Summary of the Impact of Sales Process and CRM on Optimizing Sales Effectiveness CSO Executive Briefing Series

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CSO Executive Briefing Series

Summary Report:

The Impact of Sales Process and CRM

on Optimizing Sales Effectiveness

Jim Dickie

Barry Trailer

CSO Insights

Boulder, CO

Corte Madera, CA

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SUMMARY

From the very earliest days of Customer Relationship Management (CRM) the mantra has been repeated like a drumbeat: People, Process and Technology. That is, technology alone is not the “silver bullet” magical solution that will solve a company’s sales effectiveness challenges. At the same time, another axiom in the CRM world has also been repeated ad nauseam: Get your process straight, and then automate.

In follow up to our annual sales effectiveness study this year, we looked at what performance differences might be seen in firms that, in fact, did have their processes well defined, used them consistently and supported their use with CRM technology. The sales performance results were significant. This paper summarizes the most dramatic areas of gain and what lessons there are to be learned from these.

However, the short version is that sales rep quota attainment was much higher at these companies (67% of reps achieving quota vs. 58%) and total and voluntary sales rep turnover were much lower (22% vs. 49% and 10% vs. 31%, respectively).

There is strong correlation that these favorable results reflect Level 4/CRM companies’ ability to target prospects more accurately, qualify more effectively, share best practices more broadly and discount less frequently. Sound good? There’s more as detailed in the following pages.

LEVELS OF SALES PROCESS

To properly interpret the performance data—and differences—in this paper, we must define how sales process is used here. There are two components to a company’s sales process: 1) defining it; and 2) actually using/applying it consistently.

Dozens, perhaps hundreds, of articles have outlined the steps to defining your own sales process. However defining a sales process is a long way from using/applying that process in daily sales activities.

In an article by Jim Dickie originally written for CRM magazine, he defined four levels of “process prowess.” You can find much more detail in that article but the definitions themselves will suffice for our purposes here. Loosely interpreted, Level 1 firms are anti-process, though what they really lack is a single standard process. Level 1 firms are strictly ad hoc with everyone doing their own thing in pretty much their own way; they often have as many sales processes as sales reps. Level 2 firms have defined a sales process and even exposed their sales reps to it but the implementation stops there. Sales reps are expected to use the process but its use is neither monitored nor measured.

Level 3 firms have gone in entirely the opposite direction and strictly enforce the company’s sales process even if it is years old and has not been updated to reflect current or recently changed market conditions. Level 3 firms typically do monitor use of the process, sometimes religiously so, but fail to adapt or modify it with market and/or sales rep feedback.

Level 4 firms have a process, monitor and provide feedback on reps’ use of it and proactively modify it to changing market conditions. As you might imagine, Level 4 firms are few and far between. Still, with more than four dozen Level 4 companies that had also implemented CRM technology, we were provided a basis for comparison with the remainder of the survey’s population. This summary report provides you with a view into how specific aspects of the two groups’ performance differ.

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KEY SALES EFFECTIVENESS PERFORMANCE IMPROVEMENTS

As part of the overall 2005 Sales Effectiveness survey, we broke down the sales process into 26 steps that sales reps typically need to complete to take an account from lead to cash to satisfied customer. We again compared the ability of Level 4 company reps to perform these tactics as compared to all the study participants. Here we were looking for areas where the performance levels of Level 4 sales teams were at least 15 percent higher than other firms for the selling skill at hand. The chart below highlights the results of this comparison. See Figure 1.

Figure 1

The chart shows that Level 4 salespeople perform at an “Above Average” or “World Class” level far more often at key steps in the sales process. Accurately targeting prospects and properly qualifying them are two essential building blocks to sales success. In each case, Level 4 companies leveraging CRM technology are half-again as effective in executing these fundamentals.

There are synergistic benefits from targeting and qualifying prospects better. Clearly, the first benefit is that you simply do not waste time pursuing “opportunities” that will not materialize. When asked, groups always recognize the value of qualifying poor fitting prospects out of the sales funnel early. After all, if a prospect is going to fall out anyway, it’s better to have it happen earlier than after making an entire sales cycle’s worth of effort/investment. This is especially true inasmuch as the further you go in the sales cycle, typically the more expensive each step is in advancing the sale.

However, these costs pale in comparison with the opportunity costs of the prospects and potential business you’re not pursuing while you continue to pursue poorly targeted/qualified business. This is pure selling time and it is squandered when deals that eventually fall from the pipeline could have been identified and “qualified out” much earlier. Level 4 firms utilizing CRM technology rank themselves 50% better than the general population in targeting and qualifying. Why is this the case?

