Find the Right Metrics for Your Sales Team

Harvard Business Review (site)

by Frank V. Cespedes and Bob Marsh

“What gets measured gets managed” is a longstanding business aphorism. But today’s sales technologies enable companies to measure almost anything, which leads many managers to try to measure everything. As a consequence, managers don’t have a clear sense of what is really driving sales in their business, while salespeople, who are inundated with dozens of metrics, get lost in the day-to-day noise. The result is poor management of what matters.

The challenge, of course, is to decide on the right metrics. Consider the results of a survey of key performance indicators (KPIs) being used by more than 800 sales teams across industries. Wins are the most common metric used across sales roles and industries. On average, firms measure closed deals and rep production against quota monthly, which isn’t surprising. Selling is a performance art, and “making the number” should be the goal of any sales organization, but a closed deal is an outcome and a lagging indicator; it can’t be used by the salesperson or sales manager to improve future outcomes.

This is why leading indicators such as demos, web registrations, calls, or C-suite-level meetings are often more instructive. Instead of reviewing historical results, which are beyond a rep’s control, they offer real-time feedback on whether salespeople are spending their time and efforts in the best way. Leading indicators are within a rep’s control. If salespeople are behind on a key indicator, for example, they and their managers can change behavior to increase the probability of success.

Deconstruct Your Sales Funnel

In order to improve sales outcomes and clarify the relevant sales KPIs in your business, you need to deconstruct your sales funnel.

Here’s a typical flow of activities:

Prospecting: cold calls, email, phone, LinkedIn, etc.

Qualifying: initial conversations aimed at separating the merely interested from the actual prospects and determining who is a qualified opportunity

Advancing opportunities: discussions with qualified opportunities to communicate the value of your product to the right contacts

Closing: final steps in negotiating and winning the business

Post-sale: service, order fulfillment, possible customization, and onboarding activities to ensure the client is successful

Every company is different, but every business has a sales conversion funnel. Some funnels are relatively short and simple, while others are long and complex. Knowing what type of funnel applies in your business is essential to clarifying key metrics and performance management practices, including sales incentives.

Consider one SaaS company that sells a menu display and advertising platform to restaurants, which is a big but fragmented market. The challenge for reps is that, because restaurants all have different budgeting processes, they must be there at the right time to close that sale. Once a sale is closed, the firm incurs low marginal costs in setting up and maintaining a customer on its platform. In this situation, it makes sense to “feed the funnel” and provide reps with incentives, through proper metrics, to make frequent and repeated calls.

By contrast, consider another SaaS firm that sells a subscription software product that provides big productivity and environmental benefits if the customer is willing to alter some traditional workflow processes and use the software at sufficient scale. This is a more protracted buying and selling process, where ongoing customer education and onboarding is crucial. Awareness and initial enthusiasm from a prospect on the capacity to adopt new software can be deceptive and expensive for this firm. Here, simply “feeding the funnel” is a mistake: Lead generation is less important than pursuing the right leads. Moreover, this SaaS firm’s profit margins are mainly in contract renewals and ancillary services it can provide if it gets the right scale and usage in the initial sale. Here, management must ensure that sales reps vet the top part of the funnel carefully so that they don’t spend months chasing the wrong prospects, while providing reps with the means and an incentive to manage that long selling cycle and renewal process.

The experience of Paycor, a payroll processing company, is a useful example. Like many firms, its frontline sales managers were typically former top-producing salespeople, many of whom were managing other salespeople for the first time. In making that transition, they tended to focus on what they knew best: helping to close a deal. But after closely examining the selling cycle, it became apparent that the best time to work with their reps to influence the sale was earlier in the funnel. Sales managers used the leading indicators to drive a 55% increase in relevant new-business meetings and a corresponding 50% reduction in onboarding time.

Make Performance Reviews Count

Finding the right metrics isn’t the end of the story. Selling is about behaviors, not just analyses, and making sure that salespeople align their behaviors with those metrics is an ongoing process. Performance reviews can help, if they’re done right.

Unfortunately, reviews are typically underutilized levers for influencing behavior in most organizations. Busy sales managers tend to treat them as cursory, after-the-fact discussions about quota attainment and compensation, not coaching about going-forward behaviors. The result is that, too often, “feedback” from managers is really a sermon whose message is “get better and sell more.” Like most sermons, this may work when you’re preaching to the already converted, but it’s too abstract if you’re not. Clarifying leading indicators can make a difference, because the salesperson then knows the behaviors they need to change in order to improve performance.

Many sales managers begin conversations with reps by asking well-intentioned but generalized questions like, “What’s closing this month and how can we make those deals happen faster?” In response, reps focus on the next 30 days and the required onboarding of new customers, and then neglect important activities that happen in between. This is one reason why sales output is so variable — strong sales months followed by catch-up prospecting during the lean times — in so many organizations.

After deconstructing the funnel, however, managers can use different talking points that allocate attention and resources toward those activities. For example: “Sofia, you are making lots of calls and scheduling many meetings, but you’re calling on too many small firms and your qualification criteria have you chasing many prospects that are highly unlikely to close. Let’s fix your account prioritization.”

Or: “Arjun, you are behind peers in setting meetings with VP-level prospects, and we know those contacts increase our win rate substantially. Let’s talk about the organization of your prospects and what we can do to get the right access.”

Among other things, conversations like these — especially when reflected in accessible reports and personalized scorecards — empower reps to know where they stand and where to focus. They allow sales managers to provide feedback about behaviors, not just intentions. Beyond individual coaching, moreover, relevant leading indicators can also spur more systemic means for generating proactive selling behaviors: incentives to schedule new-business meetings with the right contacts or to pitch bolt-on products that amortize onboarding time and increase renewal rates.

These steps are within a company’s internal circle of influence, not in the less controllable external market environment. But exercising that influence requires managers who know what metrics count and who can then translate data into relevant selling behaviors. Those managers are not just discussing quotas and after-the-fact outcomes; they are truly managing sales performance.

Sales Productivity, Not Just Sales Technology

Frank V. Cespedes, for Top Sales Magazine, August 2017

There is lots of buzz about big-data and “Sales Enablement” (SE)—the current catch-all term for attempts to increase sales productivity via technology. There are now hundreds of vendors of such tools, and SE is increasingly a formal position in more companies. The interest is driven by multiple factors.

One is the declining costs of the technology. Also, many SE tools utilize established CRM platforms and are therefore an incremental investment resting on the sunk costs of an extant CRM system. A second reason is a change in cost structures spurred by the financial crisis. S&P-500 companies, for example, have decreased their COGS by over 250 basis points in the 21st century.[1] In the aggregate, that’s a lot. But SG&A and selling costs have not decreased. The result is a shift in the focus of productivity improvements. Companies have in fact done a good job in managing back-office costs, supply chains, and infrastructure. The next frontier is their go-to-market costs because (as the bank robber said when asked why he robs banks) “that’s where the money is.”

