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Revenue and Profit Performance through Marketing and Sales Quality Management
By Michael Schultz, Executive Vice President, Wellesley Hills Group.
By applying the tenets of quality management and process improvement to marketing and sales, you can find more revenue for less cost, and you can monitor and measure the results. Plus, you don’t have to be a quality guru to do it.
"In absence of clearly defined goals, we become strangely loyal to performing daily acts of trivia.” – Unknown
Quality Management Comes to Marketing and Sales
Marketing and sales is an integrated process. The purpose of that process is to get revenue into your organization at the lowest possible cost while balancing short and long-term company growth.
It seems that many companies had forgotten this until we entered the current recession a few years ago. Take the definition of the marketing and sales process posited above and apply it to the marketing and sales activities at your company. Are you willing to say that there are little or no daily acts of trivia siphoning time away from finding and capturing profitable revenue? Are your costs as low as they should be? Are you yielding the best possible revenue from your marketing and sales activities and investments?
At the forefront of business today is a return to management and profitability basics. Only spend money where you can get measurable returns. Get the most out of your current resources. Find new ways to be more efficient. Expand prudently. Cash flow is king. Be better and leaner today than you were yesterday.
Historically, much of this kind of continuous improvement focus has been limited to company operations and manufacturing. Companies in the 80’s, hearing the quality gurus’ call, implemented total quality, continuous improvement, and, more recently, six sigma programs to increase manufacturing and service operation efficiency.
Marketing and sales have often escaped this kind of quality management and process scrutiny because of the difficulty of understanding and measuring the process. It’s just tougher to measure people and marketing campaign productivity than it is machine productivity. Of course, sometimes marketing budgets are cut, sales people are told to work harder at the same things, and underperformers are let go sooner, but decisive action is often stopped there.
Cuts are made, but there is little to no rigorous process improvement that significantly improves marketing and sales productivity. That’s not surprising; it’s difficult work and it takes resources itself just to make it happen.
On the other hand, there are so many daily acts of trivia in most of our marketing and sales engines that merely knowing what they are and cutting them out can save significant money and time, and focus resources back into getting profitable revenue for the company.
In order to improve the efficiency and effectiveness in marketing and sales, we must:
- Understand what resources and activities are involved in the marketing and sales process that yield revenue. We must also view marketing and sales one integrated process, not two separate, mutually exclusive processes.
- Measure the combined process, the Revenue Process, to find areas where you can get more revenue for less activity and costs. Then set clear goals for improvements.
- Implement improvements based on data and fact rather than on guesses, beliefs, and emotion.
This return to management rigor, objectives, quality management, and goals is the once and future savior of business. And there is no better place for improvement than marketing and sales.
Revenue by Design™: Quality Management in Marketing and Sales
Since marketing and sales operations and budgets have largely been either ignored or slashed haphazardly, the opportunity for improvement is tremendous. Though it hasn’t been a focus, there are few areas quite like marketing and sales where you can so readily cut costs, reduce cycle time, and increase revenue consistently and measurably – all at the same time.
Translating the tenets of quality and process improvement into marketing and sales management can yield measurable and material increases in marketing and sales productivity. We have frequently observed companies making tremendous strides in terms of revenue and profit increases when they incorporate the following three quality themes into their company thinking and management objectives.
- Manage Marketing and Sales as an Integrated Revenue Process
- Measure Relentlessly
- Take Committed Action
Implementing these three themes will allow you to easily view all your marketing and sales activities together, find places to make improvements based on facts and data, and make calculated changes that will improve productivity.
We will now turn our attention to covering these three themes in more depth.
Manage the Integrated Revenue Process
Some will look at the model on this page and see a sales process. You figure out who and where your potential customers are. They become your list of suspects. You contact 100 of them, reach 10, and they become your list of prospects. You disqualify 5 of them. The remaining 5 are your actual opportunities that you pursue, and so on.
Others will look at the same model and see a marketing process. Potential customers are researched and segmented. List targets are identified and they become your suspects. You send 10,000 of them direct mail and 100 respond as inquiries. They become your prospects. You qualify them through telemarketers and they become your opportunities, and so on.
At the Wellesley Hills Group, we believe that marketing and sales should be viewed as an integrated process. Doing so is the only way you will ever be able to get the optimal end result that you are looking for, more revenue for the right cost.
Why view them together instead of separately, you ask? Because of outcomes, we say.
Definition: A process is a set of activities that, grouped together, culminate in outputs that the activities, by themselves, will not produce.
What’s the purpose of your marketing department? To build a brand? No. To send out mail? No. To create materials for the sales force? No.
The purpose of your organization’s marketing efforts is to get revenue, whether directly or indirectly, into your organization at the lowest possible costs.
What’s the purpose of your sales department? To make cold calls? No. To send your company’s literature to potential customers? To take orders? No.
The purpose of your organization’s sales efforts is to get revenue, whether directly or indirectly, into your organization at the lowest possible costs.
Do the purposes of marketing and sales sound similar? They should. They’re identical.
Profitable revenue generation is the outcome of both. The operational system you put in place to obtain profitable revenue is the combination of marketing and sales. They are not mutually exclusive, though many companies manage them as such.
