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Cost of Sales - Going Up or Going Down?

Posted by Frank Belzer on Fri, Dec 30, 2011 @ 08:54 AM
Frank Belzer is the Sales Archaeologist and Author of Sales Shift.

biz2 resized 600The term “cost of sales” is usually one that we associate with CFO’s and EVP’s of Finance – not one that we typically discuss with sales people or sales leadership. That’s a shame because the concept has merit and of all the people that should be concerned with sales cost, one would think it should be the sales side of any organization.

That is probably a concern in itself and a post for another day - but let's move on.

one thing is sure - the cost of sales is never standing still, it is either going up or going down!

If you are a CEO then you are probably concerned with the growth of the company not being supported by an equal or greater increase in sales volume and profits.

When we speak with CFO's they are concerned with the bottom line number, after sales does its’ thing and we pay them what is left for the company? This is the most typical definition of the cost of sales.

For a VP of HR the cost of sales can be summed up in one word - turnover. Why are so many of your new hires failing and why do so many become short term employees. This can be extremely expensive. Check out our -Hiring Mistake Calculator or review our whitepaper on sales selection.

When I get into a discussion with a VP of Marketing it becomes clear that for them, the cost of sales is clearly connected with the fact that lead conversion is not where it should be. Leads cost money and that cost increases when sales people fail to convert those leads into actual business!

As a Sales Vice President or Sales Manager you want to know what each opportunity is costing you e.g.: Time spent divided by commission made = how much per opportunity? Was it worth it?

I have witnessed compensation plans where the more people sell the more the company loses – not a good result. I have recently heard complaints from CFO’s that sales people share in the upside of selling but never the downside – great observation from someone that is not a sales focused individual!

If you walked out onto a factory floor and saw that only 1 out of 4 people was working you would probably downsize pretty quickly, save money and presto your manufacturing operation just became 300% more profitable. Once again you wouldn’t need to be an expert on manufacturing to have a clear understanding of the problem. But how do you get that same type of feedback on a sales organization?

From the sales organization side usually too many reps that have too many poorly qualified opportunities in the pipeline. This consumes attention and time that could be spent finding new opportunities. This is an example of one cost that doesn’t show up on a spreadsheet and there are many more hidden costs that can be undermining your sales organization.

Interestingly all of these problems and concerns, the CEO, CFO, CMO, VP of HR and those of the VP of Sales, Sales Manager and even the Salesperson can all be improved by doing the same thing – Improve your sales process and improving the sales skills of your people! Most sales people do not practice truly consultative selling. In fact data tells us that only 24% of the sales population could actually carry on a consultative conversation with a prospect. Now look at the number of your sales people that are above quota – is it close to 24%?

The problem with fixing this issue is that it is not easy. Too many of the factors that lead to having a very expensive sales organization are hidden beneath the surface. The only way to get to the real issues involves getting a clear snapshot of the current condition and potential of your sales team.

If you are a sales person and reading this your goal should be performance related. Can you hone your skills, beat down your head trash and become one of those truly consultative sales people? Start by looking at your pipeline and play manager – what shouldn’t be there? Why not use the time you would spend nursing a dead opportunity to either prospect for a new one or develop your sales skills?

As we start 2012 next week one thing is crystal clear for most of the executives and board members I speak with. We need a good Q1 and we can't afford another 2011! If you feel that way in the slightest then we should have a conversation



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the timing of this article is excellent! Everyone should be looking at this question as they review last year and plan next year but my experience has shown otherwise. I currently work in asia and the focus is always on the numbers but not on these numbers!

posted @ Friday, December 30, 2011 11:00 AM by Bill

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