- May 3, 2010
- Posted by: Dave Kurlan
- Category: Understanding the Sales Force
I was listening to Red Sox manager Terry Francona being interviewed on one of Boston’s sports radio stations the other day when I heard him say, “When we get information we try to know what information we are getting.” Huh?
It turns out that he was referring to the difference between what the statistics tell him and what he sees with his eyes. The statistics don’t tell the entire story. A baseball example of that might be the shortstop who leads the league in errors. If you look at that statistic you might think he was a defensive liability but if you were watching him perform, you might see that he completes all of the routine plays, regularly makes outstanding plays to prevent runs from scoring, and most of the errors were harmless throwing errors that didn’t cost the team runs or games.
Which salesperson would you rather manage? The salesperson with $1 million in annual sales or the salesperson with $650K in annual sales? You think I’m going to choose the $650K person, right? Well it depends. If you simply look at the data, you would choose the $1 million salesperson. If you also watched them, you might still choose the $1M salesperson. But let’s look a little more closely at the make-up of their business.
Our million dollar man has just two accounts but they are big ones; one is worth $650K annually and the other $350K annually. He wins roughly 2 deals a week from those two accounts and he’s always happy, smiling and confident. The company and the salesperson were both very eager to have these two accounts and offered sizable discounts in order to land them. The margin on all of this business stands at only 10% and it’s a senior salesperson, earning 30% (of margin) commissions. So we have a salesperson investing 100% of his time managing just two large accounts that contribute only $70K annually to overhead after commissions. Yikes!
Our $650K salesperson has only been with the company for three years and has 65 small accounts at a 30% margin. His commissions are 20% (of margin) and he brings in about one small order each week from one of his small accounts. If you were watching, you wouldn’t think his accomplishments were nearly as impressive as the first salesperson’s. But this salesperson is contributing around $175K to overhead, more than double that of our million dollar man.
The differences go beyond the contribution to overhead though. If salesperson #2 loses an account, there is almost no change to the business. If salesperson #1 loses an account, it has a major impact on revenue, capacity and cash flow. Additionally, it is much less difficult to replace a small account than one of those large accounts.
If salesperson #1 were somehow able to leverage those two large accounts and capture business from two more accounts like that, at 20% margin instead of 10%, that might make his contributions more valuable, but only if the average order from the four large accounts doubled or tripled in size. Otherwise, he wouldn’t have the time to effectively manage twice the workload and the company might have to hire additional workers to handle the volume.
So things are not always quite as they appear.
Do you have salespeople that aren’t profitable, don’t contribute enough to overhead, won’t change what they’re doing and simply aren’t benefiting the company?