Chapter 9

Monetization through Sales Performance

In This Chapter

Identifying and working on common sales problems

Knowing the value of marketing in relation to sales

Creating a proven process to turn a prospect into a paying customer — again and again

Occasionally, a potentially great business model falls prey to a poor sales system. Every product needs to be sold. That doesn’t mean sold by a person — just sold. In order for your business model to be successful, you need to create a sales system to finalize the marketing process that turns customer needs into cash in your pocket.

This chapter discusses how to create a proven and repeatable sales process to ensure that your marketing concepts turn into sufficient quantities of actual sales.

It’s difficult to imagine a world without the light bulb. Imagine living in the 1880s, before buildings and homes were safely and easily lit. Back then, people used candles and gas lamps to illuminate buildings. It would seem that the easiest sale ever was to sell a cheaper, easier, and better way to illuminate. It wasn’t. No one would install Thomas Edison’s light bulbs because they were afraid light bulbs would burn down the building. Ironic, isn’t it? In order to get people to try light bulbs, Edison had to install lighting in a New York office building for free. The point: Nothing sells itself, not even the greatest invention of the century.

Closing the Deal

You can create an excellent product, pick the right market niche, and have an excellent marketing program, but none of it matters if you can’t sell it. Every product needs to be sold. Even the best-conceived products can fall victim to a sales execution issue. Most sales conversion issues fall into three categories: excessive sales cost to acquire a new customer, significantly underestimating the difficulty of the sales process, and difficulty making repeat sales.

Obtaining customers for an unreasonable cost

To have a strong business model, the cost of sales versus the margin generated must be reasonable. For example, a computer router manufacturer sees the growth of the home wireless networks as attractive and sells a product to a big box retailer like Best Buy. The retailer promises big sales, so the router manufacturer cuts margins significantly to only $20 per router. However, the router manufacturer underestimates the support needs of technically challenged customers. The customer support per router amounts to $7 of the $20 margin per router. At only $13 per router margin, the organization can’t sustain this sales channel.

Groupon has built a multibillion-dollar business helping retailers find new (or hopefully new) customers. For instance, Groupon asks a restaurant to offer a 50-percent discount on a meal. The restaurant wins because hundreds of new buyers are exposed to the restaurant and become repeat customers. The businesses using Groupon to acquire new customers, however, have been offering significant pushback. Here’s why:

After the 50-percent discount, the retailer splits the sale with Groupon. If a restaurant offers a $20 meal for a $10 Groupon, the restaurant receives only $5 for what used to be a $20 meal. Of course, the cost of the meal stays the same for the restaurant and may create an unprofitable transaction.

Many of the Groupon purchasers may be existing customers. Now the restaurant has cannibalized a $20 meal into a $5 meal.

Many of the new customers are ultra price sensitive and not particularly loyal. They’re willing to try new places for half price, but they won’t return for full price later. They’ll just buy a Groupon for a different restaurant.

Underestimating sales difficulty

Sometimes, business model architects underestimate the difficulty of the sales process. When you spend so much time and effort conceiving your offering, planning the marketing, and designing all the operational details, it’s easy to fall in love with your baby, and it becomes difficult to see things objectively. This difficulty can translate into overestimating the ease of the sales process. When this happens, the company can end up with a high cost of customer acquisition or find that the product is far too difficult to sell to have a viable business model.

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When Walmart expanded into Germany, it figured its finely tuned U.S. business model would easily conquer competitors. Walmart’s analysis showed that it could save customers money with its low-cost model. Despite lower pricing, Walmart failed miserably in Germany. Pundits enumerate dozens of theories why: Germany was too “green” for Walmart, Germany has a pro–labor union culture, Germany is anti-American when it comes to name-brand retailers, or German consumers prefer small neighborhood stores.

Whether you’re Walmart or Bob’s Mart, underestimating the difficulty of selling your product can radically disrupt your business model.

Assuming repeat sales will come easily

When most people are designing a business model, they assume that repeat customer sales are easy. Most of the time, they are. But take an objective look at the difficulty of resale when designing your business model. Don’t just assume the customer will re-purchase with little or no effort. The consequence of overestimating the ease of resale is over-inflation of your anticipated margin. In this scenario, you’ll believe that you’re making much more margin than you actually are. This problem cascades into other aspects of your business model, as follows:

You could overspend on fixed assets/costs because you believe the additional margin exists.

You could decide to spend on additional direct costs because you have the margin available. For instance, buying better coffee beans to improve the quality of the product.

You could under-invest in your sales force.

You could lose sales volume to a competitor who better assesses the resale process.

