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CHAPTER

3 SALES OPPORTUNITY
MANAGEMENT
It almost goes against the nature of salespeople to think about time; they just want to hit the
road and sell.
Marty Wiley
Vice President of Marketing and Sales, Loctite Corporation

Chapter Consultants:
Greg Miller, Senior Vice President, Operations Planning and Support, Marriott Senior Living Services
Jerry Willett, National Sales Manager, Software Spectrum

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Describe effective steps for generating new accounts.
Explain how to determine the minimum opportunity a salesperson should pursue.
Describe four methods for setting opportunity priorities.
Explain why emphasis is shifting from sales volume to profit flow.
Tell how salespeople can manage their time more efficiently.

PRIORITIZING OPPORTUNITIES AT HILL-ROM


After 70 years of success, Hill-Rom, headquartered in Batesville, Indiana, found revenue
growth slowing and competition increasing and began considering lower priced alternatives.
Top management noticed that cost of sales had risen gradually but persistently over the past
5 years. Hill-Rom decided to take a closer look at its customers and determine if it was allo-
cating its sales resources appropriately and if the sales force was performing the correct set
of activities to generate needed revenue and profit growth.
Hill-Rom’s core product line is patient’s beds and specialty mattresses for hospitals,
long-term care facilities, and home care. The company also has strong complementary prod-
uct lines in stretchers, furniture, architectural equipment, and nurse-to-patient communica-
tion products. Prior to seeking outside help from Mercer Management Consulting, sales
resources were allocated based on the size of the health care facility because this size influ-
enced the level of spending on Hill-Rom products. This was logical since the more beds a
hospital or nursing home has and the more services it offers, the more likely that capital

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94 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

funding will be set aside on a regular basis to replace or acquire equipment. The sales force
was structured into teams calling on all customers in a particular geographic location. Mer-
cer, along with company management, discovered on closer examination that while size of
facility is important, less obvious factors also affected purchasing behavior. These factors
included financial metrics such as customer capital spending and profit margins, operating
metrics such as occupancy rates, and even a facility’s mix of insurance payers.
Based on regression analysis of existing customer date, customers were divided into two
groups, key and prime customers, based on overall similarities of needs and priorities. Key
customers have far higher capital expenditures for medical equipment, replace equipment
sooner, seek out customized consultation, and look for comprehensive solutions to their prob-
lems. Prime customers, because of greater cost pressures, are more concerned with paying the
best possible price, less able to afford high-end products and services, more likely to buy indi-
vidual products rather than systems, and often wait to make a purchase until the need is urgent.
A time and cost analysis revealed that the company had been making a significant effort
to sell to and serve both segments in the same manner, resulting in a skewed allocation of
sales resources and high overall sales costs. Salespeople were expected to cover all facilities
in a given geography and felt compelled to make regular calls on each account. As a result,
sales teams were often taking a consultative approach when the account’s profile and pur-
chase behavior warranted another approach. Not surprising, it was discovered that the cost
of sales for prime customers was four to five times higher than for key customers. At the
same time, penetration of key customer accounts was less than desired because there was not
enough time left to provide the in-depth and customized type of solutions that customers
valued. The sales force had basically been treating all customers the same and trying to sell
prime customers a level of service and product that they did not value or could not afford,
while underselling to key customers.
Armed with a method for prioritizing customers, Hill-Rom decided to restructure its
sales force into two separate sales forces dedicated to each type of customer, the team struc-
tures, skill sets, compensation plans, the selling process, and the reporting structures of the
sales force. All these efforts were designed to ensure that resources were allocated to the
size of the opportunity. After 2 years, the cost of sales is down, short-term revenue growth is
up, the outlook for long-term revenue growth appears bright, profit margins are up, and cus-
tomers are reporting higher satisfaction.1
As Hill-Rom learned, it is critical to prioritize sales opportunities in order to effectively
and efficiently allocate resources. All sales opportunities are not equally important. Simi-
larly, time available for face-to-face communications with customers is a significant
resource that must be managed wisely. Tackling the problem of opportunity prioritization is
the focus of this chapter.
We started our discussion of the sales force program at the end of the last chapter by talk-
ing about the account relationship strategy element of the sales program. Recall that the rela-
tionship strategy decision will influence each of the other four elements of the sales force pro-
gram. We now turn our attention to the selling process or sales activities element of the sales
force program. This chapter focuses on efficiency or “doing the right things.” Salespeople have
considerable latitude in deciding how they are going to allocate their valuable selling time.
Management’s job is to get the sales force’s priorities in line with those of the company’s mar-
keting plan. Nowhere is this more important than with respect to the firm’s growth strategy.
There are essentially two paths by which to grow sales: obtain new customers and grow
the business with existing customers. This chapter is organized accordingly. The first part of
our discussion focuses on strategies for growing sales. We begin by discussing the impor-
tance of growing by acquiring new customer prospects, and we present various methods for
generating qualified prospects. We shift our focus to existing customers by discussing spe-
cific tools for allocating effort across a set of sales opportunities. First, we show how to
determine the minimum-size opportunity a salesperson should pursue, followed by a discus-
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A PROCESS FOR GENERATING NEW ACCOUNTS 95

Sales opportunity management

Generating Managing Sales Personal


new existing versus time
accounts accounts profits management

sion of how to allocate time among selling opportunities. We conclude the chapter with a
discussion of the profit impact of these decisions and time management in sales.
One way to increase productivity is to focus sales force time on those prospects that
have a high probability of becoming important customers. The next section discusses the
importance of building your customer base by acquiring new customers and company
efforts to increase sales force efficiency in this area.

A PROCESS FOR GENERATING NEW ACCOUNTS


The business press places a lot of emphasis on growing by getting closer to your present
customers. Although this is certainly an important opportunity for businesses, many compa-
nies focus on finding new customers to achieve their growth objectives. A recent survey
conducted by consulting company Towers Perrin indicated that 33 percent of sales execu-
tives cited acquiring new customers as their biggest opportunity for growth (see Figure 3-1).
No matter how strong your products, how great your customer service, or how aggres-
sive your sales force, businesses lose customers every year when companies are bought and
sold, management changes, industries consolidate, and global economies fluctuate. Few
companies can afford to neglect new business development. Indeed, according to recent
research findings, firms who have developed effective customer acquisition capabilities are
more profitable than those who have the capability of developing close customer relation-
ships, but are not good at acquiring new customers.2
The key to building sales through prospecting is to spend time with prospects that are
likely to become good customers. Therefore, an important first step in acquiring new cus-
tomers is for salespeople to build a good prospect profile.

Mergers and
acquisitions

10% Acquiring
Introducing new
new customers
products 33%
15%

42%
Increasing
business with
existing customers

FIGURE 3-1 What’s the Best Way to Grow?


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96 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

Building a Prospect Profile


Not all businesses will want or need your product or services. Some prospects will clearly be
a waste of your time, while others will not buy enough to make it worth your time. You
must first decide what factors determine who is a good prospect. This means building a
prospect profile, which is simply a profile of what the best prospect looks like.
A starting place for building this profile is a review of the target markets for your prod-
ucts, as specified in your marketing plan. Allnet Communications Services, a small long-dis-
tance phone company in Michigan, defines its target niche as small- to medium-sized busi-
nesses that bill between several hundred dollars and several tens of thousands of dollars per
month. This target was identified to avoid head-to-head competition with AT&T and Sprint.
If a target market has not been clearly identified, a new salesperson may need to rely on the
past experience of other salespeople in the company by asking them what types of business
became their most valuable customers. Veteran salespeople are probably best advised to
examine their own past successes.
If you are selling blood-processing machines, for example, then your best prospects
may be hematologists (hospital consultants specializing in analyzing and treating blood dis-
orders). Upon closer examination, the hottest prospects may be young (under 30) and trained
at a handful of teaching hospitals.
The blood-processing example points out a few important aspects of building a profile.
First, the profile is defined in terms of demographics, the physical characteristics that define
the individual buying environment. In the blood-processing example, demographics
included the customer’s business, age, and educational background. This information often
can be obtained before meeting with the prospect. Other examples of demographics fre-
quently used to build a prospect profile include the following:
• Size of the business
• Age of the equipment to be replaced
• Geographic distance from shipping points
• Product line specialty
The Internet can also play an integral role in building a prospect profile. Once on-line,
you can access databases containing government statistics, journals, books, and up-to-date
newswires. There are also about 7,000 newsgroups and any number of bulletin boards,
forums, and roundtables that cover almost every subject imaginable. Web sites useful for
target marketing and identifying new customers include www.census.gov or www.city.net.
A good site for identifying the top business in a geographic market area is www.toplist.com.