31% 55% 35% 73% 26% 60% 52% 79% 32% 57% 30% 47% 0% 10% 20% 30% 40% 50% 60% 70% 80% Effectively Introduce New Products Sell Value/Avoid Excessive Discounting Effectively Cross/Up-Sell Effectively Present Features and Benefits

Properly Qualify Accurately Target

Prospects

Selling Skills Comparison with >15% Delta in Very Good/World Class Performance

Lev el Four Firms Full Study Results

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LIVING THE PROCESS

Absent a defined process--in this case, a defined prospect profile for targeting—reps are left to pursue their best instincts and “do whatever it takes” to bring in their numbers. This is not necessarily the recipe for disaster you might fear but it does have a particular challenge. Being Level 1 does not guarantee you’re unsuccessful but it does guarantee your performance is unpredictable. And this lack of focus, framework and predictability stands directly in the path blocking you from improved and continually improving performance.

At the same time, imposing a sales process without tools to facilitate and record its use can result in hamstringing the sales force. Time spent inputting data, providing tedious and unnecessary details and entering information that is never looked at is also a waste of selling time.

The CRM system should make the sales process steps visible and accessible. It should make recording progress simple, quick and consistent while providing guidance to next action steps. By checking off appropriate selections early on, smart CRM should recognize a product sale to a manufacturing customer is different from a services sale to a real estate company and serve up the appropriate process, sales support resources and tactical support to advance the sale.

BUILDING BLOCKS TO GETTING TO LEVEL 4

The concept of managing a Level 4 sales organization may seem appealing as higher performance, better visibility into business, lower turnover rates, fewer surprises, etc. are all objectives any CSO would like to achieve. But how do you get there?

In reviewing companies operating at this peak level of selling, we found a number building blocks in place that make it easier for them to achieve and sustain this level of performance. These include the following:

Sales Methodology Formalization: Whether they have developed a sales methodology in-house or licensed one from a solution provider, Level 4 firms invest the time to formalize that approach to selling in their organization. For each step in the sales process (e.g. interest development, qualification, education, proposal generation, etc.) they define the specific tactics that need to be completed by their salespeople and often by the prospect as well. (Note: For a detailed example visit www.csoinsights.com to download the article And the Word Was Process.)

• CRM Sales Process Mapping: Once all the selling stages and the appropriate tactics are defined, they are then mapped into a CRM system so they can be actively tracked and managed. This goes beyond merely setting up tabs in the opportunity management module of the CRM application for each selling stage, but rather involves full workflow definition.

• Sales Management Performance Dashboards/Reporting: Once the process is fully defined within the CRM environment, sales managers are able to actively analyze the pipeline. If an active opportunity is outside predefined rules of expected progression, it is highlighted by performance dashboards. Using sophisticated reporting capabilities, the managers are able to analyze each deal and see where and why it may be drifting off course and take proactive action to correct the situation.

• Lead Management: By tracking all opportunities from lead to conclusion, marketing also benefits from the integration of process and technology. First, they are able to see that all leads are actively pursued. In addition, through the reporting capabilities provided in the lead management modules of more advanced CRM applications, they can now assess the value of various lead sources (e.g., leads from tradeshows, advertising, the web, etc.) to help make more effective investments in future direct marketing programs.

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5% 31% 45% 15% 1% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Dismal Poor Average Very Good World Class

Accurately Forecast Business

• Best Practices Sharing: As more opportunities are actively managed and analyzed through the CRM systems, best practices begin to emerge. Management and the sales reps can determine in which markets they sell most effectively, which competitors they have a higher chance of winning against, what sales tactics can help shorten a sell cycle, etc. This fact-based visibility into how to sell most effectively can then be shared across all sales teams.

• Security Management: A concern some executives might voice regarding collecting all of this information is how does a company protect this new knowledge asset? The security management capabilities in the more advanced CRM applications have the necessary security management schemas to allow reps to get access to everything they need to do their jobs and nothing else.

To understand if all the building blocks are in place for you to start to build toward Level 4 performance, you should talk with the CRM vendor(s) to ensure that they have an understanding of and provide support for truly integrating your sales process into their technology frameworks.

5 Reasons to “Rethink” Your CRM/Sales Process

Managers often find themselves “flying blind” or “driving by the seat of their pants”—meaning they are operating by instinct, hunch, gut feel. Given this condition, one could start almost anywhere to make improvements but the data from our research suggests some specific choices.

1. Recognize that you cannot gather consistent/relevant data without establishing standard units of measure. This is precisely why you must define your sales process first. Otherwise, as in Level 1 companies, people may be doing the right things but they’re all doing them in their own way—essentially their each measuring with their own unique standards.