A third reason is that selling is increasingly data-hungry work in many markets. To see big-data analytics in action, don’t just go to Facebook or Google. Look at what consumer goods salespeople must now do to get shelf space, develop promotions, and garner in-store support at retailers. Similarly, you might assume that wholesale distribution, where firms resell products manufactured by others, is a simple transaction sale. But a study for the National Association of Wholesaler-Distributors[2] finds the same need for analytical selling skills in this sector—in large part because transactional sales migrate to the web. In general, personal selling is looking more like a research-based as well as persuasive activity.

There are, therefore, compelling reasons why SE merits attention. A recent survey of more than 1000 companies[3] indicates the top areas where these tools are currently deployed: lead generation and lead scoring; pipeline management and forecasting; and helping to identify cross-sell and up-sell opportunities at current customers by trolling thru buying histories.

However, these analytics are a pre-requisite to improving productivity. Reporting that the pipeline grew by so many dollars is not managerially meaningful by itself if the firm is serious about profitable growth. How did the pipeline grow? Did we add lower- or higher-profit customers? Are we bringing in shorter- or longer-selling-cycle prospects? What are the implications for other functions and the center of gravity in our business strategy? You can’t substitute data for management. And you can’t manage sales effectively unless you have a framework for diagnosing sales productivity in your business.

Here is a starting point (see Figure 1: Sales Productivity = Capacity x Close Rate x Profit/Sale). The productivity of a sales model is a function of capacity (how much the sales force can do in terms of call capacity and their capacity, or capability, to reach target customers), the close rate (what percentage of prospects the sales force sells), and profit per sale (what they sell and at what prices). What levers are available to sales leaders to improve each component and how can SE help?

To improve sales capacity, people can work harder: generate more leads and make more calls. New tools provide a window on what, historically, has been opaque in many firms: call patterns, the amount of time reps spend in selling activities, and their persistence. Data indicate, for example, that in most inside sales efforts, it takes 6-8 calls to make customer contact, but most inside reps stop after 3-4 calls. You also improve capacity by working smarter: focusing on the high-impact sales tasks inherent in your strategy and so increasing the odds that customer contact will be more productive. For example, studies indicate that marketing departments spend about 25% of their budgets on sales collateral, but as much as 70% of marketing content is never used by sales reps.[4] Tools from companies like DocSend and Showpad enable firms to track what reps do use, what they send to prospects, and what prospects do and don’t pay attention to. In turn, this data can allow both marketing and reps to work smarter.

To increase close rates and accelerate selling cycles, get better at identifying the different types of customers that confront most firms. Which are solution customers where customization is required and worth it? Which are transaction customers where the issue is to take costs out of your sales approach? Tools from firms like LevelEleven and Pipeliner help to track leading indicators relevant to these distinctions, and so provide a basis for smart managers to address those buying-behavior differences in their sales metrics, account management policies, and channel-partner decisions.

To improve profit per sale, constantly work on basics that go beyond the sales force: e.g., production, product mix, and pricing. You also improve profit per sale by lowering irrelevant selling costs. In too many firms, standard practice is still indiscriminate across-the-board cuts when volume stalls or declines. The result is often a self-fulfilling downward spiral. Perhaps the greatest impact of SE is its ability to help managers to lower selling costs without harming selling, because the tools help them know where and where not to cut, increasing selling time and resources for the key sales tasks.

Every strategy has an implied sales productivity equation. For some firms, capacity, close rates, and profit per sale involve many pre-sale and post-sale activities. Think about enterprise software and many professional services. For others, this equation can be a single sales call. Think about old-time door-to-door selling or current inside sales for many B2C and B2B goods. For both types, this framework can help a sales leader track best practices in the business and improve via smart use of the available technology. And note the cause-and-effect: SE can provide data, but it’s managers who make good use of it. As usual in business, the core drivers are people and management, not technology.

REFERENCES

[1] “Five Ways CFOs Can Make Cost Cuts Stick,” McKinsey Quarterly (May 2010).

[2] “Transforming Wholesale Distribution Sales Teams to Thrive in the New Economy,” a study by the NAW and Chally Group (2016).

[3] “Unlocking the Power of Data in Sales,” McKinsey Quarterly (December 2016).

[4] See the data in “The Sales Lead Black Hole,” Journal of Marketing (January 2013), and in the report from Sirius Decisions, https://www.siriusdecisions.com/Blog/2013/May/Summit-2013-Highlights-Inciting-a-BtoB-Content-Revoloution.aspx.

 

Frank Cespedes teaches at Harvard Business School and is the author most recently of Aligning Strategy and Sales (Harvard Business Review Press).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FIGURE 1.

The Four Stages of Becoming An Excellent Sales Manager

Frank Cespedes

Front-line sales managers hire reps, organize and allocate sales efforts across market opportunities, conduct  performance reviews and reinforce good behaviors (we hope!), and in most firms are the core means by which linking strategy and sales is or is not accomplished.

Studies find that, in the short term, excellent reps with an average manager outsell average salespeople with an excellent manager. But over time, people working for an average manager tend to decline in performance.[1] Why? Many of the best reps get promoted, retire, or otherwise leave and, as the saying goes in talent management, “First class hires first class, and second class hires third class.” In addition, an excellent rep is excellent within his or her territory or accounts while a manager has, for good or ill, influence across multiple areas and customers.

Sales manager is not just a bigger sales job. Moving from doer (individual contributor) to manager (someone who gets things done with and through others) is a challenge. You move from established performance in the doer role to being the new person in the management hierarchy, who does not yet know the ropes. Moreover, sales people usually undergo this transition while learning about their reports, judging diverse strengths and weaknesses, performing administrative tasks, and making the numbers. It’s not surprising that nearly every firm has examples of successful salespeople who are disasters as managers because they persist in their behaviors as reps rather than managers.

In finding sales managers, de facto practice in most firms is still mainly gut-feel and on-the-job learning—that is, “the school of hard knocks” with a high drop-out rate and much collateral damage. To accelerate learning, you must define the behaviors required and then screen for and help to develop those behaviors. And to do that, an organization needs a relevant, shared language of development.

The Four Stages Framework

There are many models of career development. Most are psychological in emphasis, focusing on individual motives and aspirations. But other research[2] examines how people behaviorally increase their professional contributions over time—what they do to increase their ability to transition and grow as managers. Often called a “four stages model,” it identifies progressive behaviors that enable people to handle responsibilities of greater scale and scope.

