A Method for Valuing Marketing PQRS and Sales Efficiency
Sales and Marketing
The mid-1980s was the first time that I was responsible for sales and marketing. My engineered components company’s salespeople were responsible for all accounts in their territory. We had high year-over-year account churn due to poor account service.
Basically, our salespeople were chasing new sales hoping to cover their churn – plus, add enough to reach their “base growth” compensation plans. Our existing customers only saw their salesperson when they were “in the area” or the account “had a problem”.
After 6 months, I realized that the maximum number of productive, existing customer meetings that could be completed in a day was four. Two in the morning and two in the afternoon – or, twenty per week.
I took our number of salespeople, multiplied by twenty and divided by the company’s total cost of sales to determine the minimum profitable account that we could service directly and grow.
Cost of Sales / (No. of salespeople X 20) = Minimum Profitable Account (MPA)
There were three problems:
1. At four existing account appointments per day, it would take three months or more for each salesperson to conduct a face-to-face with each of their accounts.
2. Only 15% of our accounts met the MPA threshold.
3. We were only closing one-in-ten new prospects!
The word “sales” is a verb. It is “the act of selling something”. If a salesperson meets with a prospect or customer and does not make a sale, they DID NOT “sell” anything. So, what can salespeople accomplish if the sales process is not a one-call-close? How can they take the next step toward an order?
The next steps require “marketing”.
“Marketing” is a verb, too. It is an active process. Unless the salesperson is going to walk through the door of each meeting saying, “Do you have any orders for me today?” They need something new to talk about: a new product, an award, new services, a new use case, something!
For new prospects, the one-word definition for marketing is “duplication”. Established companies have a customer base with some profitable accounts or they would not be able to keep their doors open.
The best new prospects are duplicates of existing customers. These prospects will be attempting to remain competitive. In a familiar market, salespeople already have a feel for the buying process. Marketing can provide prospect databases and required documents to support the buying process.
Sue is in sales for a fleet management company. She gets leads by sitting in a parking lot at a busy intersection and writing down the phone number on trucks that pass. She does not know how many vehicles are in their fleet, if they have any credit, where their office is located or if they already have a fleet management solution. Sue is doing her own marketing. She is forced to “fish” for her leads.
There are many flavors of product and service sales – a few are: route, territorial, vertical market or key accounts. Marketing tools have evolved: websites, social media, focus groups, online surveys, etc. However, marketing is still budgeted as a “percentage of revenue”. The percentages vary depending on the market vertical – but, there is little connection to the continuous improvement of the selling process. Most marketing specialist are not cross-trained in sales.
Today, marketing key performance indicators (KPIs) are brand recognition, awards, social media followers, the number of impressions or the amount of time someone spends on their website. Some of the buckets are newer – but, they are merely more of the same. Marketing is not tied directly to “sales efficiency”.
Solution Number One: Reducing the Number of Assigned Accounts
My first sales territory had 135 accounts ranging from $1,100 per year to $500,000 per year. I had two direct service reps – each serviced one-half of my territory. My “base growth” was dependent on growing the total revenue of the territory. I kept the top 35 accounts and gave each rep 50 small accounts to serve.
If they identified a problem or an opportunity for revenue growth in an account, I would help them close it and they got the commission. They were already visiting these accounts for service regularly.
If I doubled a small account, it added $1,000 to my base. If I grew a $500,000 account by 20%, my base grew $100,000. With fewer existing accounts to work directly, I had more time to pursue other large accounts or grow the existing ones.
Inside sales is another group that can serve small accounts.
Solution Number Two: Increasing the Number of Accounts that Reach the MPA Threshold
There are two types of accounts: profitable and non-profitable. Non-profitable, existing accounts should only be worked directly if there is a plan to bring them above the MPA.
Fred comes to his sales manager with an urgent $25,000 opportunity. The MPA is $50,000. The sales manager asks Fred, “Why are we having a conversation about this opportunity? This should be sent to inside sales. What else are you working on?” Fred takes the feedback and increases his sales that year by 300%.
Small accounts are comfortable, faster to close and have fewer decision makers - get the order and move along. Besides, with a closing average of one opportunity in ten, Fred must burn though nine prospects to get the one that he can close. Even worse, Fred does not have new products or services that can be sold to his existing accounts. So, his meetings with the existing accounts are “Hi, how are you?” meetings. Quick meetings to determine if there are any problems and meet the KPI for seeing each account regularly.
Solution Number Three: Using PQRS to Increase Sales Efficiency
Sales meetings have “binary” outcomes. Every time a salesperson walks through the door, their meeting can have one of two outcomes: they can “succeed” or “fail” to achieve the desired outcome of the meeting.
The Probability of Success (Ps) + the Probability of Failure (Pf) =
One Hundred Percent (100%) - Ps + Pf = 100
To get more revenue from an existing customer, salespeople need something new to discuss in meetings. The marketing department should provide sales with a constant flow of new leads, programs, products and services.
Salespeople are largely responsible for “success”. Marketing should be partly accountable for “failure”. Many marketing professionals might take objection to this reality. However, it is accurate. Marketing has many tools that can help sales grow revenue: identifying “duplicate” prospects, create new products/services, simplify pricing, provide competitive intelligence, offer service plans, produce locally targeted campaigns and many more.
Sales and Marketing are not “mutually exclusive” departments. So, how do you establish marketing’s value?
Fred and Sue are currently converting one prospect in ten to new customers.
Ps = 10, Pf = 90, Ps + Pf = 100
If the average account annual revenue is $50,000 and they each close one new account, they have generated $100,000 in new annual revenue (R). R = $100,000
To achieve this revenue, Fred and Sue had to prepare 10 quotes (Q) each totaling $1,000,000. Q = $1,000,000
Using the formula,
Ps X Q = R, 10% X $1,000,000 = $100,000
Now, through marketing, Fred and Sue are given “qualified” leads, marketing has determined the “duplicate” prospects in their territory, completed a targeted campaign, discovered that 80% of their customers could benefit from a new technology, simplified their pricing plan into three tiers (competitive, average and best).
Now, Fred and Sue are converting two prospects in ten to new accounts. The percentage of new accounts rises from 10% to 20%.
Ps = 20 (100%↑), Pf = 80 (11%↓), 20% X $1,000,000 = $200,000
If salespeople are made responsible for success, marketing is made responsible for failure and they work as a team, an 11% improvement in marketing through osmosis results in a 100% growth in revenue!
PQRS is a new tool for valuing marketing. Rather than providing a percentage of revenue and using typical marketing KPIs, marketing can have more targeted KPIs tied to sales that ultimately provide larger budgets.
This might require some cross training. However, high growth companies have already figured this out. Perhaps they are not consciously using the PQRS formula – but, they are integrating sales and marketing.
Salespeople become more efficient!
Sales, Marketing and the Funnel
Sales “funnels” are built to map the steps required to receive an order. By definition, opportunities are not one-call closes when there is a funnel. Using the PQRS model, marketing can provide tools for moving a prospect through the funnel more efficiently. The close for each meeting becomes advancing the prospect to the next funnel stage. Shortening the time it takes to go from one step to the next improves sales efficiency leading to higher revenue.
The model is a great structure for “continuous improvement”. More “focused” sales and marketing activities will have a byproduct effect of identifying sales process “gaps” and “time wasters”.
Salespeople can catch more fish when they have their line in the water rather than sitting on the edge of the pond trying to figure out where the fish are and, more importantly, what bait they are biting.