Marketing and sales people are also not genetically programmed to be at war with each other, though in many companies it seems as though it were true. If you want to improve the revenue generation engine in your organization, you should look at marketing and sales as one process, the revenue process, not two separate processes.
Measure Relentlessly
Once you have established that marketing and sales is an integrated process, a revenue process, you now have the basis for finding improvement therein. Measurement is the place to start. First, a few things about measurement.
Measurement isn’t exciting. Measurement isn’t sexy. Measurement isn’t visionary. Measurement isn’t easy.
Measurement is, however, the key to better financial returns for your marketing and sales dollar.
Follow this progression:
- Marketing and sales is an integrated process, the Revenue Process.
- A process is a set of activities that, grouped together, culminate in an output that the activities, by themselves, do not produce.
- The Revenue Process produces some level of revenue (output) for some level of cost (input).
- Productivity is:
- The purpose of process improvement is to get a better productivity from a process.
OK, what’s the point? Whatever you are doing in marketing and sales today is a process, whether you measure it and have it currently mapped as a process or not. You know that marketing and sales cost you money, so there is obviously some level of gross factor input. Usually that input is salary (plus commissions, bonuses and benefits), marketing communications (e.g. direct mail, TV ads) and professional fees like advertising firms and consultants.
And, of course, your company gets some level of revenue for those efforts. That’s the gross factor output.
For example, let’s say you spend $4 million a year in marketing and sales costs (including all salaries and overhead) and you get $20 million in revenue in return. Your revenue process productivity is then calculated as:
You can also say that your cost of selling and marketing is 20% of revenue.
This is important to know for obvious reasons. What is less obvious is that the process of digging deeper in order to find ways to get more revenue for less cost is the same. You just have to measure the inputs and outputs along the process instead of just at the end of the process.
Let’s look at one more example – just a little more complex (yet, quite commonplace) this time. You estimate your 20 sales reps, that you pay $100k per year each, spend 10% of their time locating suspects to call on to set up sales meetings in their territory. Doing the math, you spend $2 million on sales reps per year. Of this amount 10%, or $200k, of their cost is the time they spend finding suspects and setting meetings with them.
Now that you have this data on their time management, you start looking for ways to reduce the time they spend generating meetings. After some analysis, you come up with a reasonable hypothesis to save them time: You can buy prospect lists that identify suspects for your sales people, and you can send them direct mail to generate appointments.
You’ve already done some research on the lists and find they are just as accurate as the canvassing methods of your sales people. The total cost for the lists and associated mailings is $20k per year, plus about 10% (or let’s say $5k) of a marketing person’s time to design a piece, organize the mailing, and then distribute the lists to your sales reps to follow up on.
You estimate that your sales reps will still have to do some of their own canvassing for suspects, but the time will be cut in half to only 5% of their time to reach the same suspects to set meetings because some of the suspects are now calling them! (Due to your sharp direct mail.)
Doing the calculations you now have new costs that look like this: $20k for lists and mailing + $5k in marketing manager time + $100k in sales rep canvassing time = $125k. Old cost = $200k. Congratulations! You have saved $75k.
Now, did you really save $75k? No, because you probably aren’t cutting your sales peoples’ salaries and commissions. They’re still getting paid $100k each per a year so your total cost for the sales force remains unchanged, and you had to pay for a mailing - so your costs just went up by $25k (cost of the mailing and the marketing person)!
But wait! Can we assume that if your sales people get 5% more time to sell, they will get more sales? Well, that depends on the rest of the process. Will inputting that time into other areas yield more sales?
For instance:
- Can they still spend 10% of their time setting meeting with suspects, thus getting more meetings, more prospects in the pipeline, and more total sales? This assumes that there are more suspects to reach. In many cases, there are.
- Can they now spend more time exploring the needs of customers and uncover 5% more ways your company can help them by providing other products and services, thus raising the size of the average deal?
- Can they make their proposals more compelling so that they can increase their close percentage – let’s say from 20% to 25%?
All of your potential areas for improvement are located in the Revenue by Design™ Pipeline Management Model. Measure in those areas, know what your costs and outputs are in each, and you’ll be able to determine where the greatest potential improvements will be found…
Where to go from here
This article continues on to cover how to measure margins on incremental sales, how to take committed actions, and offers suggestions on how to implement the process itself. The complete article also contains a more detailed description of the Revenue by Design Pipeline Management Model that can help you in your organization get more productivity from your marketing and sales efforts.
And the complete article is available free to Saleslobby.com readers. Just go to www.whillsgroup.com and request the article, mentioning that you read about it on Saleslobby.
About the author, Mike Schultz
Mike Schultz is the Executive Vice President of the Wellesley Hills Group, a consulting firm that specializes in improving the sales and marketing performance of small to mid-sized business-to-business companies that sell services or a mix of products and services. Over the past decade, Mike Schultz has held positions as a general manager, marketing and sales performance consultant, major account representative, and marketing and sales director. Mike holds an MBA from the F.W. Olin Graduate School of Business at Babson College, and a BA from Brandeis University.
He is also an avid fly fisherman and golfer, and actively studies and teaches traditional Karate and Jujitsu, holding the ranks of black belt and Sensei in each.
He can be reached at mschultz@whillsgroup.com.
www.whillsgroup.com.
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