Stage 1: Helping and Learning. When someone joins an organization, he or she must demonstrate the competencies relevant to that organization. There is no such thing as “performance” in the abstract. What matters is contribution here—in your customer and company context—not there. A new sales person’s responsibility is to learn, actively and practically, what’s required and feasible in their current organization while building trust with people who affect his or her performance.

Stage 1 could be called an apprenticeship, but many people stay there for their careers: some people have 10 years of experience, while others have one year of experience 10 times. How many people reporting to you are like that? It doesn’t matter what title those people have, they are in Stage 1. One purpose of a shared language of development is to communicate responsibilities early and consistently. It’s the individual’s responsibility to learn the organization and perform the core tasks effectively. It’s the organization’s responsibility to make these expectations clear at the outset.

Stage 2: Contributing Independently. Those who move to stage 2 do so by developing a track record and reputation as someone who produces significant results. Stage 1 people are learning their craft. Stage 2 contributors perform at levels consistent with widening responsibilities. The analyst must be able to analyze it, and the salesperson must be able to sell it—profitably, consistently, appropriately.

It’s from successful stage 2 performers that sales managers are typically chosen. So note the issues at this stage. Many reps want to stay in stage 2: they are valued and often highly compensated. But their contribution is ultimately limited by what they can personally accomplish. To remain highly valued, they must also remain at the top of their game as technology, market, or buying behavior changes. It’s the individual’s responsibility to recognize the benefits, risks and requirements of remaining in stage 2, and the organization’s responsibility to provide the relevant support: more technical or sales training if the rep is going to stay a salesperson; increased management training and transitional assignments if the rep is a candidate for sales manager.

Stage 3: Contributing Through Others. The only way to perform beyond the limits of the individual is to leverage the contribution of others. That’s what good managers do. They support, influence, and align the efforts of others without themselves needing to “be there”—to open the client door, get access to decision makers, close the sale. Stage 2 individuals learn to develop and take care of themselves. Stage 3 managers learn to take care of others and assume responsibility for collective behaviors. They spend time developing people—not because they are “natural” coaches, but because the only way to keep increasing performance as a manager is to find and develop more people to whom you can offload responsibilities. That, in turn, enables managers to move on to additional opportunities.

Managers must also broaden their perspectives and understand the interdependencies required for their group’s effectiveness. They proactively develop networks beyond their function so they can access the resources and cooperation of other units. It’s at this stage, for example, that sales and marketing coordination is typically a vital part of a sales manager’s responsibilities.

Stage 4: Shaping Organizational Direction. Sales managers—if they are managers—should be at stage 3, and they can have successful careers without moving beyond this stage. But stage 3 managers are optimizing the cards they have been dealt; they are in-touch with their functional area and company environs. Stage 4 is about helping to reshape the deck and the continued relevance of the cards; those managers are students of the changing landscape of their external market and industry.

Further, stage 4 managers don’t just diagnose market changes. They shape organizational direction and feasible options for doing things about them. As one senior sales executive put it, “I’m not the smartest person in this company. But I have a perspective on the relationship between our assets and opportunities. My job is to ensure our firm is utterly realistic about any difference between where we are and where we want to go, and the changes required to get there.” It’s from these ranks that firms can find future C-suite executives.

This model of managerial development does not imply that all or most people in a firm or function should be stage 4. All organizations need a portfolio of talent with people in different roles and stages. But it does imply that all firms, and especially the sales function, need a communicable view about what it takes to become a manager and sustain performance as market conditions inevitably change. Don’t leave this to gut feeling. Keeping the stages research in mind can help you better select candidates and provide the training and experiences relevant to that journey.

 

[1] See the research cited in A. Zoltners, P. Sinha, and S. Lorimer, Building a Winning Sales Management Team (Evanston, Illinois: ZS Associates), 2-7.

[2] For the research, which now spans four decades across cultural and functional contexts, see G. Dalton, P. Thompson, and P. Price, “The Four Stages of Professional Careers,” Organizational Dynamics 6 (1977); G. Dalton and P. Thompson, Novations: Strategies for Career Management Scott, Foresman, 1986); J. Younger and K. Sandholtz, “Helping Professionals Build Successful Careers,” Research-Technology Management (1997): 23-28; J. Younger and N. Smallwood, Agile Talent (Harvard Business Review Press, 2016).

Your Sales Training is Probably Lackluster. Here’s How to Fix It

by Frank V. Cespedes and Yuchun Lee

U.S. companies spend over $70 billion annually on training, and an average of $1,459 per salesperson — almost 20 percent more than they spend on workers in all other functions. Yet, when it comes to equipping sales teams with relevant knowledge and skills, the ROI of sales training is disappointing. Studies indicatethat participants in traditional curriculum-based training forget more than 80 percent of the information they were taught within 90 days.

As alarming as those numbers are, they shouldn’t come as a surprise if you consider how sales training is usually conducted. On-boarding, for example, is usually a one-off session in which reps are expected to absorb large amounts of information in a limited amount of time. Then, further training is usually limited to new production introductions or annual “kick-off” meetings to set quotas, where reps are flown in, given information and marching orders, and “fired-up” by a motivational speaker or exercise (more hot coals, anyone?). Further, on the off-chance that training is consistent and continuous, reps aren’t usually provided with coaching or given serious performance evaluations during which development (not only compensation) is discussed.

Although curriculum-based training — classroom-type courses typically focused on a selling methodology and activities like time management — has its place, it should only be treated as a foundation.

To increase retention and effectiveness, companies should offer reps additional training at times of need, provide them with access to supplemental material that reinforces what they’ve already been taught, and allow them opportunities to practice their skills in time frames connected to actual buying processes. They can do so by using the same technologies that are “disrupting” their customer-contact activities: videos and mobile apps that reps can view on their devices before, during, and after training initiatives.

In addition to providing reps with easier and timelier access to information, videos and apps improve comprehension when someone hears information, they remember about 10% of it three days later, but, when a picture is added, retention increases to 65%.

Here are some ways to incorporate better technology into training:

Before. Salespeople must learn about strategy and sales tasks at your firm, not only a generic sales methodology. They must learn how other functions affect, and are affected by, selling activities: for example, product management, marketing, pre-sale application support, and post-sale service. They don’t need to know how to do those jobs. But increasingly they do need to know what those jobs are and how they affect customers.

Because of this, on-boarding should be treated as an on-going process, not a one-off event. This can be achieved through a smart combination of on-site and on-demand videos that can be used anytime and anywhere while delivering consistent messages to your reps.

Consider Salesforce Commerce Cloud. To supplement their quarterly “boot camps” for new hires, the company uses a mobile platform to give sales reps access to the most relevant content, product positioning, and messaging. As one new rep testified, the videos quickly brought her up to speed on company messaging and customer stories. As a result, she felt more connected to Sales Commerce Cloud and confident in her corporate knowledge and relevant sales tasks before her start date.