You want to have a sales process in place that reflects how your team does business when it is at its best. Then you want a CRM application that can be tailored to reflect, support and report on how your team is operating with this process. As noted earlier, consistency is key here. See Figure 2

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5% 29% 37% 22% 4% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Dismal Poor Average Very Good World Class

Share Best Practices Across the Sales Force

2. Pick your spots. In addition to targeting the right prospects and qualifying properly, we see in Figure 1 that there are areas where Level 4 firms with CRM enjoy a better than 2:1 advantage over the general population. Cross Selling/Up Selling (60% vs. 23%) and Selling Value/Avoiding Excessive Discounting (73% vs. 35%) are two areas that can add dramatically and immediately to your bottom line.

In addition, not reflected in Figure 1 because Level 4/CRM firms continue to have their own struggles are two other vital areas for improvement: 1) Forecasting (see Figure 2 above); and 2) Sharing best practices (see Figure 3 below). For a second year, firms rate their abilities in these two key areas last and second to last across industries, geographies and sales teams. 3. Visibility into the sales pipeline is an ongoing and universal challenge. The non-CRM/Sales Process firms actually closed business they forecast on average 49% of the time. In other words, with all the time, energy and resources that went into creating and reviewing pipeline and forecast figures, for these firms it was essentially a 50/50 proposition; they could attain the same accuracy and save a lot of energy by simply flipping a coin. At the same time, even the Level 4 firms with CRM didn’t fare that much better. Their forecast opportunities resulted in won business 56% of the time. An improvement but still an area of concern.

In a Sarbanes-Oxley world the implications of this are enormous, as is the potential payoff for getting forecasting right. Lacking confidence in giving early guidance and missing your number at the end of a period--or several periods in a row--can cause serious problems for management. Even without the threat of regulatory actions or stock fluctuations due to questions about the company really understanding its business, there are other benefits. More intelligent business planning, better resource allocation, increased operational efficiencies are just some of the advantages that accrue to firms that solve the vexing problem of forecasting more accurately. See Figure 3.

Figure 3

This chart shows that there is ample room for improvement in the high payoff area of shared learning. Particularly when combined with the fact that many companies are experiencing high turnover, increased competitive activity, ever broadening and complex product lines and constant pressure to do more with less. Establishing clear sales processes and implementing CRM technology to leverage best practices is a must.

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49.3% 22.1% 31.6% 9.6% 17.7% 12.5% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0%

Total Turnover Voluntary Turnover Involuntary Turnover

Annual Sales Rep Turnover Comparison

Full Study Results Level Four Firms

5. Level 4 companies with CRM experience lessthan half the turnover of the general survey population and less than one-third the voluntary turnover (see Fig 4 below). These are truly impressive and important differences. If you consider the cost of vacant territories, of having to recruit, hire and train replacements and the missed opportunities while all this is happening, the figure can easily top a sales rep’s annual quota. See Figure 4.

Figure 4

Conversely, if you retain successful reps because they feel they have systems and tools in place that support their success you create a virtuous cycle of retention and attraction of the best reps. The ability to attract, retain and share the best practices of the best reps becomes a competitive advantage that is not easily replicated. While exclusive product differentiation is short-lived, an ever-increasing sales competence has an extended and increasing life span.

Companies that begin with the basic building block of defining their sales process (step 1 above) and continue with CRM tools and strategies (steps 2-5) can look to enjoy the same exceedingly positive results as those Level 4/CRM companies reported here.

CONCLUSION

It is important to keep this statistical maxim in mind: correlation is not necessarily causation. Still, the clear performance differences between Level 4 sales teams using CRM systems and the rest of the study participants is persuasive. Across the board, these sales teams demonstrate higher quota attainment, stay in place longer and voluntarily leave less often (by a factor of 3:1) and enjoy a continuing and increasing competitive advantage over their—dare we say it?—lower level competitors.

It has been noted, the race doesn’t always go to the swiftest, nor the fight to the strongest—but that is the way to bet. And in this case, blending sales process and CRM looks like a worthy double-down.

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About CSO Insights

CSO Insights is a research firm that specializes in analyzing how companies are leveraging people, process, technology, and knowledge to optimize the way they work with their customers. Over the past thirteen years, we have surveyed over 5,000 sales effectiveness initiatives and have amassed a wealth of insights on how companies are turning how they market and sell to and service customers into a sustainable competitive advantage.

We offer a series of customized evaluation services to help companies assess their sales performance in relationship to their peers utilizing the best practices database we have accumulated through our research efforts. For more information please visit our web site:

www.CSOinsights.com.