Building a Prospect List


With a prospect profile clearly in mind, the next step is to develop a list of prospects match-
ing the profile developed in the first step. The traditional method of generating prospects is
through cold canvassing. Cold canvassing involves contacting prospective customers with-
out appointments; that is, salespeople call on firms or knock on doors until they find good
prospects. Direct sales organizations such as Avon Products have had success with this
approach. Salespeople selling office supplies, air conditioning, paper supplies, and insurance
also use it with some regularity. Cold canvassing is used in these situations because the tar-
get markets for these products are fairly broad. The drawback to this approach is that a
salesperson could waste time soliciting low-quality prospects. Canvassing may also be more
efficiently accomplished by telephone.
The key is to efficiently gather a high-quality list. Some of the more efficient methods
being used to identify good prospects include direct inquiries, trade shows, directories, and
referrals.
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A PROCESS FOR GENERATING NEW ACCOUNTS 97

Direct Mail. All companies receive direct inquiries about products or services from poten-
tial customers. Direct mail is an excellent vehicle for locating prospective customers. The
fact that the potential customer is giving permission for a sales call allows salespeople to
concentrate their efforts on those prospects most likely to purchase. The use of e-mail
inquiries has made it possible to dramatically increase the speed with which companies can
respond to a direct mail inquiry, which helps to increase the rate at which inquiries are con-
verted to sales. At Tribute Inc., a software company in Cleveland, a business development
coordinator will analyze the responses from mailings to discern the prospect’s critical busi-
ness issues, including their buying time frame and budget constraints. As a result, Tribute’s
high-priced salespeople are focusing their efforts only on high-quality prospects.3

Trade Shows. Trade shows are also an excellent vehicle for generating good prospects. It
is estimated that more than 145,000 firms participate in over 8,000 trade shows at a cost of
$10 billion annually. The National Restaurant Show held annually in Chicago, for instance,
draws more than 100,000 food buyers and business owners. One reason for the growing
popularity of trade shows is the relatively low cost per customer contact—approximately
$89 per qualified contact. (A qualified contact is a customer contact whose interest in pur-
chasing has been verified.) Another reason for this popularity is that organizations can pro-
ject a coherent and consistent message to all prospects through exhibit structure, graphic and
product displays, product demonstrations, and other support material. Although some sales
are consummated at trade shows, it is more likely that the lead is passed on to the appropri-
ate salesperson; in fact, some trade shows do not permit the writing of orders.4

Directories. Special direct inquiry directories and open-to-bid announcements are impor-
tant sources of leads for many firms. For example, the Thomas Register of American Manu-
facturers provides names, addresses, and other information compiled by types of products
and by state. Furthermore, the firms in the Register are scored according to their assets,
which enables the salesperson to judge the size of each potential customer. Industry trade
associations often publish directories of their members by targeted segment or organization
function.

Internet. The Internet has revolutionized the process of selling and qualifying prospects.
See the Strategic Action Competency box, “Dell On-line” for a discussion of how successful
Dell has been in selling over the Internet. Not only can potential customers make purchases
over the Internet, but a wealth of information is available over the Internet. Most of the
search engines available today are quite good at locating company Web sites. In addition,
published information on companies is readily available at Web sites, such as Business
Week and the Wall Street Journal.
One of the hottest lead-generating tools today is Webcasting. Webcasting requires no
special equipment on the part of the host company or the audience and can be as simple as
sitting at a computer and talking over the phone, which is all that is required at WebEx.
Standard features include live streaming video and audio, online statistics and reporting, and
polling to gather opinions and engage viewers. Inverwoven, a Sunnyvale, California-based
content-management company, lured 2,000 information technology pros to sign up and par-
ticipate in a 60-minute presentation.5 As broadband connectivity becomes more ubiquitous,
this type of lead generation is likely to expand in use.

Referrals. With referrals, a satisfied customer is asked to provide the names of others who
might be interested in a product. In some cases, the person may also supply an introduction
of the salesperson to the prospects. The advantage of referrals is that the person can say
things about the salesperson and the product line that might not be as credible coming
directly from the salesperson.6
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98 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

Referral programs have gained wide acceptance among companies selling big-ticket
goods and services because prospects considering spending six or seven figures on one
transaction want all the information they can get. Siebel Systems, Sun Microsystems Inc,
and J. D. Edwards & Company are some of the companies with well-developed reference
programs. In these programs, reference companies are involved in speaking engagements,
videos, white papers, and articles. The benefits to the reference companies include network-
ing with other customers and Siebel executives, the opportunity to expand their brand
through speaking engagements and media activities, and previews of new products.7

Qualifying Prospects
Regardless of the process used for generating a list of leads, salespeople ultimately must
qualify a prospect, that is, determine if the prospect is likely to be converted to a buying cus-
tomer. As described earlier, some companies may initially qualify leads by telephone
because of the lower cost of doing so. But ultimately, a salesperson is usually needed to
qualify a lead. At Southwest Networks in Austin, Texas, salespeople profile all leads of 12
characteristics, such as current vendor, percent savings, equipment specs, and payback
period. After the first call on a prospect, the salesperson answers all 12 characteristic ques-
tions. The purpose of the profile is to tell salespeople how good a prospect a lead is and
when to walk away from the lead. Note from this example that the salesperson needs infor-
mation about customer needs, buying authority, and ability to pay.

Needs. Qualified leads are those that have a use for the seller’s goods or services and are
planning to buy in the near future. A prospect that is satisfied with the present supplier and
has no desire to change is going to be very difficult to convert into a customer. You will sell
such a prospect only if you can discover a desire or need that the present supplier is not ful-
filling adequately and you can get the buyer to focus on these needs. This is not an easy task.
Even if the prospect has an immediate need that you can meet and a desire to buy, you must
still determine whether the size and profitability of potential orders are sufficient to warrant
further attention.

Buying Authority. Beyond the question of customer needs is the issue of buying authority.
The plant manager may want a milling machine, but if he or she does not have the authority
to buy, then a sales call may help create a favorable impression but will not necessarily pro-
duce a signed order. Business-to-business salespeople often have problems identifying who
has the authority to buy within an organization because of the number of people involved in
making a purchasing decision. Methods for identifying the buying authority are presented in
Chapter 4.

Ability to Pay. Finding prospects that want a product and also have the authority to buy
will not be productive if they lack the financial resources to buy. Selling products that must
be repossessed later for nonpayment of bills is not the way for salespeople to get ahead.
Hence, salespeople should make an initial screening of prospects on their ability to buy. The
objective is to eliminate prospects who represent too high a credit risk. Credit ratings are
readily available from banks and credit services such as Dun and Bradstreet.
Successful salespeople differ from less successful salespeople in the way they think
about prospects. Although both groups of salespeople generally use the same cues to qualify
a prospect (e.g., income, need), successful salespeople utilize higher qualifying standards
and are more likely to cut their losses early. For example, they may require a higher credit
rating or a greater need for the product or service to consider a lead to be a hot prospect.
This is yet another example of how wasted time can hurt productivity and how time man-
agement is critical to sales success.
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MANAGING EXISTING ACCOUNTS 99

MANAGING EXISTING ACCOUNTS


Generating new customers is important, but many sales and marketing managers feel that
the companies that will prosper will be ones that maintain strong customer loyalty. Refer-
ring to the results of the Towers Perrin survey shown in Figure 3-1, we see that 42 percent
of the sales executives surveyed felt that the greatest opportunities for growth lay in keeping
and growing existing customer relationships—in short, in winning a greater share of the cus-
tomer’s overall business.
As a sales force program moves from a transactional to more of a consultative-type
account relationship, the opportunity management task shifts to one of prioritizing opportu-
nities with existing accounts, as opposed to generating new accounts. The need for prioriti-
zation and opportunity management of existing accounts is just as important as with
prospects. Models for prioritizing account opportunities are presented in this section, but
first we address the important issue of determining whether an opportunity justifies an allo-
cation of precious sales resources.

When Is an Account Too Small?


An important starting point in managing existing accounts is determining the minimum
opportunity on which you should be spending your time. The individual salesperson is in an
excellent position to determine the long-term value of a customer. For example, salespeople
should know customers’ short-term growth potential, as well as their competitive and
demand situations. Salespeople who are supplied with the necessary direct selling expense
information are in an excellent position to perform a minimum account size analysis. This
analysis involves two steps: calculating a personal cost per sales call and a breakeven sales
volume. We turn our attention to these analyses in this section.