During: In order for reps to develop new behavioral skills, they must practice a behavior multiple times before it becomes comfortable and effective. And it has to be related to a relevant task. If salespeople are motivated by a deal, they’ll be more incentivized to learn. In other words, in order for training to be effective, you’ll need to deliver the content at a time of need.

Technology can help make this happen, allowing reps to continuously learn from mobile content that is customized to their needs. When combined with traditional training, this approach helps reps turn product, market, and selling factoids into coherent narratives and behavioral models.

For example, Pacific Life Insurance Company, which sells insurance, retirement products, and mutual funds to financial advisors via its field wholesalers, uses video coaching. This allows its wholesalers to record their practice pitches and share them with their regional sales managers (RSMs), who give feedback from their mobile devices when and where reps need it. This helps Pacific Life leverage its scarcest resource: face time with advisers.

Additionally, each wholesaler must articulate a positioning statement for a particular investment product via a five-minute video. Regional sales managers then select the best videos and use them as examples of engaging sales presentations. This helps the wholesalers refine, rather than improvise, their presentations, established best practices, and creates consistency. It also builds confidence in reps, increases their competency, and establishes continuous improvement process.

After. Like other professionals, salespeople improve by identifying specific areas where they must improve and then receiving clear feedback on performance. Feedback is crucial to getting people to practice the right things, eliminate bad or outdated habits, set priorities, and clarify accountabilities owned by the rep versus the manager or the firm — all keys to effective sales leadership.

Technology can help extend the reach of good sales managers. Pacific Life, for example, faces an increasingly common challenge: How can sales managers effectively coach a geographically-dispersed salesforce while minimizing time taken out of the field for training? Mobile video coaching has allowed RSMs to coach wholesalers without the need to be in the same time zone. It also enables managers to identify potential weaknesses and improve wholesalers’ message delivery, rather than have them practice on advisers.

Unlike many today, we do not intend to oversell the power of technology. Selling is not reducible to a two-minute YouTube video or a 17-minute TED talk, and managers who can’t or won’t do coaching and performance reviews will be ineffective regardless of the technologies they employ. Since companies already spend a ton on sales training, the leverage resides in how you spend that time and money, not how much.

How Sales Can Wield Its Most Effective Weapon: Pricing

Quotable, April 2017

Frank Cespedes, Senior Lecturer at Harvard Business School and author of Aligning Strategy and Sales

Pricing builds or destroys value faster than almost any other business action. Warren Buffet said it well: “The single most important decision in evaluating a business is pricing power…And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”

When you lose a deal, how many times have your salespeople said, “Our price is too high”? Few customers wake up wanting to pay a higher price. But most seek value, and it is the responsibility of the sales team to frame and deliver the value proposition, including price.

Some firms compete successfully on the basis of cost and their ability to make money at low prices. But in any industry there can be only one lowest-cost competitor. Most companies target customers willing to pay higher prices for products that deliver a performance advantage. Here are two core capabilities that sales managers at those companies, and the executives evaluating sales results, must cultivate:

  1. Determine customer value and costs.

Effective pricing requires understanding the value to the customer versus the firm’s cost to serve customers, and how both vary across segments. In most firms, the best understanding of customer value is held by a combination of people in product, sales, and service. Meanwhile, costs are managed in procurement, operations, and finance. How often in your firm do these people come together to discuss value, costs, and pricing in a disciplined way? Great pricers make that dialogue part of the culture, keeping the information flows current and fact-based.

Consider the example of a company whose business relies on big-project deals. It upgraded its traditional sales “win-loss analysis” to a cross-functional after-action review. One result was more precision about target customers, deployment and staffing of sales calls, and the true causes of wins and losses. As one of the company’s (non-sales) senior executives discovered, “It turns out that high price is what customers tell you even when the truth is that they won’t buy from you for other reasons.”

These meetings can also result in ongoing product and value proposition improvements, as well as an understanding of how value varies across customer types. Information shared via virtual user groups like Marketo’s Marketing Nation, Oracle’s Topliners, or the Salesforce Success Community allows customers to research products, prices, and usage experience before ever speaking with salespeople. When different customers derive different value from the same product (as in many software and data-analytics categories), then one price across these groups almost certainly means that some customers are, in effect, subsidizing others. Sooner or later, competitors or a supply-chain consultant or a good CFO will tell them. Conversely, these differences often only become apparent in account reviews — a core responsibility of sales leaders.

 

  1. Link sales incentives to your pricing approach.

Salespeople must be trained and incentivized to support a company’s overall strategy. Pricing that reflects value by customer or segment, while paying the sales force on volume, rarely works. Notice the message when the commission or bonus is linked to sales volume, independent of price, margin, or the cost to serve: Go forth and multiply because any customer willing to pay a certain price (often discounted to make the volume quota target) is a good customer. This approach soon generates an unwieldy array of sales tasks, undermines selling effectiveness, and makes profitable growth increasingly difficult. This is, in fact, the situation at many SaaS companies, and it’s a big impediment to investor expectations.

Consider Fortis (disguised name), which sells a bundled solution of equipment and consumables with presale application support and post-sale technical service. Fortis lost market share and profits after customers started to unbundle that package after the initial purchase. Meanwhile, the sales force continued to be evaluated and compensated on sales volume. Fortis charted the net price paid by each major account (after volume discounts and price exceptions) versus the cost to serve that account. The result was a revealing 2×2 matrix, with customers randomly distributed across all four quadrants.

Chart these variables by account — price paid and cost-to-serve — in your company, and see what you find. If the result is like Fortis, notice the implications. Customers who are low price and high cost will be negative economic-profit customers — a drain on capital — and selling to them is not sustainable even if they generate commissions for salespeople. Conversely, customers who are high price and low cost are profitable — but also vulnerable to competitors who do understand and manage these core selling and pricing variables.

What can sales managers do in this situation? Change incentives to align with pricing realities and follow-up in performance reviews. Effective reviews look at options ranging from pricing to reflect cost-to-serve, shifting support to lower-cost online channels, different ordering or delivery options, or perhaps offloading some activities to resellers who perform certain tasks more efficiently.  Too often, however, busy sales managers treat reviews as cursory, drive-by discussions of past performance versus quota, rather than focusing on the development of customer-facing behaviors, including pricing.

The same forces that empower customers also enable sales leaders to get smarter about pricing. Data to track the selling, service, and other costs by account are increasingly available. CRM systems can often supply the relevant data, but are they used? Activity-based costing reports typically uncover dramatic differences in costs and profitability by product, customer, and order, but does sales act on this information in setting goals and managing price exceptions? As usual in business, the important levers are leadership and management, not the technical means.

A price is not the same as pricing. By voting with their feet, customers ultimately determine a market price. But you and your organization have control over pricing where, as Buffet notes, the business impact (up and down) is tremendous.

