One of the myths about only paying salespeople commissions is that if they do a poor job, they do not cost you anything. In the old days, some car dealers would throw bodies on the sales floor and fire the bottom guys at the end of the month. Unfortunately, this is not a good way to get the most bang for your advertising buck. Lost opportunity costs can be huge. Personally, I am not a fan of commission-only salespeople, but that is another subject and a topic to explore at a different time. Sales is like anything else — the more efficiently it is managed, the better it will become. Here are three simple steps you can take to measure your sales effort.
1. Measure what you expect. A few years ago, it became fashionable not to keep score in youth baseball and other children’s sports. Where does success come in life where you don’t keep score? Most people want to do well. If you don’t monitor performance and understand what is going on, how can you be a leader and help guide your people? This also goes for companies in which the owner may be the only salesperson. Institute a system to go over your closing ratios each and every month.
2. Know what you are measuring. To simply count the number of estimates given and divide by the number of jobs won is not adequate. You should track closing ratios several ways: by the number of jobs, by dollars sold and by the type of lead. It is not uncommon to have a salesperson who sells a higher percentage of estimates given, but averages less when compared by dollars sold.
For example, a salesperson might sell 50 percent of the estimates given (200 estimated, 100 sold) but 30 percent by dollars ($2 million estimated and $600,000 sold). What this might tell us is that the salesperson can sell small jobs but not the big ones. Or you might have a salesperson who sells 30 percent of the estimates given but closes 60 percent of the dollars quoted. This might tell us the salesperson does not consider small jobs important — or one large job may have distorted all of the statistics. My favorite story about this is about the commercial company I consulted for which bragged about selling 33 percent of the dollars estimated ($12 million estimated, $4 million sold). What is interesting is that one job was $3.5 million, and when you looked at bids awarded by the number of jobs, they had a 4 percent closing ratio.
Type of lead is also very important. Make sure you break out repeat customers. Closing percentages are much higher for repeat customers, and a salesperson with seniority can rest on his or her laurels. We worked for another residential company that had been in business 50 years that bragged about its salespeople having a 50 percent closing ratio. With some investigation, we found the company had a huge customer base and following. Closing ratios on advertised leads were less than 20 percent.
3. Evaluate post-sales marketing expenses. Many companies track advertising cost by the number of leads generated, but this does not tell the entire story. Lead generation has become very expensive, and it is important to understand the true marketing costs, including sales success. Suppose a lead costs your company $300 in advertising. That means 10 leads cost $3,000. If you sold three out of 10 leads for a 30 percent closing ratio, that would equate to $1,000 advertising cost per job sold. If you sold six, the rate would drop to $500 per job sold.
It is not uncommon for telephone directories and web-based lead services to generate cheap per-lead costs, but that does not tell the whole story. If closing ratios on those leads are low, then the sales and time factors can become devastating. One of the problems with web lead generation companies is that they usually give the customer several names, and that is an endorsement. If you are on a list with contractors who are sound technically but don’t have a clue of what their costs are — which is much of the market — the low guy gets the job. Consumer ratings can also be misleading. Just because someone is personable, on time and nice does not mean the job will last. Few buyers go back online and complain when the job fails two years later.
With spreadsheets and other simple financial tools, it is easy to create something to help tabulate results. Easier yet, every estimate has a written copy. Keep an extra copy and run the numbers to see how you are doing.
So what’s the bottom line? Keep score and track what does and does not work. Remember what works in San Francisco may not work in Charlotte due to market conditions, number of contractors in your trade, your salespeople’s ability, etc. Salespeople are like other employees. They have personal lives, illness, habits and numerous other factors that can impact their day-to-day performance. You can’t be a sales leader unless you are a sales scorekeeper.