I’ll bet the people at Comcast are frustrated with this dynamic. For 20 years, when someone switched their service to Comcast, the company enjoyed a long uninterrupted tenure. As competition with Dish TV and DirecTV intensified, Comcast has been forced to offer incentives like lower pricing and free hardware to existing customers to entice them to stay.

Take a hard, objective look at your resale process. Very few products have a no-cost, automatic resale. A little effort and money allotted toward reselling can go a long way. Better to overestimate the difficulty of resale than underestimate it.

Marketing Beats Sales

There’s nothing wrong with an old-fashioned sales process. However, from a business model perspective, products that can be sold primarily through marketing are preferred over products that require a blood-and-guts sales process. Procter & Gamble convinced me to buy Crest through marketing 40 years ago, and it’s never had to sell me since.

For many years, Kirby sold its vacuum cleaners via a massive door-to-door sales force. The vacuum cleaners were expensive, so margins were good. However, the turnover and perpetual training of new salespeople had to weigh on margin significantly. Dyson, on the other hand, relied on a few highly differentiated features of the product and good marketing. In only ten years, Dyson captured 23 percent of the U.S. vacuum cleaner market with a product costing double that of previous industry leader Hoover.

Forget which brand of vacuum cleaner you like for a moment and ask yourself, “Which business model is better: Dyson’s or Kirby’s?” Before you answer, don’t let the difficult nature of the door-to-door Kirby model dissuade you. If the thought of door-to-door selling turns your stomach, that isn’t relevant. What’s relevant is the strength of the business model and its ability to make money. That said, the Dyson model is better. The Dyson model is better because marketing usually beats sales.

Marketing is far more controllable than sales. Marketing is far more predictable than sales. Marketing is more scalable than sales. Marketing has more variable cost and less fixed cost than sales. As you design your business model, lean toward marketing and not sales.

Creating a Proven and Repeatable Sales Process

Your product must have a proven and repeatable sales process. This fact may seem obvious, but you must be able to clearly communicate the roadmap of how you’ll turn a prospect into a paying customer.

The most common trap that business model designers fall into when they’re trying to create a proven sales process is having a non-duplicable sales process. A common example of a non-duplicable process occurs in the consulting world. Sally leaves the corporate world to become a consultant. Because Sally is a gifted businesswoman, many of her friends and colleagues value her services. She immediately signs several of these people as clients and builds a healthy practice. Sally works for several years serving these clients, and then the projects end. All her previous customers were people Sally spent years developing relationships with. Now Sally is out of folks who know, like, and trust her, and she’s stuck selling to the rest of the world. Sally has no process to sell people who haven’t seen the quality of her work. Until Sally finds a way to sell her services to complete strangers, she doesn’t have a proven and repeatable sales process.

Many mid-sized businesses have a proven sales process, but only the owner or the select sales superstar can execute it. This is non-duplicable as well. Bob creates a better mousetrap. The product fills a much-needed niche and has many advantages over the competition. Unfortunately, the market doesn’t seem to care. Out of Bob’s ten-person sales force, only the two highest skilled salespeople can sell a reasonable amount of product. Bob’s solution to this problem is to build a sales force of ten superstars instead of only two. Bob is wasting his time. This is the selling ice to Eskimos issue. Bob is effectively saying, “If I had nothing but salespeople who were capable of selling ice to Eskimos, we wouldn’t have a problem.” Of course, Bob is forgetting that highly talented salespeople who can sell anything to anyone are highly compensated. Bob hasn’t budgeted that high cost into his business model. On top of that, there aren’t enough highly talented salespeople in the market to enable Bob to successfully hire ten of them. The problem isn’t the talent of Bob’s sales staff, it’s the marketability of Bob’s product. When Bob addresses this core business model issue, he won’t have a problem with the sales staff. In order to qualify as a proven and repeatable sales process, an average salesperson can sell an acceptable volume of product.

EMC Corporation is a worldwide leader in enterprise storage solutions. Founded in 1979 during the peak of IBM’s Big Blue days, EMC faced a serious uphill battle convincing buyers to switch from IBM. After all, no one ever got fired for buying IBM. The company knew it would be a very difficult sale, but also understood that it couldn’t afford to pay a squadron of superstars. The company adopted an innovative strategy to deal with the significant uphill battle of fighting the Goliath, IBM. Based in the Boston area, the company hired recent college graduates who were also ex-athletes. The logic was that these ex-athletes were used to fighting difficult battles and wouldn’t shy away from a fight with IBM. In addition, the company specifically picked salespeople not yet familiar with the “no one ever got fired buying IBM” dynamic. The company trained the staff on the benefits of EMC storage versus IBM’s older technology and convinced/brainwashed them that there was absolutely no reason anyone would buy the older IBM technology over EMC’s superior solution. This crazy plan worked and EMC is a $20 billion business today.