 

 

Getting Your Money’s Worth: Improving Sales Compensation

In a previous article (“Rethinking Sales Compensation,” Top Sales Magazine, February 2017), I examined three common but false assumptions about money, motivation, and management in sales compensation practices. The message was that the purpose of any sales comp plan is to motivate the sales force to achieve the firm’s goals. There’s no such thing as effective selling if that selling doesn’t link to your firm’s strategy. Business history is full of firms that got what they paid for (e.g., reps who, responding to their volume-driven bonuses, failed to execute a premium-priced solutions strategy), and didn’t get what they didn’t pay for (e.g., individually-focused incentives in a team selling approach).

What, then, are the characteristics of strategically effective compensation plans? I’ll focus here on a crucial starting point: understanding the important sales tasks in your business and, therefore, what the sales person must do to drive strategy execution and results. In selling to retail trade customers, for example, sales tasks can usually be divided into three categories:

  1. Volume-Influencing Activities: selling new items, getting more shelf space for established items, selling point-of-sale materials or in-store displays, negotiating trade promotions, and so on.
  2. In-Store Service Activities: shelf audits, handling damaged merchandise, ensuring product freshness, handling queries from store managers are examples here.
  3. Supply-Chain Management Activities: sales forecasting by account, establishing and managing delivery schedules, and coordination with your firm’s operations people for that customer.

A comp plan should set priorities among these tasks, and it’s your strategy that should determine the priorities, not a generic selling methodology or organizational legacy. Companies with automated replenishment systems for customers, for example, have less need to focus on supply-chain tasks in their sales comp plans because these tasks are largely handled in non-sales areas, such as IT. Companies that use service merchandisers in their go-to-market efforts have less need to focus on in-store service tasks.

Similarly, in B2B businesses, comp plans affect which portion of selling is attention to delivery, price negotiations, building channel relationships, pre- or post-sale applications support, cold calling, or cross-selling to current accounts. The relative importance of these tasks typically changes over the course of the product-market life cycle. Early in the cycle in technology businesses, for example, customer education and applications development are often key sales tasks. But as the market develops and standards emerge, salespeople spend more time selling against functionally equivalent products or developing third-party relationships. Your comp plan should keep pace with these task changes, or strategy execution falters. For years in the pharma business, for example, call frequency on doctors correlated with sales results, so pharma reps had to make daily call quotas to make bonus. As managed care and other large entities become more prominent in purchasing, they reduce the number of relevant call points but increase the relevant buying unit. Comp design needs to change, or you’re paying for motion not results.

The point is to focus on how the salesperson makes a difference with customers today, not yesterday. It’s not the responsibility of customers to inform you when changes occur. It’s the seller’s responsibility to track and adapt to market changes. One reason for disconnects between comp plans and salesperson behavior is that, in many firms, the people designing pay plans do so according to an obsolete vision of sales tasks. If wining, dining, and attending trade shows or conferences are important, the plan’s treatment of expenses should reflect those tasks. If, in a de facto multichannel world, working with intermediaries is important, then the plan should provide incentives to work with influential resellers or value-delivery partners through cross-referrals, training, or joint sales calls. If it doesn’t, then salespeople often sell against these entities and both parties lose the sale.

There’s an important managerial implication here: in designing comp plans, there is ultimately no substitute for ongoing field interaction, including actual sales calls. The common practice of “benchmarking” a company’s compensation plan against an alleged “industry-standard” mix of salary and incentives can be dysfunctional. One reason is that the strategies, and therefore the target customers and buying processes encountered by salespeople, differ among firms even in the same industry. As an executive once told me, “Sales in most companies is managed as it should have been managed five years ago in that business. Because that’s usually the last time the senior people making the most important sales decisions were actually in constant touch with current market realities.” New technologies and “big data” algorithms are providing tools for better tracking and diagnoses of conversion rates, call patterns, and other aspects of funnel management. But as a character in a John le Carre novel puts it, “A desk is a dangerous place from which to watch the world.”

As I mentioned in my previous article, there are always links (intended or unintended) between money, management, and motivation. Among other things, how you pay will affect the kind of person attracted to your sales organization. My core advice to those in sales or the C-Suite about compensation design: start with the engine (understanding sales tasks as they exist today in your market, and therefore the behaviors you want from salespeople), and then install the transmission (the specific mix of incentives aimed at encouraging those efforts).

 

Frank Cespedes teaches at Harvard Business School and is the author of Aligning Strategy and Sales (Harvard Business Review Press).

How the Water Industry Learned to Embrace Data

by Frank V. Cespedes and Amir Peleg

 

The water industry is using digital technologies and analytics to derive more value from its physical assets. The need for this sector to change and evolve could not be greater: The organizations that manage water supplies around the world are facing critical issues, and water scarcity is chief among them.

Because of changes in our lifestyles, including increased consumption of grain, meat, and cotton clothes, growth in water consumption per capita has doubled over the last century. And demand is increasing. According to a 2016 report from the UNEP-hosted International Resource Panel, water demand will outstrip supply by 40% by 2030. During the same period, according to the World Economic Forum, water infrastructure faces a huge $26 trillion funding shortfall. If not addressed, water scarcity will squeeze food and energy supply chains, and stall economic growth.

To help solve this problem, organizations are using digital technologies and data analytics to improve leak detection. According to the World Bank, the world loses about 25-35% of water due to leaks and bursts, and the annual value of this non-revenue water — water produced and lost by utilities — is $14 billion. Organizations are also using these tools to improve maintenance, infrastructure planning, water conservation, and customer service (including repair efficiencies and pricing).

Although members of the water industry have found success using digital technologies and analytics, they’ve also faced challenges when trying to transform the roles and mindsets of their employees and their internal- and customer-facing processes. But those that have managed to integrate their technological advances with two other key elements — people and processes — have created more than data; they’ve also created value for their enterprises and society.

People: Good leaders know that using and interpreting data is not only a search for insights; it’s also about enlisting the hearts and minds of the people who must act on those insights.

The challenge is that employees are used to doing things in a certain way, and aren’t always quick to change. For example, despite the social and efficiency value of using predictive analytics to prevent water leaks, many utility managers view themselves as heroes for responding after the leak has occurred. As one U.S. executive explains, “Most current practice is to wait for the service-failure event and judge performance by reacting to it, because the utility doesn’t get credit from regulators or the media for preventing leaks that the public doesn’t know about.”

Regulatory incentives often exacerbate this behavior. In many parts of the world, the increased operational and infrastructure costs are simply passed on to consumers. In other regions, however, (e.g. Australia, Israel, the U.K.), regulators steeply fine utilities for inefficiencies – and it’s no coincidence that a number of utilities in these countries have been leaders in adopting new digital tools.

