facebook page or Twitter feed and wondered what to do next? We thought so.

With the exception of building brand awareness (which is extremely difficult to measure for small companies or B2B firms), every marketing program needs to have an ROI goal. Period.

5. Revise your RFP strategy.

An RFP is like a shiny object jiggling above the head of a river trout. It could be a bug. It also could be a deadly fisherman’s hook.

RFPs suck up so many chaos dollars your digital meter will be working overtime. Our default on RFPs is that you should NOT RESPOND TO THEM UNLESS your brand differentiator is based on being the low cost provider. Then you have a chance. Otherwise, don’t go there.

The RFP process itself is reactionary and doesn’t lend itself to proactive value thinking or partnering. After all, the client has already identified the solution and defined the deliverable. The only thing left is price. If your company is not the low price provider you are wasting resources and causing long term damage by undercutting your brand.  If you stand for value and yet participate in a standard RFP, you are acting out of integrity with your own brand perception.

Having said all that, there are exceptions. Here are a few circumstances that increase the odds of success (success means winning the contract AND winning it on terms that are highly profitable):

  • Having an “unfair advantage”. Are you in the driver’s seat by being the current supplier or having a strong relationship with the decision makers? If your company has some time of unfair advantage, go ahead.
  • You participated in writing the RFP with the customer. You partnered with them to define solutions to their particular problem so that the customer understands why each requirement is important and understands the value it brings.
  • The solution being sought is in total alignment with your brand and your value differentiators. You hold the cards and can make money providing it better than anyone else.

Conclusion

We could probably write a year’s worth of additional articles about the Cost of Chaos. (Maybe we will!) And we’re pretty sure that you can think of a number of chaos-causing, profit-wasting activities going on in your company right now. Can you share any of those problems with us and our readers? How are you addressing those problems in your 2011 plans? Or have you recently attacked some of these issues with results you can broadcast?

The Cost of Chaos is real and deadly. We’d love your insight on the problems you’ve faced and the solutions you’ve developed!

 

At The Revenue Game we’re passionate about working with leaders who are committed to developing a revenue generation focus in their organization.  If you would like to learn more about The Revenue Game and the services we provide click here.

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