Cost per Call. The first step in addressing the minimum customers size issue is to calculate
the costs of making a sales call. Cost per call is a function of the number of calls you make
per day, the number of days available to call on customers, and your direct selling expenses.
Direct selling expenses include such expenses as compensation, travel, lodging, entertain-
ment, and communications. These expenses are referred to as direct selling expenses
because they can be attributed to an individual salesperson. In other words, the company
would not have incurred these costs had a salesperson not been present in the territory.
The procedure for computing the average cost per call is illustrated in Table 3-1. In this
example, compensation includes salary, commissions, and bonuses, as well as fringe bene-
fits such as insurance and social security. These total $80,020, which is about average for a
nonretail salesperson.8 Other direct selling expenses equal $25,450, for a total direct selling
expense of $105,470.
For this salesperson, 205 days a year are available for selling. If the average number of
calls per day is 3, then under normal circumstances the total number of calls for the entire
year is 615 (3 × 205). Using these estimates, the representative can now compute the cost of
an average call as $171.50 ($105,470/615).
How does the cost per call of $171.50 compare with that of other salespeople? Accord-
ing to one survey, the average cost per call for all salespeople is $164.70.9

Breakeven Sales Volume. Breakeven sales volume is the sales volume necessary to cover
direct selling expenses. It is necessary to calculate breakeven sales volume in order to deter-
mine the minimum size customer that should be pursued. Calculating the breakeven volume
requires that we know the number of calls necessary to close a sale and what direct selling
expenses are budgeted to be as a percentage of total sales.
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100 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

TABLE 3-1 Computing the Cost per Call for an Industrial Products Salesperson

Compensation
Salary, commissions, and bonus $69,035
Fringe benefits (hospital, life insurance, social security) 10,985 $80,020
Direct Selling Expenses
Automobile 8000
Lodging and meals 6250
Entertainment 3250
Communications 4500
Samples, promotional material 1750
Miscellaneous 1700 25,450
Total Direct Expenses $105,470
Calls Per Year
Total available days 260 days
Less:
Vacation 10 days
Holidays 10 days
Sickness 5 days
Meetings 18 days
Training 12 days 55 days
Net Selling Days 205 days
Average calls per day 3 calls
Total Calls per Year (205 × 3) 615 calls
Average Cost per Call ($105,470/615) $171.50

A commonly referenced figure is that it usually takes five sales calls to close a sale. For
calculating the breakeven sales volume, a sales call refers to a personal face-to-face contact
with the customer. Telephone calls, e-mail, and notes that are dropped off are not considered
sales calls in this case. Determining the number of calls needed to close a deal may be based
on your own experience or that of other salespeople in the company.
It is also necessary to know the company’s target for direct selling expenses as a per-
centage of sales because this figure indicates how large sales need to be for a given dollar
amount of direct selling expenses. If direct selling expenses are higher than this target, then
profits will be lower if there are no offsetting cost or gross margin adjustments. Management
should provide the target for direct selling expenses.
Both the number of sales calls needed to close a sale and direct selling costs, as a per-
centage of sales, will vary considerably among industries and even between companies in
the same industry. Table 3-2 shows these numbers for 10 industries. The number of calls
needed to close a sale varies from 2.8 in the construction industry to 5.3 in the instruments
industry. Sales costs as a percentage of sales are 22.2 percent in printing/publishing but only
2.4 percent in office equipment.
Armed with this information, breakeven sales volume for an individual sale can be cal-
culated as follows:

Cost per call × Number of calls to close


Breakeven sales volume = —————————————————
Sales costs as a percentage of sales

If the sales representative is in the chemicals industry, where the cost per sales call is
$165.80, 2.8 calls are needed to close a sale, and sales expenses are 3.4 percent of sales, then
the breakeven sales volume would be $13,654 ([$165.80 × 2.8]/.034). As a point of compar-
ison, breakeven sales volume for an average salesperson in the instruments industry is
$8,093 ([$226.00 × 5.3]/.148). At first it may surprise you that the breakeven volume for
instruments is lower than for chemicals, while both the cost per sales call and number of
calls needed to close a sale are higher. Notice, however, that the higher cost per call and the
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MANAGING EXISTING ACCOUNT 101

TABLE 3-2 Selected Statistics on Cost per Call and Number of Calls Needed to
Close a Sale
Cost per Number of Calls Sales Costs as a
Industry Call Needed to Close a Sale Percentage of Total Sales
Business services $ 46.00 4.6 10.3%
Chemicals 165.80 2.8 3.4
Construction 111.20 2.8 7.1
Electronics 133.30 3.9 12.6
Food products 131.60 4.8 2.7
Instruments 226.00 5.3 14.8
Machinery 68.50 3.0 11.3
Office equipment 25.00 3.7 2.4
Printing/publishing 70.10 4.5 22.2
Rubber/plastic 248.20 4.7 3.6

greater number of calls needed to close an order in the instrument industry are more than
offset by the fact that direct selling costs are normally 14.8 percent of sales in this industry,
compared to 3.4 percent in the chemicals industry.
So far, our discussion has focused on sales in which multiple calls are needed to close a
sale. This is most typically the situation when calling on new customers or when selling high-
ticket equipment or services to business. In many industries, a salesperson’s primary function
is a combination of selling new products and services and taking orders to replenish inven-
tory levels. This is typical of the job responsibility of most consumer and industrial goods
wholesale salespeople, for instance. The process for calculating breakeven in this case is
quite similar to what we have done so far. Instead of examining the number of calls needed to
close the sale, however, the number of calls made on an account each month may be substi-
tuted in the breakeven sales volume equation to arrive at a breakeven volume per month. For
example, if the cost per call is $146.75, the number of calls made on a customer is four times
a month, and selling costs are 9 percent of sales, then a customer should place, on average, at
least $6,522 worth of business with a salesperson each month ([$146.75 × 4]/.09).

STRATEGIC ACTION COMPETENCY


“Dell On-line”

In late July 1996, Dell began conducting business through its Internet site. Almost immedi-
ately Dell began selling $1 million of computers per week through the Web. Within 6 months,
more than 150,000 customers were visiting the Web site each week, generating sales of
approximately $1 million per day. According to people inside Dell, everyone sensed that the
Internet would be a big win because of its compatibility with Dell’s overall strategy of selling
computers direct to the end-user rather than through retailers, but few envisioned that it would
be so big so soon. In fact, 3 months later Dell was selling $2 million a day over the Web, and
before 1997 sales had grown to $3 million in revenue per day. According to one source, Dell
now moves over $14 million per day in direct computer sales over the Internet. Dell’s cus-
tomer surveys indicate that about 25 percent of the volume was incremental business that Dell
would not have obtained without the Web site. Perhaps the most important development,
however, was the cost savings that were achieved through increased selling efficiency and
productivity. For more on Dell, visit www.dell.com or visit their on-line store at
www.dell.com/store/index.htm.
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STRATEGIC ACTION COMPETENCY


“Firing Some of Your Customers”

The discussion in this chapter focuses largely on the behaviors and actions of salespeople, but
the allocation of resources is also strategic to the organization, depending on how big a change
is made. Proper allocation of sales and marketing resources across existing customers helped
Custom Research Inc. (CRI) to rejuvenate its business. CRI provides marketing research, cus-
tomer satisfaction measurement, and database analysis services to a select group of Fortune 500
companies. Early on, CRI concentrated on acquiring clients. However, when the profit and
effort relationship was examined across its 157 customers, the results were surprising to CRI:
• High volume, low margins: 11 customers
• High volume, high margins: 10 customers
• Low volume, low margins: 101 customers
• Low volume, high margins: 35 customers
This analysis demonstrated that CRI was not efficient in allocating its resources in as much
as only 10 accounts provided both high volume and high margins, while 101 customers pro-
vided low volume at low margins. CRI made the strategic decision to develop long-term one-
to-one relationships with a limited number of clients. As a result, CRI was able to deploy more
resources to these handpicked customers, and clients responded by treating CRI as their partner
in making marketing decisions. CRI became the preferred research partner for companies like
Pillsbury, Procter & Gamble, and Dow Brand. As a result, CRI’s bottom line also showed
healthy improvement. For more on CRI, visit www.cresearch.com.