But even with proper incentives, there are still challenges. For example, many U.S. utilities have installed smart meters — an investment that can easily surpass $60 million in cities with 150,000 water connections, or about 15% of average annual utility revenue and water rates. But after making this investment and charging consumers for it, there were false alerts about leaks, which caused expensive repairs and claims processing. The law of unintended consequences was also alive in operations: because of the initial problems, the field transmissions group distrusted the data — even after the IT problem was diagnosed and resolved – and therefore required additional training to assuage their doubts.

This is why it’s imperative to change roles, break down silos, and adopt new decision support systems when implementing new technologies. A water authority in Australia, which deployed a software solution for improving network efficiency, is a case in point. Its managerial team first formed a working group of personnel from business units across the organization — from retail and asset management to planning and maintenance crews. The group met weekly and by doing so they recognized that the software detected faulty incidents and provided a focal point to collect information (e.g., types of problems, magnitude, location, etc.) to make better decisions in other areas of the business. As a result, they created procedures that shortened the average repair cycle by 66%, saving millions annually.

Longer term, the information allowed the team to make more focused investments based on types and frequency of problems in each zone, and the ability to compare — and negotiate better terms with — vendors based on quality and performance.

Processes: As with other sectors, water utilities are going through a shift from treating users as connections who pay bills, to customers that have needs, habits, and strong opinions if things go wrong. And data analytics is enabling them to provide faster and more effective responses. “We can compare the efficiency in each of the six sectors making up our network and evaluate the response time it takes to identify potential damage, ensuring faster repair times,” an executive at one of Romania’s leading water utilities told us. “As well as smarter insights, the event management system ensures better managerial attention to continuous improvement in our operations and service to customers, and helps to prevent large-scale damage from hidden leaks.”

But in order to achieve those outcomes, the Romanian utility had to change its organizational processes and metrics. The utility had to re-define company metrics goals and create weekly and monthly processes for reviewing performance-against-goals. The software provided relevant data — e.g., the start time of a leak and when it was fixed, based on real-time information, not when reports were submitted. But it was new customer-facing processes such as setting repair-cycle targets and comparing performance-against-goal by region, which created a healthy sense of internal competition and led to more productive behaviors.

These issues aren’t unique to the water industry; they’re also relevant to companies in other industries that are using data and digital tools that are increasingly available.

For example, sales is the focus of potentially big improvements via new tools that can provide better lead generation, forecasting, and targeting. But in order to take full advantage of these tools, sales organizations will need to change their compensation incentives, internal processes, and the skill sets of their staffs, among other things.

More generally, while most current talk about big data seems to assume the replacement of physical assets by digital technologies, a larger and more impactful trend is the use of online tools to improve physical asset utilization in off-line businesses, as in the water industry. In that context, the role of data is not to make a manager sound analytical. Its role is to help make better decisions and drive value for the company. And you can’t do that only with technology or analytics, no matter how good they are.

Rethinking Sales Compensation

Compensation is probably the most discussed aspect of sales and the biggest chunk of the $900 billion that U.S. companies alone spend on selling. An estimated 85% of companies use incentive plans which, on average, account for about 40% of total sales compensation. Yet, in a survey of 700 firms, a whopping 20% reported that their comp plans had “minimal or no impact on selling behavior,” 12% said they “do not know,” and less than 9% said their pay plan “consistently drives precise selling behavior.”

That’s a lot of wasted money and managerial effort. One reason is that sales comp is typically based on some conventional wisdom that, in my experience, is often false. Here are three assertions that merit re-examination as you consider your sales plan for the coming year:

“Money is the Only Motivator”: You hear this in the often repeated assertion that salespeople are, like vending machines, “coin operated.” But examine this assumption. Are others in a firm not motivated, among other things, by money (unlike you or me, for instance)? Are sales reps somehow genetically distinct and immune from other factors that affect behavior in organizations: priorities, processes, pride, professionalism, and so on? In numerous studies of consumer behavior, risk perceptions, and responses to different framing of rewards, behavioral economics shows that people are, alas, not simply rote profit-maximizing machines. Do people suddenly become different people when they join a sales force?

Anyone who has ever managed in a market with hierarchical cultural traditions, for instance, knows the value that salespeople and others put on titles, rank, and other nonmonetary impacts on behavior. Across cultures, recognition ceremonies reflect this human need, as does feedback to reps about performance. People are social creatures concerned with their standing and how they perform relative to others. As I’ve heard more than one salesperson say, “we work for money, but strive for recognition.”

Money matters. But the point is that the right comp plan is a necessary but not sufficient cause of getting the selling behaviors you want. You can’t substitute money for management. That’s why ongoing performance reviews are a necessary complement to compensation and a key (but often neglected) sales management responsibility. Any comp plan is part of, not a substitute for, ongoing performance management practices in a sales force. People manage people.

“Comp Plans Must Be Simple”: Behind this assertion is an implicit view of salespeople: they may not be bright enough to understand a “complex” plan. But this view is contradicted (often by the same person making the simplicity assertion) by fears that a complex plan will drive gaming behavior by reps who maximize income with minimal effort.

I have yet to meet the sales force that, in the aggregate, does not understand within a month the economic implications in their comp plan. It’s a core human trait: if a policy determines how you will eat, you will study it in detail. Moreover, available data across firms indicate no significant difference in the percentage of reps who meet and beat quota under more or less complex plans.

Will some reps game the system, any system, complex or simple? Yes. As one CEO told me, “Salespeople become experts in their pay plan, regardless of its simplicity or complexity, and you can count on unintended consequences.” But then the issue is crafting a coherent win-win plan, not fear of taxing sales peoples’ brains. In a strategically effective plan, the company profitably acquires a good customer when the salesperson wins a bonus or commission. Also, more sales situations increasingly involve inherently complex bundles of activities: data analyses, team sales efforts, product-plus-service offerings, multichannel approaches, and so on. You can pretend the complexity isn’t there in your market and customer buying processes, but it is.

“We Pay for Results, Not Process”: It may seem tough-minded and “empowering” to say to reps, “It’s up to you to figure out the best way to sell and I’ll pay you for the outcomes.” But the process for providing rewards is always at least as important as the level of pay itself.

For one thing, a pay process reflects strategic choices and management norms, explicit or implicit. Incentive plans are always important company communications about what’s really important and are read that way by the sales force. At many firms, salespeople receive big bonuses for results. But the basis of the bonus (e.g., orders booked by an individual rep) contradicts what the company, its espoused strategy, and sales managers say they want (e.g., referrals, joint presentations, or other aspects of cross-selling). The result is demotivation or, worse, motivation toward the wrong type of sales effort. In turn, this can hurt both customer satisfaction and ethical norms. Consider the sales results, versus process, at Wells Fargo.

