$3,400 per hour for services seems a bit high, doesn’t it? But most CEOs are paying at least that much every day and don’t seem to care.
You know the cost of your attorney, your accountant, your consultants, outside engineering, etc. You know your critical business costs — like health insurance, the cost to produce each unit of product, the cost of raw materials, etc.
So as a good business leader, please tell me your “Cost Per Sales Hour.” What does it cost to have your sales team provide you with one hour of actual selling? At the end of the day, you hire, pay and retain salespeople for ONE REASON — you expect them to sell enough profitable business to keep you in the black.
Since the salesperson’s purpose is to close business, and since that role is critical to the survival of your business, you need to be good at managing this process. Managing the sales process requires accountability and aligned resources. If you don’t know your “Cost Per Sales Hour,” you can’t manage your sales process or your sales budget. And for many companies, the sales budget is a BIG number.
To manage your “Cost Per Sales Hour” you need to know three things. First, you need to know the total cost for your salespeople (salary, bonus, commission, expenses, fringe, etc.). The next thing you need to know is “exactly what is the definition of sales?” And your answer is “moving a DEAL forward when no one else in the company can do it better or cheaper.”
The last thing we need is how much time does a salesperson spend doing sales each week? After studying the time sales organizations move “deals” forward for more than 20 years, we have learned that more than 90 percent of sales organizations move “DEALS” forward only one to three hours per week.
Now, knowing this data, you can calculate your “Cost Per Sales Hour.” Divide the total cost of a salesperson by the number of actual hours they sell, and you get your “Cost Per Sales Hour.” More than 90 percent of companies will have a “Cost Per Sales Hour” of at least $3,400 per selling hour.
The one to three hours of selling time is that low because salespeople do lots of other things that may be important, like customer service, travel, staff meetings, training, developing marketing material, expense reports, and “Cold Calling” — but these are not moving a “DEAL” forward.
The biggest example of “Not Selling” is when salespeople “find their own” suspects and convert them to prospects before they know if there is a “DEAL.” You may know this process better as “Cold Calling.”
Real sales work starts at the point that the sales team qualifies the prospect, and knows someone will win a “DEAL.” Until you have a qualified prospect, there is no “DEAL” to move forward — you aren’t in the process of selling anyone anything. You’re just spending a lot of money “Cold Calling.”
For some reason, the world decided that “Cold Calling” is a sales job. Finding leads has NEVER been a sales function, even when done by salespeople. Finding leads is a marketing function, and when we require sales teams to do “Cold Calling,” they are playing out of position at a very high cost. That would be like asking a heart surgeon to prepare the operating room — a required activity that can be done more cheaply and probably better by someone other than the surgeon.
The worst part is this playing out of position is not the high cost of using the salesperson to find the suspects, but the fact it gives salespeople an excuse for failing at what you hired them to do. They failed to create enough profitable revenue because they were busy “Cold Calling.”
“Cold Calling” and the other ways to “find” suspects and prospects can be more predictable and financially leveraged by using the web, marketing programs, and other best practices. Sales may need to be part of that “finding” process, but remember: Every minute salespeople spend in this “finding” activity is subtracted from their time in the “closing” activities, and that correspondingly increases your “Cost Per Sales Hour.”
Once you kill “Cold Calling” as a sales function and make it a marketing function, you can hold marketing accountable for the right number of the right leads at the right time, which fills your pipeline with good prospects at a much lower cost. On the sales side, you can now hold sales accountable for the time to revenue (time between a qualified lead and a close decision), the percent of qualified leads you win and the margin or gross revenue per closed deal also at a much lower “Cost Per Sales Hour.”
Go kill “Cold Calling” as a sales function and get on about Winning The Revenue Game.
[EDITOR'S NOTE: This article is part of a series by Rick McPartlin exploring the challenges and realities of growing revenue and expanding sales in the new 21st-century economy. See also:
- Part 1: The CEO's Top Concern: Growing Profitable Revenue
- Part 2: Sales Is a Relationship Business -- Right???]
- Part 3: When Do You Say NO in Order to Sell More?]
- Part 4: The REAL Death of a Salesman: Why the 20th-Century Revenue Model Is Dead]