I Cannot Afford to Lose This Business. Having performed a breakeven analysis, how can a
salesperson use this information? Should a salesperson not call on customers or prospects
whose sales volume does not exceed the minimum sales volume?
People, and companies too, are rarely inclined to turn their backs on a sale. Other fac-
tors must be considered before dropping a customer or reducing the selling effort. For exam-
ple, sales to a customer may be growing, which may be due to one of two causes. The cus-
tomer’s business is growing rapidly, so its need for supplies is also increasing. Alternatively,
your sales to this account may be growing because you are getting a larger share of the cus-
tomer’s business. If this is the case, then it is important to know how much of your cus-
tomer’s total purchases are with your company and how much more is available. What if a
customer is located next door to a major account, so that a call takes little time and no real
travel time is involved? Should you walk away from this opportunity, even though it does
not take as much time as your average sales call? Another important consideration is that a
customer may purchase a mix of high-profit products, so that this customer’s gross margins
are 25 percent higher than the average for the territory. As you can see, a number of factors
must be considered when judging the value of an opportunity. On the other hand, see the
Strategic Action Competency box, “Firing Some of Your Customers,” for an example of one
company, CRI, that made the strategic decision to eliminate low-volume, low-margin cus-
tomers and changed its business around.
Top management may choose to address the smaller, less profitable accounts in ways
other than reducing the number of sales calls made on these accounts. The Gillette Com-
pany’s Safety Razor Division decided to hire part-time merchandisers to assist salespeople
in calling on individual small retailers. The Commercial Systems Division of Hewlett-
Packard hired inside sales and technical reps to work the phones. See the Team-Building
Competency box, “How Cisco Is Partnering to Reach New Customers” to see how Cisco is
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MANAGING EXISTING ACCOUNT 103

TEAM-BUILDING COMPETENCY
“How Cisco Is Partnering to Reach New Customers”

In today’s economy, eight people gain Internet access every second, and electronic mail mes-
sages outnumber regular mail by more than 10 to 1. If you have accessed the Internet or sent
e-mail to a friend, it is likely that Cisco products transferred your data. The growth and evolu-
tion of the Internet have caused Cisco to embrace a new set of customers, which it had been
unable to reach in the past—small- and medium-sized business. The obstacle was Cisco’s tra-
ditional sales force system. Visiting each customer in person may be the preferred strategy,
but with smaller accounts the costs aren’t justified. According to Cisco management, “We
can’t put enough feet on the street,” even though Cisco already employs several thousand field
salespeople.
The new model Cisco has adopted is to have account managers work with resellers to tap
the opportunity in the small to medium businesses. The new model forced account executives
to switch roles from salespeople who pitch technology to business partners who create solu-
tions, often for start-up businesses. This involves a whole new set of issues. The account execu-
tive must coordinate his or her own activities with those of the reseller. There are some activi-
ties that resellers can perform more efficiently because they already have a relationship with the
customer and others that the Cisco salesperson with technical expertise is better equipped to
address. This type of teamwork has resulted in a better than 50-percent increase in business
from these new customers. For more on Cisco systems Inc., see www.cisco.com.

reaching small- and medium-size businesses. Alternatively, a plumbing fixtures manufac-


turer chose to raise prices to discourage the “worthless” small customer orders that were dis-
rupting its production scheduling. These small orders subsequently became the company’s
most profitable. The new higher prices more than compensated for the costs; customers
weren’t changing suppliers because of high switching costs; and competitors had shied away
from these small accounts because of the conventional wisdom in the industry regarding
their profitability.
As you can see from these examples, the minimum-size customer on which a salesper-
son should call depends on the direct selling costs involved, the number of sales calls made
over a period of time, and the cost structure of the company, as well as other considerations.
There is rarely a hard-and-fast dollar volume below which a customer’s business should not
be pursued. However, when supplied with the right information, sales professionals are in a
better position to judge whether an account is likely to become a profitable one.

Three Methods for Setting Account Priorities


Breakeven account analysis provides a starting place from which to determine the mini-
mum-size account that should be called on. This analysis does not fully address the issue of
how much time should be allocated to prospecting and how much to existing accounts in a
territory. Following are four methods for setting account priorities along with the situations
in which each is most appropriate.

Single-Factor Model. The easiest and probably the most widely used model for allocating
salespeople’s time is the single-factor model. This model examines a single customer char-
acteristic, usually sales volume, to arrive at an initial allocation of sales calls. Thomas Cook
Travel, a division of the Thomas Cook Group, an international travel and financial services
company based in the United Kingdom, divides its clients into A’s (those who spend $750
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104 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

TABLE 3-3 ABC Account Classification


No. of Total Sales Total Total calls Sales ($)
Account Accts. Accts. (000) Sales per Classif. per Call
Classification (1) (2) (3) (4) (5) (6)
A 21 15% $910 65% 105 $8,667
B 28 20 280 20 140 2,000
C 91 65 210 15 455 462
Totals 140 100% $1,400 100% 700 $2,000 (Avg)

or more in annual revenues), B’s (those spending $250 to $749), and C’s (those who spend
less than $250). Differentiating its client services according to their classification has freed
up travel agents to spend more time with A and B clients.
The basics of a single-factor allocation model based on total sales volume are presented
in Table 3-3. This is referred to as an ABC account classification. Customers are arranged
according to their total sales volume. In this case, the top 15 percent of all accounts are clas-
sified as A accounts, the next 20 percent are classified as B’s, and the remaining accounts as
C’s. Column 4 is a calculation of each type of account’s sales as a percentage of total terri-
tory sales. In this example, A’s generate 65 percent of total territory sales, B’s account for
20 percent, and C’s represent only 15 percent. Based on surveys of sales executives, these
results are fairly typical for a variety of businesses.
All too often customers are treated equally, so that each customer is called on with the
same frequency. Columns 5 and 6 in Table 3-3 illustrate the problem with making equal
numbers of calls on all customers. Notice that if you treat all accounts as equal, say by call-
ing on each account weekly, you will be spending 65 percent of your time on your C
accounts. A sales call on an A customer, however, is on average 20 times as productive as a
call on a C customer. Spending too much time with C customers may allow the competition
to steal an A customer through better service.
The main limitation of single-factor models based on sales volume, such as the ABC
account classification procedure, is that they may not include all the factors that should be
considered when evaluating an account’s sales potential and life-time value. Also not con-
sidered is the opportunity to obtain greater account penetration (a greater share of the
account’s total purchases), vulnerability to competitive efforts, or account profitability.
Because of these considerations, a single-factor model is most likely to be used in mature
markets, when demand and competition are fairly stable. It is also more likely to be appro-
priate for sales force programs with a transactional type of account relationship strategy.

Portfolio Models. Portfolio models attempt to overcome the limitations of single-factor


models by considering multiple factors when determining the attractiveness of individual
accounts within a territory. Selling effort is allocated so that the most attractive accounts
receive the most effort.10 For instance, one company classified its portfolio of accounts
according to their average gross margin and the cost to service each account. In another
company, the Surgical Division of Cardinal Health, Inc., a customer classification system
based on the type of hospital (e.g., teaching/research, regional medical center,
government/federal, community), location (rural versus urban), and size was instituted.
Sales effort and marketing programs were designed for each type of customer within the
classification system. The criteria a company uses to classify its customers will depend on
their competitive situation, its ability to capture and disseminate relevant customer informa-
tion, and what the sales force is being asked to accomplish.
Figure 3-2 illustrates one well-known portfolio model. This model classifies accounts
into one of four categories by determining account attractiveness based on two criteria:
account opportunity and competitive position. Account opportunity refers to the magnitude
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MANAGING EXISTING ACCOUNT 105

Competitive Position
Strong Weak
Core Growth
Accounts Accounts
Accounts are very Accounts are potentially
High attractive. attractive.

Account Opportunity
Invest heavily in selling May want to invest
resources. in heavily.

Drag Problem
Accounts Accounts
Accounts are moderately Accounts are very
Low attractive. unattractive.

Invest to maintain current Minimal investment


competitive position of selling resources.

FIGURE 3-2 Portfolio Model

of an account’s present and future need for the salesperson’s offering. Ratings of account
opportunity may be based on the account’s present and projected growth rate, its financial
health, and its present and future strength in the marketplace. Competitive position, the sec-
ond dimension on which accounts are classified, refers to the strength of the salesperson’s
present relationship with an account. Competitive position may be based on outcome mea-
sures such as an account’s total gross profit dollars, share of the account’s total purchases,
type of contract, and contract compliance. Additional indicators of competitive position may
focus on the account relationship and may include the account’s attitude toward the com-
pany and familiarity with the decision makers in the account. Once all accounts have been
rated on both dimensions, we can proceed to prioritize our accounts by splitting them at the
median of both dimensions and forming a four-quadrant grid, as shown in Figure 3-2.
As an extension of single-factor customer classification models, portfolio models offer
several benefits:
• Help the sales team to identify the important customer and relationship issues.
• Facilitate communication between salespeople and sales managers.
• Help isolate information gaps and set priorities for customer data collection and analysis.
• Force the sales team to think about the future and consider ways of achieving a more
desirable portfolio configuration.
Portfolio models for setting account priorities are most likely to be used in sales force
programs with more of a consultative type account relationship strategy where understand-
ing individual customer needs and the strength of the relationship are critical. As the Cardi-
nal Health case demonstrates, a sales team is likely to be involved, so there is a need for
greater depth of analysis than is available in a current sales volume-based model.