Like other people, salespeople want to maximize rewards and they want to know why they succeeded or failed in achieving a goal. In fact, they want to use that information to make more money next month, next quarter, next year. The process for clarifying or ignoring these cause-and-effect links affects future behavior. We may “pay for results, not process,” but if we ignore process in a sales environment, we often don’t get what we’ve already paid for.

Like it or not, your sales compensation plan is always part of motivational and ongoing performance management practices (good, bad, or indifferent) in your firm. Those three factors—money, motivation, management—interact and they affect both selling behaviors and strategy execution. They must be linked in an effective pay plan, and that’s a big part of what leaders—in sales and the C-Suite—get paid for.

[1] “Sales Compensation and Performance Management: Key Trends Analysis,” CSO Insights.

Frank Cespedes teaches at Harvard Business School and is the author of Aligning Strategy and Sales (Harvard Business Review Press).

What Senior Executives Should Know About Sales

Business is more complex, data more abundant, and more specialists are needed to stay up-to-date with functional best practices. As a senior executive, you can worry all you want about disruption, but you need a salesforce aligned with strategy to do something about it.

There have been big changes in the C-Suite of companies globally. The number of executives reporting to the CEO has doubled in recent years, mostly an increase in functional specialists like CIOs and CMOs, not general managers responsible for cross-functional integration.1 Meanwhile, the number of Fortune-500 and S&P-500 companies with COOs has decreased to about 35%.2 Three decades ago, COOs outnumbered CFOs in those firms, not now. Business is more complex, data more abundant, and more specialists are needed to stay up-to-date with functional best practices.

These changes affect a core task of a CEO and other senior executives – the formulation and implementation of strategy – and the aggregate results have not been good. Consider:

• Surveys indicate that in most firms less than 50% of employees say they understand their firm’s strategy, and that percentage decreasesthe closer you get to the customer in responses from sales and service employees.3 It’s tough for people to implement what they don’t understand.

• Even worse: In a McKinsey survey of 772 directors, only 34% believed their boards comprehended their companies’ strategies.4

• Almost 3-of-5 senior executives (56%) say their biggest challenges are ensuring that daily decisions align with strategy and allocating resources in ways that support their company’s strategy.5

• The result is a performance gap: firms realise only about 50-60% of the financial return their strategies and sales forecasts promise.6 That’s a lot of wasted time, money, and managerial effort.

What must senior executives do to address this gap? They should start with a closer look at Sales. US firms alone spend about $900 billion annually on sales. That’s more than 3x their total ad spend, more than 20x their spending on digital marketing, and more than 40x their current spend on social media. Selling is, by far, the most expensive part of strategy execution for most firms. At a minimum, the C-Suite must manage the following cornerstones for organic growth:

Linking Customer Value and Profitable Growth. The goal of strategy is profitable growth, meaning economic value above the firm’s cost of capital. As Figure 1 indicates, there are basically four ways to create enterprise value: (1) invest in projects that earn more than their cost of capital; (2) increase profits from existing capital investments; (3) reduce assets devoted to activities that earn less than their cost of capital; and (4) reduce the cost of capital itself. In my experience, relatively few senior executives understand and operationalise the sales factors that affect each value lever:

• In most firms, the bulk of capital expenditures is driven by revenue-seeking activities with customers. Hence, the call criteria used in sales directly impact the first value-creation lever: which projects the firm invests in. Yet, how many in the C-Suite understand how compensation, deployment and other core sales management practices determine these criteria daily?

• Increasing profits from existing investments requires productivity improvements. In the past 15 years, production efficiencies enabled an average S&P-500 company to reduce its cost of goods sold by about 250 basis points – a big improvement. But selling expenses as a percentage of revenue have not declined.7 Where would you look next for a source of competitive advantage?

• Reducing assets devoted to negative-return activities requires good links with changing market realities and an understanding of how hiring, development, and performance metrics affect field behaviour. Without that understanding, asset redeployment becomes either an exercise that does not really affect behaviour – the “reorganisation merry-go-round”, as cynics put it – or an unwitting impediment to the use of assets that in fact remain essential to effective selling.

• It may seem that sales has little impact on the firm’s cost of capital. But consider the basics: financing needs are driven by the cash on hand and the working capital required to conduct and grow the business. Most often, the single biggest driver of cash-out and cash-in is the selling cycle. Accounts payables are accumulated during selling, and accounts receivables are largely determined by what’s sold, how fast, and at what price. That’s why increasing close rates and accelerating selling cycles is a strategic as well as sales issue.

salesfig1

Customer interactions affect all elements of enterprise value and, in many firms, the sales force is the origin and sum of those interactions. Strategy, growth, or attempts to increase the stock price or valuation without attention to this fact are at best limited and, at worst, going down the wrong path.

Strategic Planning Processes. According to surveys, about two-thirds of companies treat planning as an annual event, and the average corporate planning process now takes 4-5 months, typically as a precursor to the annual budgeting process. But sales must respond customer by customer in external market time, not internal planning time. In other words, even if the output of planning is a great strategy (clearly, a big if), the process itself often makes it irrelevant to daily customer-contact activities.

In many firms, moreover, the means for introducing and reviewing business plans exacerbates the separation of the C-Suite from sales. The typical approach is a kick-off meeting followed by a string of emails from headquarters with periodic reports back to headquarters on sales results. Each communication is one way, and there is too little of it. One result is that root causes of under-performance are often hidden from both groups.

A basic fact of business is that value is created or destroyed with customers. Hence, strategy is about confronting evolving market realities and their customer-contact requirements. Senior executives cannot do that solely through plans and big-data analytics. Good leaders know that interpreting market data is not just a search for truth and insights. It’s also about actionable dialogue with the people, especially sales people, who must use that data where value is created or destroyed.

Hiring and Development. Senior executives now routinely talk about talent management, but few deal systematically with these numbers: across industries, average annual turnover in sales is 25-30%. This means that in many companies the equivalent of the entire sales organisation must be hired and trained every four years or so. The challenge is compounded by the fact that there is no easily identified resource pool for sales positions. Of the over 4,000 colleges in the United States, less than 100 have sales programs or even sales courses. The situation is similar in Europe. And even if companies find qualified graduates, the increased data and analytical tasks facing many sales forces mean that productivity ramp-up times have increased. Each hire is now a bigger sunk cost for a longer time.

