From Scot MacTaggart, host of The Pitchwerks Podcast and cofounder of a local strategy firm called KRNLS, The Werkshop helps readers to scrutinize and practice a different sales or business development skill every month.
This month, I bring you a story-ish narrative, in order to take a look at how we determine value in sales roles and bringing in revenues. It’s fiction, in that it’s not really about one company, but it’s an amalgamation of the experiences and ideas that many businesses have shared with me. This is valuable because we’re all working on careers and businesses, and reflection on the value of each skillset is important to the decisions we are making.
When a business is new, its owners run the sales function in a semi-chaotic, under informed atmosphere, often not focusing on specializing each person’s role. It’s all hands on deck. Everyone is working sales for at least part of the day, and sales is working on one simple assignment: bring in new customers for one core product. The mission is pretty straightforward, if not necessarily easy.
After an initial sales process is set, some time passes, and a dedicated sales group forms, the CEO (the top analyst for the company) notices that some reps are better at getting new accounts than others. Their curiosity demands a deeper understanding, and so they seek out old-school sales wisdom from their network, and are introduced to the well-worn concept of “hunters” and “farmers”.
Armed with this new knowledge, the CEO inspect the traits of these “hunters” closely, opting to learn how to identify and hire more of them. Although they would have previously described these individuals as being too pushy, transactional, or abrupt, their opinion begins to change. They start to see “the hunter mentality” as desirable, because “number of customers” is an exciting metric for any CEO. Having a high number of customers suggests that the business is safe and secure in the sustainability of broad awareness and popularity.
The CEO takes this new approach to the rest of the management team for implementation, but the new metric invites criticism. The objection from the staff is predictable: “number of customers” feels like a squishy, undependable metric, and the company shouldn’t pay people on such an unreliable stat. They know that some customers will spend a small amount and then disappear forever. Someone inevitably points out that if you judge the sales team by customer count alone, then some members will game the system with tiny transactions just to drive up the customer count. The argument then concludes that those with the hunter mentality are always seeking a way to win the game and earn more money, so they have to set the game up correctly.
With that, the path forward is altered. The management team sets sales goals using a different metric: revenue dollars. Based off of their values and experience, this makes sense to them. A lot of other companies do it that way. It is often viewed as a substitute for profit that keeps the team from having to actually talk about how much money the company makes at raise time. If a rep sells $1,000 worth of stuff, that number goes up on the board. That number is harder to play games with than customer count or transaction count, so it becomes the official scoring system. The person with the biggest number at the end of the month, quarter or year gets bragging rights.
Finalized plan in place, the company starts advertising that jobs are available to “top performing hunters” and “quota smashers”. They do their best impression of a professional sports team by throwing big money at free agents. Some of them do well, while others underperform in comparison to their free agent salaries. Underperformers don’t make a lot of money, get threatened with firing, and eventually do get fired. Between the pressure to live up to their reputation and the pressure to make money, some push prospective clients really hard. When they get cut or leave for another company, another ad goes out. More “big hitters” are brought in. More pressure, more pushing clients, more firings. The cycle repeats for a few years.
Eventually someone digs through the data, or comes in from another company, and challenges the company to look at things a little differently. They discover two things:
#1: They find that revenue has been treated as a proxy for profit, but doesn’t accurately translate into profit across different products, negotiations, and promotions. Gross margin percentages on sales to new accounts are often half (or less) of the gross margin percentages earned on existing accounts. Obviously, this doesn’t mean that businesses should stop selling to new customers, but they do tend to re-evaluate the purpose of hunters after this epiphany. They start thinking of the account managers – the farmers – as the ultimate purpose of the sales funnel.
#2: They find that between account management and support desk transactions, existing accounts produce 2-4X more revenue in their second year than the first. This means that if the company can just keep them happy and onboard, it’s reasonable to assume that account will generate 4-8X profits in the second year.
Of course this leads the management and ownership back to an important realization:
they wish they had thought of “hunters vs. farmers” differently from the beginning. They wish they had never accepted “the hunter mentality” or that pushy, transactional, and abrupt personality characteristics were a necessity. Looking back, it turns out that the real goal of a hunter is to safely deliver accounts to account management, where both companies can enjoy a far more fruitful relationship.
The lessons continue to drop and other shoe hits – some of the customers that were pushed too hard will never re-engage, and will therefore never reach the company’s final goal of being covered by a profitable account management team.
The moral of the story, and the message that I hope you might take away from this month’s column is this: Businesses have to grow through a whole assortment of distractions – conventional wisdom, gut feelings, vanity metrics and more – on the journey toward a mature and healthy revenue machine. The value that each individual provides will be measured differently along the way, and seen through the lens of whichever mindset is currently being employed. Both management and sales are best served by striving to understand the exact path that cold leads follow on their way to becoming repeat customers.
This Month’s Challenge: We’re all products of our environments. Reset your expectations about how this whole sales machine works. Review the specific areas in your business:
- New Accounts: Have you overestimated your value or gotten too comfortable with the “pushy sales rep” stereotype?
- Account Management: Has the lack of emphasis on your importance convinced you to do less than your best? Are you asking existing customers for referrals that you can share with New Accounts?
- Business Owners: Is there value in a reorganization of your entire funnel?
Want to talk about this? Have questions? Tell us on Twitter! Tag me at @pitchwerks and use the hashtag #SNPwerkshop so others can follow along!