Decision Models. Although portfolio models have the advantage of using multiple charac-
teristics to classify accounts, several shortcomings remain. First, accounts must still be
grouped into the four quadrants for the purpose of allocating sales calls. Differences
between firms in the same quadrant are therefore not taken into consideration. Second, the
process does not arrive at an optimal allocation of sales calls.
Decision models for allocating sales calls overcome these two shortcomings by focus-
ing on the response of each account to the number of sales calls made over a period of time.
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106 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

$20,000

Dollar sales per quarter


$10,000

1 2 3 4 5 6
Number of sales calls per quarter

FIGURE 3-3 Number of Sales Calls Response Function

Though mathematically elegant, these models consist of only two parts. The first part devel-
ops the relationship between the number of sales calls over a period of time and sales to a
particular account. This is referred to as a sales response function. The response function
may be derived either through regression analysis on historical data or judgmentally. With
judgment-based decision models, salespeople are first given information about how many
times they called on a particular account over a period of time and the sales generated.
Salespeople are then asked to project sales in the next period of time if the same number of
calls are made on the account, if the number of sales calls is decreased by 50 percent, if they
make no sales calls, and if they make the maximum number of sales calls possible. These
estimates are used to construct a sales response function like the one shown in Figure 3-3.11
A close examination of the response function in Figure 3-3 indicates that customers will
not respond dramatically when only one or two calls are made per quarter, but sales are
expected to increase dramatically when the number of sales calls increases from two to four.
The response function flattens out after four calls, suggesting that there is little left for the
salesperson to accomplish by calling on the account more than four times in a quarter. Soft-
ware is available to constructing sales response functions.
The second part of these models uses the individual response functions to allocate calls
so as to maximize sales. Essentially, these models continue to allocate sales calls to an
account until more sales can be generated by calling on another account. For example, a
third and fourth call may be allocated to the account in Figure 3-3, but greater sales are
likely to be generated by calling on another account rather than by allocating a fifth call to
this account.
The allocation task in decision models is complex and involves a large number of calcu-
lations as the number of accounts increases. Therefore, computer models such as
CALLPLAN have been developed. CALLPLAN is an interactive computerized program
based on decision model logic. CALLPLAN is self-instructing, and salespeople can work
with the model at remote computer terminals using simple conversational language.
Research results on the use of decision models have consistently supported the use of these
models, with reported sales improvements ranging from 8 to 30 percent.12
To test your understanding of setting account priorities see Team Exercise, “Working
Hard or Working Smart.”
Sales response models are most likely to be helpful in setting priorities when the sales
force program is more transactional in nature because the response estimates are most reli-
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MANAGING EXISTING ACCOUNT 107

TEAM EXERCISE
“Working Hard or Working Smart?”

You have recently been transferred to Chicago as the new district sales manager and have had a
chance to spend some time with each of your salespeople. For the most part, the sales team you
are managing has done well, but, as usual, there is a big difference in the sales generated by
each salesperson. One of your low producers is Tim, whom you are meeting with today. At
first, you thought that Tim may just not be right for the position, but after spending some time
riding along with him in his territory you believe he has what it takes to be a good salesperson.
Observing him during sales calls, you are convinced he has the right presentation skills; he also
set a challenging schedule of calls during the 2 half-days you spent with him.
After some opening chitchat, you ask Tim to explain why he thinks his sales are not as
high as they should be. “I really don’t know,” exclaims Tim. “My close rate is good. I make as
many calls as the next guy. I have a good territory with potential. I work hard. I think I have the
right customer service attitude. I try to treat all my customers the same—as if they are the most
important customer I have. I work my territory systematically and I call on each customer once
a week. I really don’t understand how these other agents do it.”
How would you respond to Tim? Based on this conversation, describe the steps you would
take to guide Tim toward greater productivity.

able in such selling situations. As the account relationship strategy becomes more complex
and involves increased investments from both suppliers and customers, it is not as meaning-
ful to think in terms of the number of sales calls needed to generate a sale. In such situa-
tions, a sales process model is more appropriate. We discuss these models next.

Sales Process Models. Despite the advantages of sophisticated call allocation programs,
they are not appropriate for all situations. See the Coaching Competency box, “Intel: Sales-
people Who Don’t Call on Customers,” for an example of when a decision model would not
be appropriate. Instead of calling on microprocessor customers, some people in Intel’s sales
force call on software vendors, information technology buyers, and retail outlets, selling the
idea of PCs on every desk and in every household. In the case of these Intel salespeople,

COACHING COMPETENCY
“Intel: Salespeople Who Don’t Call on Customers”

An important aspect of coaching is sharing best practices from other companies. Certainly, Intel
would qualify as a company whose marketing and sales practices are worthy of consideration.
It would probably surprise many people to learn that a large number of Intel’s salespeople don’t
call on customers. Instead they call on software vendors, information technology buyers, and
retail outlets—companies that are traditional partners and customers of PC manufacturers.
These salespeople don’t sell the microprocessors made by Intel; instead they sell the idea of
PCs on every desk and in every household. Salespeople are also responsible for knowing what
is going on in those industries that affects Intel. For instance, Intel is represented on most soft-
ware standards committees. That gives Intel a voice in what shape such things as the Internet
will take. It’s a voice Intel uses to foster consumer and corporate interest in PCs—rather than
low-end devices that don’t require Intel processors.
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108 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

24 20 19 17
Unqualified 16 14
13 21 15 23 22 18

12 11 50% closure
9 10 probability

Qualified 5
7 75% closure
probability
6
8

3 4 90% closure
Best few probability
2
1

FIGURE 3-4 The Sales Funnel

immediate and near-term sales volume is not a relevant measure of the opportunity these
sales calls represent.
In other sales situations, the selling cycle can be quite long because of the dollar com-
mitments associated with the sales. This is especially true in industrial goods and high-tech
markets, as well as in major account selling where many people may be involved in the pur-
chase decision and where an enterprise-type account strategy exists. In such situations, the
focus is on developing opportunities within one or a few accounts, so the focus is not on pri-
oritizing accounts so much as on prioritizing opportunities, all of which may reside in a sin-
gle account.
Unlike the earlier models, which focus on the relative sales volume or profitability of
opportunities, sales process models focus on where the opportunity is currently classified in
the selling process. In these models, opportunities are assigned to different stages of the sell-
ing process according to the probability that they will ultimately result in a sale. This sort of
opportunity categorization is most appropriate when the selling cycle is fairly long and mul-
tiple opportunities may exist within the same account.
One example of a selling process model is the sales funnel (see Figure 3-4).13 Initially
developed for training salespeople at Hewlett-Packard, this system categorizes and priori-
tizes sales opportunities or objectives, not accounts.14 This is necessary because a salesper-
son or sales team may have multiple selling objectives at one account at the same time. The
account executive may be attempting to get a pilot installation in one of the client’s depart-
ments, for example, while wanting to upgrade to a more sophisticated piece of equipment in
another department.
Each sales opportunity is categorized based on the level of uncertainty in meeting the
opportunity:
1. Unqualified opportunities. In this case, data suggest that a possible need exists, but this
need has not been verified with key people in the account. For example, you have learned
that a customer’s existing contract with a competitor is about to expire. The selling job
needed in this situation is to qualify the account by verifying that a need exists according
to the criteria discussed earlier in this chapter.
2. Qualified opportunities. A qualified opportunity must meet four criteria:
• The need has been verified with at least one of the buying influences (e.g., the techni-
cal, user, or economic buyers to be discussed in Chapter 4).
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SALES VERSUS PROFITS 109

• There is a confirmed intention to buy a new product or service, replace an existing one,
or switch suppliers.
• Funding for the purchase has been approved or already exists.
• There is an identified time frame within which the purchase will be made.
3. Best few opportunities. All the buyers have been contacted and their needs identified, and
in your judgment have been sufficiently developed to make the sale. You have all but elim-
inated luck and uncertainty in the sale and are at least 50 percent along in the selling cycle.
That is, it should take you half as long to close these sales as is normal in your territory.
The term sales funnel is derived from figuratively placing the sales opportunities in a
funnel. Unqualified opportunities appear just outside the top of the funnel, qualified oppor-
tunities inside the funnel (depending on the probability of closure and the position in the
selling cycle), and the few best opportunities at the bottom of the funnel.
In the sales funnel shown in Figure 3-4, each numbered bubble represents a unique sell-
ing opportunity. Notice that the qualified opportunities are divided into those with a 50-per-
cent probability of closure and those with a 75 percent probability. This distinction is made
to portray the current situation more clearly and to facilitate communication between sales-
person and sales manager. The situation in Figure 3-4 appears to be healthy in that a number
of opportunities are likely to result in sales during the current period, but an even larger
number of opportunities for future sales results. Some companies will alter the shape of the
funnel to reflect the number of opportunities at each level, which quickly indicates the pre-
sent and future health of the territory.
At first glance, it would seem advisable to work on your best few and qualified opportu-
nities, while spending whatever time remains on unqualified opportunities. The problem with
this approach is that when given low priority, prospecting rarely occurs. Having closed the
best few and exhausted the qualified opportunities, there is nothing left to replace these
opportunities. Therefore, experts suggest a prioritization sequence of (1) closing your best
few sales opportunities first, (2) prospecting for unqualified opportunities next, and (3) work-
ing the qualified opportunities last to ensure a constant and predictable flow of sales over
time.15 It is always important to keep the funnel full by prospecting for new opportunities.