Companies typically spend more on hiring in sales than anywhere else in the firm, and it is leadership’s responsibility to keep relevant a resource allocation of that magnitude. The forces reshaping C-Suites are also changing sales tasks. As firms confront new buying processes driven by online technologies, required selling skills are changing. Figure 2, based on an extensive database of company sales profiles, indicates the changing nature of sales competencies at many firms.8 Competencies that, only a decade ago, were considered essential are now lower in priority. Yesterday’s sales strengths have become today’s minimum skill requirements.

salesfig2

This underscores the need for on-going talent assessments in sales roles, not just “at the top”. The tools for doing such assessments are more available and have more granularity. For many sales organisations, these tools are a big improvement over the standard mix of folklore, various embedded biases based on “how we’ve always done it here”, and glib generalisations about “core competencies” that often dominate C-Suite discussions about growth. It’s said that many companies maintain their equipment better than their people. If so, then in sales you will ultimately get what you don’t maintain.

These changing sales competencies also emphasise a competitive reality: markets have no responsibility to be nice to any firm’s strategy and legacy competencies. It’s leadership’s responsibility to adapt to the market as it operates today, not yesterday. As a senior executive, you can worry all you want about disruption, but you need a salesforce aligned with strategy to do something about it. Conversely, senior executives who talk about “leadership development” but ignore this aspect of development are just talking.

It indeed starts at the top. Reflecting on his experience as a CEO, Louis Gerstner put it well: “I came to see [that] culture isn’t just one aspect of the game – it is the game. In the end, an organization is nothing more than the collective capacity of its people to create value.”9 Because of sales’ central role with customers, changes in sales requirements always have wider implications which affect that collective capacity. Today, those changes are at the heart of many challenges and opportunities confronting firms: how to harness big-data technologies; how to respond to altered buying processes as customers utilise online channels of information; how to develop talent that can respond flexibly but coherently; how to encourage cross-functional efforts without destroying necessary expertise and accountability. Senior executives who do not remain engaged with these sales issues will inevitably share the fate of companies where “customer focus” is a perennial slogan but not an organisational reality. As I once heard a CEO tell his leadership team, “There ain’t many customers at headquarters!”

Sources: Frank V. Cespedes, What Senior Executives Should Know About Sales,” European Business Review (September/October, 2016)

To Increase Sales, Get Customers to Commit a Little at a Time

Most sales models include a conversion funnel in which reps try to convert a marketing-generated lead into a prospect and then a customer through sequential steps. In this model, sales people are expected to make the process as friction-less as possible for the potential buyer and to close the deal at the end by using certain phrases and techniques to “overcome objections.” This perspective is promoted in books and seminars, but research indicates it is not how people buy.

As one of us noted in a previous article, buyers work their way through parallel streams (rather than a funnel) as they explore, evaluate, and engage in purchase decisions via web sites, white papers, social media, and contact with other buyers through sites like Marketo, and so on.

This why the end of a sales process is the worst time to handle objections — prospects typically contemplate their objections long before “close,” and, to avoid conflict, often cite a socially-acceptable rationale such as price, which may not be the real barrier to buying. To better address this reality, sellers should ask prospects to make incremental commitments throughout the process.

Along with improving sales results, research has shown that incremental commitments can boost charitable giving, increase show rates for blood drives, and reduce smoking. In a seminal study, a team posing as volunteer workers canvassed a neighborhood and asked residents to put a large “Drive Carefully” billboard in their front yards. Most residents, over 80%, refused to do so, mostly because the signs would have obstructed the views of their homes. Researchers had better luck in a near-by neighborhood, however, by first asking residents to display a smaller, three-inch sign that read “Be a Safe Driver.” This request was met with almost universal acceptance. Then, two weeks later, when researchers returned and asked this second-group of homeowners to put the large “Drive Carefully” billboards in their front yards, 76% agreed to do so.

An incremental approach to sales has many benefits. It allows reps to glean more information from prospects and to gauge their commitment rather than just their comprehension — a crucial difference in a customer conversation. Usually, reps are taught to listen for phrases from prospects such as “that makes sense” or “that’s a valid point” or nonverbal signals such as head nods. But these cues mean only that a prospect is comprehending what you’re saying. They’re analogous to the conversational si in Spanish and many other languages, which means “I hear you,” not “I agree with you.”

Commitment, on the other hand, requires action. For instance, if you were to periodically prompt prospects to confirm that they agree with the data or objective you’ve cited, and then ask them if they’d be willing to act on that agreement via some small action, you’d receive much clearer feedback. If the prospect commits, you can move on; if not, you should identify the objection or barrier, and deal with it.

Because incremental commitments are so vital, you must be intentional in securing them. As a general rule, the earlier you can identify objections, the more likely the sale will occur.

Incremental commitments can also convince prospects to change, which is vital in selling new products or services. Unless the proposed benefits of a new product significantly outweigh their perceived losses of a change, prospects tend to stick with what they know, a phenomenon known as the endowment effect. The incremental-commitment approach can help to overcome status-quo inertia.

Consider Paccar, a designer and manufacturer of premium trucks, which has consistently introduced new products and maintained a price premium of 10-20% over its rivals. One reason for Paccar’s success is its online interactive that shows potential customers the expenses that accrue during the lifetime of owning a truck. You can input gasoline costs, tire rolling coefficients, and vehicle weight to quantify the benefits of a Paccar truck versus those of competitors. You can do the same for resale value, maintenance, driver retention (useful data if you run a fleet), and financing costs.

The interactive makes it easy for prospects to comprehend the relative economics at play and allows them to make small but meaningful commitments during the search and sale process, alleviating their fears. This is no small feat since truck owners, like Harley riders, are often beholden to a particular brand, and sometimes even tattoo its logo on their bodies. The process also improves prospecting and sales productivity because it allows reps to gauge the willingness of customers to commit before Paccar devotes expensive resources to closing the deal.

Other companies have found similar success. One firm, which sells complex technical services to telecom companies, was spending 9 to 12 months of its 24-to-30 month selling cycle in proof-of-concept meetings with multiple groups at the customer — a big sunk cost if the sale was not closed. By instituting demos at various parts of their buyers’ journeys, the firm decreased its selling cycle by 6 to 12 months, increased close rates, and freed-up more time for selling to other prospects.

To add to that, many companies are using content marketing campaigns to uncover potential objections, generate initial commitments to successive aspects of their value propositions, and identify more promising leads. This is more productive than relying on downloaded white papers or blogs, which often generate a broad and often unproductive array of leads.

New sales enablement tools are making it possible to make incremental commitments a measurable pipeline activity. Showpad and other services allow reps to forward materials to prospects and observe how the prospect engages (or not) with the content. Does the prospect look at the price list? Does she forward the document to others in the buying unit? Which collateral or trial offers do and do not generate action? This helps to pinpoint where incremental commitments can be best located.

It’s important to keep in mind that it’s not the customer’s responsibility to make selling easy; it’s the seller’s job to align sales activities with actual buying behavior. So don’t treat closing as the last step of a linear process; instead, you should always be closing — always — throughout the sales process via incremental commitments.