SALES VERSUS PROFITS


There is a tendency in sales to evaluate opportunities in terms of dollar sales. Faced with
tough buyers in mature markets, however, some companies are beginning to focus on the
bottom line instead of the top line. A recent survey of 200 leading executives in North
America, Europe, and Asia reported that 49 percent expected to track customer profitability
based on return on investment.16 Profit, of course, is the difference between net price and the
actual cost to serve a customer. There can be dramatic differences between the price an
account pays and the costs incurred in servicing an account.17 Why is this true?
Customers may pay very different prices for similar products and services. Although
there are some legal constraints, such as the Robinson-Patman Act, some customers are able
to negotiate lower prices and higher discounts because of their size. In other words, large
customers can demand and get lower prices because a seller cannot afford to lose their busi-
ness. Other customers are simply able to get lower prices because of their negotiating skills.
And still other customers exploit deals and promotions more than others and “forward buy,”
which means they buy a large amount of their annual needs at one time when the product is
on discount.
The cost to serve is also likely to differ between customers. Some accounts are located
far from the salesperson’s normal route, so more travel time is involved. Some customers
place their orders by phone or over the Internet, whereas others require endless face-to-face
sales calls to close a deal or to place even a routine order. Some customers demand intensive
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110 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

TEAM EXERCISE
“Destructive Discounting”

You have recently been hired as vice president of sales for an Original Equipment Manufac-
turer (OEM) of small electronic components. After 3 months on the job, you don’t like what
you are seeing from the company’s nine salespeople. The sales force seems focused on closing
as many deals as possible, regardless of whether they provide good solutions for customers.
Salespeople are discounting so much that your margins have continued to decline. Clearly, you
would be in trouble if this continues since this was precisely what you were hired to change.
Further, your bonus is based on achieving profit margin objectives. When you talk with the
salespeople, however, they say that they were previously taught to focus on sales volume, not
the profitability of the deals. What should you do first? To help communicate the critical finan-
cial consequences of price discounting, create a simplified income statement illustrating the
effect of a 10 percent discount on profits.

presale services like applications engineering and custom design support, while others
accept standard designs. Costs may also vary according to preferred transportation mode,
number of receiving locations for an order, and opportunities to back-haul. (Back-hauling
refers to transporting goods back to an origination point after delivering supplies. As a
result, a truck does not travel without a load, which wastes time and money.) The list of cus-
tomer service cost differences sometimes seems endless.
The main point we would like to make here is that companies and salespeople need to
be aware of the price, cost, and profit differences between customers and allocate their sales
effort accordingly. It is not at all unusual for there to be a 50- to 75-percent difference in the
profitability of customers who purchase a similar quantity of product. This is what FedEx
found out when it began studying the profitability of its customers. This issue is so important
to FedEx that it now searches its database to compare the costs of doing business with par-
ticular customers and rates its customers according to profitability. FedEx also now matches
transaction information with demographic data to pinpoint the characteristics to seek in
prospects or existing customers that might offer more business.
Perhaps the most surprising discovery for firms that closely examine the profitability of
their individual customers is that many of their largest customers are not their most prof-
itable ones. Typical of the experience of many companies today is that of a major U.S.-
based component manufacturer. They decided that it was time to examine the profitability of
their 10 largest accounts. In 1987, these accounts had represented 72 percent of the com-
pany’s overall profits. Ten years later, in 1997, their contribution had shrunk to less than 40
percent of profits. In fact, 2 of these 10 large accounts were producing a loss for the com-
pany, and 2 others were barely breaking even. Many other organizations are finding that size
is no longer a good proxy for profitability. As a result, businesses are investing heavily in
information technology to help them identify their most profitable customers.18
To test your understanding of the profit versus sales issue, try your hand at answering
the questions posed in Team Exercise, “Destructive Discounting.”

Customer Lifetime Value. You may recall that one of the problems with the single-factor
model was that, based on historical sales volume, it was not forward looking enough in con-
sidering future sales and profits. Consistent with the shift from a transaction view of rev-
enues and profits to a relationship perspective, marketers are starting to adopt Customer
Lifetime Value (CLV) as an appropriate metric for measuring marketing performance.19
Who cares if profits are good for one period, if the customer is alienated as a result? Taking
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TIME MANAGEMENT 111

a long-term view of profitability is the motivation behind using CLV as an appropriate per-
formance and resource allocation metric.
Customer Lifetime Value is based on the notion that the value of a customer is the sum
of the customer’s discounted flow of profit contributions into the future. Calculating CLV
requires knowing or making judgments about the following inputs:
• The company’s discount rate (cost of capital)
• The company’s planning horizon (3 years, 5 years, 10 years)
• The customer’s product category purchases in each period
• The average contribution from purchases
• Each supplier’s share of total category purchases20
The experience of one pharmaceutical company illustrates the potential significance of
switching to CLV as its resource allocation metric from past sales volume. The company had
been allocating sales effort according to the number of prescriptions a physician wrote—a
surrogate for sales volume—which led to a focus on doctors in midcareer. When they
switched to calculating the CLV of a physician, their analysis revealed the importance of
young physicians, including residents and new practitioners, who, though not currently big
prescribers, were specialists in a given area and could thus be expected to prescribe more
over time. This lifetime emphasis brought a whole new set of doctors to the company’s atten-
tion, displacing a quarter of the physicians it had previously thought were of greatest value.21

TIME MANAGEMENT
In most surveys of business training programs, time management is one of the most fre-
quently mentioned training topics. The reason is that significant productivity gains can be
made through better time management. Figure 3-5 shows how salespeople spend their time.
The amount of time spent selling, either face to face or over the phone, increased during the
1990s to 54 percent from only 50 percent in 1990. Most of this increase is due to a greater
use of technology when selling.
Improving the amount of time spent selling is an opportunity for significant productivity
gains. A task force for one Fortune 100 company estimated that a 10-percent improvement in
the time its sales force spent selling would generate more than a 5-percent increase in overall
sales volume. This helps to explain why, in a recent survey, 72 percent of sales executives
listed a cellular phone as the technology most essential to their salespeople’s job.22
Notebook computers and the Internet were also highly ranked by the sales executives as
essential technologies. To understand the reason for this rating, consider how things have

Service
calls
Selling
face-to-face
13%
Administrative
tasks 29%
16%

17% 25%
Waiting Selling over
and travel the phone

FIGURE 3-5 How Salespeople Spend Their Time


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112 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

changed for the salespeople in Quaker Oats’ chemical division. In the 1980s, tracing a ship-
ment of solvent for a client meant numerous hours of phone calls and plenty of headaches.
Today, Quaker Oats salespeople simply open their laptop, go into the company’s internal
Web site, click on a button that says “shipment information,” and in just a few minutes they
are able to tell the purchasing agent that the tank car is in Houston, 20 miles away. The
importance of this technology is indicated in Figure 3-5, which shows that salespeople spend
13 percent of their time on service calls.

The “Traveling Salesperson” Problem


On average, 17 percent of salespeople’s time is spent traveling and waiting. Careful schedul-
ing can produce substantial savings in travel time. The task of selecting sales routes is usu-
ally handled by the salesperson, but at some companies the sales manager or staff specialists
develop it. The rapidly increasing costs of automobiles, gasoline, and automobile repairs, as
well as the possible savings in time, have encouraged many firms to employ more sophisti-
cated technologies to find the best travel routes.
Techniques used to schedule and route salespeople have received considerable attention
from management scientists; the issue has become known as the traveling salesperson prob-
lem. The dilemma is usually stated as a search for a route through the territory that allows a
salesperson to visit each customer and return to the starting point with a minimum expendi-
ture of either time or money. A variety of techniques have been employed to search for the
best routes including linear, integer, nonlinear, heuristic programming, and branch-and-
bound methods. Discussion of these complex procedures is beyond the scope of this book.23
A simple way to find a good sales call route, and one that is often very effective in min-
imizing travel time and costs, is to plan a travel route based on four basic rules:
1. The route should be circular.
2. The route should never cross itself.
3. The same route should not be used to travel to and from a customer.
4. Customers in neighboring areas should be visited in sequence.
Circular routes are reasonable because salespeople usually start at a home base and then
return to it at the end of the sales trip. Similarly, if sales routes cross, a salesperson knows
that a shorter route was overlooked. Sometimes a salesperson will be forced to use the same
route to travel to and from a customer because of local road conditions or scheduled appoint-
ments, but this should be avoided when possible.
In reality, other factors often interfere with plans that appear to be ideal on paper. In
geographic routing problems, circumstances such as availability of good roads, traffic flows
at different times of the day, traffic lights, and congestion often lead to a different route than
that originally planned. This does not mean that operations research approaches are not of
value; they are an excellent starting point for your analysis.
One additional factor to consider is the work schedule of the account. The best approach
is to travel when clients are not available and so avoid wasting valuable selling time. If cus-
tomers are not available early in the morning, then this may be a good time to get in the
most travel miles. As a result, you may make your first call on the customer farthest from
your home rather than making a circular route. Better routing usually comes with experience
and greater familiarity with the territory.

Overall Time Management


Despite all the emphasis companies are putting on increasing selling time, 16 percent of a
salesperson’s time is spent on administrative tasks. This figure has not changed much during
the past two decades. Although it is important for salespeople to provide customer and com-
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TIME MANAGEMENT 113

petitor information to their company, a key aspect of managing time effectively is to recog-
nize and control things that tend to waste time. Following is a list of what many salespeople
consider some of the most common time wasters:24
1. Telephone interruptions
2. Drop-in visitors
3. Lack of self-discipline
4. Crises
5. Meetings
6. Lack of objectives, priorities, and deadlines
7. Indecision and procrastination
8. Attempting too much at once
9. Leaving tasks unfinished
10. Unclear communication
Note that the top two time wasters are telephone interruptions and drop-in visitors. The
rest of the time wasters, such as lack of discipline, lack of objectives, and procrastination,
indicate poor self-management by the salesperson. How different is this list from the one
you would make for yourself? One aspect of time management that is particularly important
in sales is to know when the customer is available. This is the key selling time during the
day, and salespeople should strictly adhere to customer contacts during these times. This
time must be protected, while other duties and issues are handled at other times of the day.
A key step frequently recommended for improved time management is preparing a list of
personal and professional goals and then pursuing them one step at a time. Planning does not
have to be elaborate to be useful. Simply writing down a list of things you want to do tomor-
row is a good place to start. The next step is to rank the tasks on the basis of their importance.
Then when you start the day, begin task 1 and stay with it until it is completed. Recheck your
priorities and begin task 2. Continue with tasks as long as they remain most important.
Once people get into the habit of daily planning, the next step is to plan a week or more
ahead. Many salespeople, for example, are required to prepare weekly call plans. The idea is
to encourage salespeople to plan a series of calls for each day, to call ahead for appoint-
ments, and to make better use of their time. A useful device that helps with planning is a
small diary for the pocket or purse. Carrying a diary allows you to keep track of appoint-
ments and to reschedule them as needed.
Stephen Covey, a well-known consultant in personal and professional development,
advises people to analyze their time management using a framework like the one shown in
Figure 3-6.25 Importance refers to activities that are of importance to you in meeting your
objectives. Urgency, on the other hand, is the time pressure we feel to perform certain activ-

Importance
High Low

High Emergencies Time wasters


Urgency

Low Personal growth Recreation

FIGURE 3-6 Time Management


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114 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

ities. Notice that we may feel this pressure for both important and relatively unimportant
activities. According to Covey, activities in the Emergencies and Recreation quadrants will
generally take care of themselves. People can gain control over their lives by spending less
time on Time Wasters and more on Personal Growth activities. Time Wasters (high urgency
but low importance) include phone calls, some meetings, and unnecessary administrative
work—in other words, things that demand our immediate attention. Personal Growth activi-
ties (low urgency but high importance) are easily put off but are very important to our future
growth and development. Activities in this category may include reading professional jour-
nals or books, enrolling in professional development or executive courses, learning how
other functional areas operate, or prospecting for new customers. Notice that many people
can postpone these activities indefinitely. Considering both urgency and importance may
provide us with a useful perspective on how we can spend our time more productively.

SUMMARY
Over the past decade, sales force productivity has lagged behind the double-digit increase in
selling costs. As a result, top executives are giving added emphasis to improving sales force
productivity by increasing the amount of time salespeople spend face-to-face with cus-
tomers. Salespeople are being armed with laptop computers, cellular phones, and the Inter-
net to fight this battle.

1. Describe effective steps for generating new accounts. First, a prospect profile should
be constructed which describes the best prospects for your company’s offerings. The pro-
file may be based on sophisticated database analysis of the purchasing patterns and prof-
itability of your current customers. With an ideal prospect profile clearly in mind, a list of
prospects should be developed using a variety of methods, including direct mail, trade
shows, directories, referrals, and cold canvassing. Finally, prospects need to be qualified
based on their need for the seller’s offerings and intention to buy in the near future, their
authority to buy, and their ability to pay for the offering.
2. Explain how to determine the minimum account opportunity a salesperson should
pursue. Two techniques for making this determination should be used. First, the cost per
sales call should be identified. This is calculated by identifying all direct selling costs for
the period of time being evaluated and dividing this sum by the number of sales calls that
are expected for the time period. The cost per call figure is then included in a breakeven
sales volume analysis, which consists of multiplying cost per call times the number of
calls necessary to close the sale and dividing this product by the company’s sales costs as
a percent of sales target. This provides a base figure from which to determine whether a
sales opportunity is of sufficient magnitude to warrant a face-to-face selling effort.
3. Describe four methods for prioritizing sales opportunities. The single factor model
focuses on sales volume to classify account opportunities and allocate salespeople’s time.
Portfolio models expand the criteria for classifying account opportunities by considering
both competitive position and account opportunity factors. Decision models allocate effort
according to a sales response function, which is based on the sales response to different
numbers of sales calls during a period of time. The sales process model allocates time to
sales opportunities based on their stage in the selling process. The appropriate model will
depend on market demand, the competitive, and selling situation of the company.
4. Explain why emphasis is shifting from sales volume to profit flow. The main reason
for shifting from sales volume to profits as a performance and resource allocation metric
is because profits may be quite different for customers purchasing the same total volume
of products and services. This is caused by the price concessions some customers obtain,
the mix of product they purchase, the services they require, as well as their future profit
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DEVELOPING YOUR COMPETENCIES 115

growth potential. A corresponding shift is taking place from emphasizing past sales and
profits to valuing customers based on their future stream of profits. Customer Lifetime
Value (CLV) is one method for calculating the discounted flow of future profit contribu-
tions.
5. Tell how salespeople can spend more time selling. A recent survey indicates that sales-
people spend about 54 percent of their time selling either face to face or over the phone.
Three avenues for increasing this percentage are incorporating technology into the selling
and planning process, more efficient routing of sales calls within a territory, and reducing
time wasters through personal time management techniques.

KEY TERMS
Account opportunity Directories Sales funnel
Acquisition costs Direct selling expenses Sales process models
Best few opportunities Minimum account size Sales response function
Breakeven sales volume Portfolio models Single-factor model
Cold canvassing Prospecting Time management
Competitive position Prospect profile Trade shows
Cost per call Qualified opportunities Traveling salesperson problem
Decision models Qualify a prospect Unqualified opportunities
Direct mail Referrals

DEVELOPING YOUR COMPETENCIES


1. Self-Management. One of the most important aspects of self-management is to develop a
clear understanding of your personal and career goals. One highly successful method of
arriving at a better understanding of your goals and of the steps that should be taken to
achieve those goals is the time management analysis developed by Stephen Covey. First,
list your personal and professional goals in any order. Next list the actions that you will
need to take to get yourself in position to achieve these goals. Third, draw the Time Man-
agement Matrix presented Figure 3-6, labeling the axis as high versus low importance and
high versus low urgency. List the activities on which you spent time over the past week or
month. Now compare these activities to the list that you developed for achieving your per-
sonal and professional goals. In which quadrant would these goal-directed activities fall?
How could you adjust your time to put yourself in a good position to achieve your goals?
2. Coaching. You are spending the day with a new salesperson in your district who has
been with your company, Consumer Research International (CRI), for less than a month.
CRI is a marketing research company that competes with the likes of M/A/R/C Group,
Market Facts, and Burke Marketing Research. Although CRI has a number of accounts
with which it has worked for a number of years, each month between 20 and 30 callers
will contact your company to investigate engaging it in a marketing research project;
however, only about two or three of the calls warrant further attention. A new salesperson
is having a problem determining in a reasonable amount of time, which of these callers is
a real prospect and which is a waste of time. Time is precious, however, but you do not
want your salespeople walking away from important growth opportunities. Because the
salesperson is new on the job, you would like to give him a set of questions that he could
ask to determine whether this is a “hot” prospect or one that is “just looking.” What
would be your advice?
3. Global Perspective. Dendrite International is one of the world’s leading suppliers of
sales force automation software in the pharmaceutical industry. Pharmaceutical firms
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116 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

worldwide are arming their salespeople with laptop computers and looking for software
to design call plans and collect call reports to increase sales force efficiency and effec-
tiveness. More than 15,000 salespeople in 40 companies in 11 countries use Dendrite sys-
tems. One of the issues Dendrite faces is that software demands differ greatly from coun-
try to country. How would software requirements differ in each of the following
countries? For more information on Dendrite, see www.drte.com.
• U.S. pharmaceutical sales forces are among the largest in the world, ranging from 500
to more than 3,000 reps per firm. Sales reps call on medical personnel every 4 to 6
weeks to leave product samples and literature, perform service tasks, and build relation-
ships with prescribing physicians.
• In Western Europe, sales forces are generally 100 to 200 reps in size. Government
funding of health care and large, managed-care organizations are common. In England,
a rep sees a doctor once a year, always by appointment, and can only leave one sample.
• In Japan, sales forces are like those in the United States, and, with fewer doctors, there
is one pharmaceutical salesperson for every six physicians. Unlike in the United States,
where physicians cannot sell drugs, Japanese physicians combine prescribing and dis-
pensing of drugs. Sales reps negotiate prices with individual physicians, who also
derive income from selling free drug samples to their patients. Most Japanese doctors
work in clinics or hospitals that require sales reps to wait outside to see the doctor. As a
result, “social selling” is very important in Japan. Reps develop face time with doctors
by washing their cars, entertaining them, and running all sorts of errands.
4. Technology. Wisdom Ware Inc., a small software firm, has developed a slick tool that
helps salespeople to be better informed and more efficient. It requires salespeople and
their bosses to do things just a little differently. The issue Wisdom Ware attempts to
address is keeping the sales force informed about products, the market, and the competi-
tion. Even more important, the software is designed to enable every piece of information
to link with any other piece. That way, salespeople can assemble just the right combina-
tion of facts necessary for the immediate task without being inundated with information.
In short, this software is the interactive equivalent of Cliff Notes. While planning a call, a
sales rep makes a few menu choices to identify the customer, the product, and such. One
click creates the most up-to-date qualifying questions, another reveals how the competi-
tion stacks up, another reports the most common objections, and still another suggests a
quick product positioning statement. Though only a few concise sentences pop up on the
screen, detailed reports are just a click away. Unfortunately, Wisdom Ware has been less
than wildly successful so far. The problem isn’t training, which takes less than an hour.
Nor is it compatibility; Wisdom Ware works seamlessly with other front-office software.
Neither has any customer winced at the price of $500 and up per user. What do you think
could be the problem? For more on Wisdom Ware, see www.sellmorenow.com.
5. Strategic Action. IBM has proved it can market successfully to fellow corporate giants
like General Motors and Citibank. But will the company be successful in selling to the
millions of enterprises with 1,000 or fewer employees who make up the world’s fastest
growing segment? It had better be because for IBM entrepreneurial companies are the
future in information technology. In the United States, small businesses are responsible
for 50 percent of the gross national product. That segment is growing at 11 percent annu-
ally, three percentage points higher than the growth of large companies. What’s more,
IBM estimates that last year 75 million small and medium-size companies worldwide
spent $305 billion in information technology.
But IBM faces an enormous challenge simply trying to prove to smaller customers that
it really cares about them. “My small customers don’t feel comfortable with IBM,” says
Gunther Obhlschlager of TransCat, an IBM reseller in Karlsruhe, Germany. “Unless you
spend millions of dollars with the company, you can’t get someone on the phone,” he
says. Richard Laermer, a New York entrepreneur, adds, “I don’t believe they’re really
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PROBLEMS 117

going after small businesses.” He adds, “Their attitude is, ‘If you don’t have a thousand
employees, get out of my face.” Should IBM go after the whole market—large, medium,
and small firms? Can they? If so, how?
6. Team Building. One of the most important jobs of the first-line sales manager is to cre-
ate an atmosphere in which individual salespeople feel that they are part of a team and
are also responsible for carrying their own weight. Perhaps one of the most controversial
aspects of this balancing act is the degree to which the sales manager should get involved
in territory and account planning.
The attitudes and advice of sales managers run the gamut from close supervision to a
totally hands-off attitude. At Ziegler Tools, an Atlanta industrial distributor, for example,
salespeople are required to fill out weekly detailed itineraries and call reports, which are
compared with quarterly itineraries. Turner Warmack, vice president of sales and mar-
keting at Ziegler Tools, states, “Generally speaking, salespeople are poor managers and
can be thrown off course pretty easily. What we feel our system does is help them focus
their efforts.” At the other end of the spectrum are sales managers who do not require
their salespeople to submit call reports and detailed reviews of customer status. Typical
of this approach is Rick Horn, president of Stahl Company, a specialty truck body manu-
facturer, who states: “I didn’t feel I had to tell them what to do. They were big boys and
knew their territory. All I wanted to know is where they were in case I had to reach
them.” Which approach do you feel is best? Does it depend on the circumstances? If so,
what circumstances should be considered?

PROBLEMS*
1. You are a rookie salesperson with Associated Medical Supplies, Inc., a wholesaler of dis-
posable medical supplies. As a new salesperson, you are finding it difficult to convince
accounts to switch from their current suppliers. The doctors with whom you are having
the most success tend to be small, single practices located in rural areas. Competition for
these accounts is not as intense, perhaps because their purchases are fairly small. They
usually place about $900 worth of business with you every month. Nevertheless, they
seem to be most appreciative of your weekly visit to take inventory of their supplies and
write an order. Furthermore, it is better than no sales at all. Lately your boss has been
hassling you because productivity has not increased as much as he had hoped when he
placed you in the territory. In particular, direct selling costs, including compensation, are
currently 15 percent of net sales, whereas the total company’s target is for direct sales
costs to be 10 percent of net sales. In light of this, you are wondering if spending time on
small rural physicians is the best way to manage your territory. You have calculated that
your cost per call is currently $34.50. Should you be calling on these small physician
practices? What is the smallest size customer you should pursue in order to meet your
company’s selling cost objectives? What actions might you consider in managing your
territory better?
2. As a salesperson for Strength Footwear, Inc., you have been very successful. Your com-
missions are well over $70,000 per year. Demand for your product line is strong, but so
is the demand on your time. You work your territory 220 days a year and can make four
calls a day. The maximum number of times you need to see any account is every other
week, but you need to call on each account at least once a quarter. To help you allocate
your time according to sales results, you have gathered the following information on cus-
tomer sales:

* Excel spreadsheets for working these problems are available at www.wiley.com/college/dalrymple. Go to “Stu-
dent Resources.”
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118 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

Accounts Sales Last Year


Top 10 accounts $150,000
Next 10 best accounts 37,500
Next 10 best accounts 37,000
Next 20 best accounts 56,250
Next 20 best accounts 55,500
Next 20 best accounts 18,750
Last 20 accounts ___15,000
$370,000

Develop and justify a call schedule for allocating time across the 110 customers in your
territory.
3. You have just finished your annual account review of the telecom purchases of one of
your largest customers. They had purchased $125,000 worth of telecom equipment from
you last year but are indicating that they want a 10-percent discount on next year’s pur-
chases or they will switch their business to one of your competitors. Technical, installa-
tion, and other account services that were provided to this customer last year totaled
$11,000 and are expected to be about the same next year. You earn a commission of 10
percent on sales. Last year this account’s gross margin was 40 percent, and they are
expected to purchase a similar quantity of equipment next year. Assuming that the list
price for the equipment would be the same as last year, but discounted by 10 percent,
how would the discount affect the profit contributions this account is estimated to gener-
ate next year?
4. Continuing with the account analysis from problem 3, assume that the account purchases
some of its telecom equipment from one of your competitors. How much would you need
to increase your penetrations of this account through increased sales in order to justify the
10 percent discount the account wants on next year’s purchases?

FEATURED CASE D & M INSURANCE: “LEAD GENERATION”

A month later, at the monthly sales meeting,

O
ne method by which D & M identified leads on
new prospects was through mailing of informa- Doug asked for a progress report on the status of those
tion to businesses in the area accompanied by a prospect leads. Only two of the reps had followed up
mail-back card and an email address for those interested on any of the leads. Of those five leads, three sales
in learning more about the programs D & M could offer. were made and two prospects were still being devel-
Since this type of lead generation program had not been oped. Doug was now concerned. After all the hard
used for some time in the Des Moines area, Doug, the work that went into generating these leads, he wasn’t
sales manager at the Des Moines office, decided to run about to see them gather dust on his salespeople’s
the program after some disappointing first quarter sales desks. Moreover, he didn’t want to lose easy sales
results. To his surprise and thrill, 79 requests for more from prospects that were ready to buy. Doug voiced
information were received in the next 10 days following his concern to the salespeople and said he would be
the mailing. Doug gave each of the salespeople in the creating a standard plan that the salespeople would
office around 10 leads to follow up on. have to use when following up on leads.
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D & M INSURANCE: “LEAD GENERATION” 119

Questions 3. What are the possible reactions from the leads not
contacted by D & M?
1. Should Doug have taken an approach other than
saying that he would create a standard plan? 4. What is an “ideal” course of action given all the
issues involved?
2. If you were the sales manager, what would you do
about the reps’ obvious lack of motivation to follow 5. Write a brief step-by-step plan to handle this situa-
up on the leads generated by the mailing? tion.

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