chapter 3

SALES OPPORTUNITYMANAGEMENTIt almost goes against the nature of salespeople to think about time; they just want to hit theroad and sell.

Marty WileyVice President of Marketing and Sales, Loctite Corporation

Chapter Consultants:Greg Miller, Senior Vice President, Operations Planning and Support, Marriott Senior Living ServicesJerry Willett, National Sales Manager, Software Spectrum

LEARNING OBJECTIVESAfter studying this chapter, you should be able to:

Describe effective steps for generating new accounts.

Explain how to determine the minimum opportunity a salesperson should pursue.

Describe four methods for setting opportunity priorities.

Explain why emphasis is shifting from sales volume to profit flow.

Tell how salespeople can manage their time more efficiently.

PRIORITIZING OPPORTUNITIES AT HILL-ROM

After 70 years of success, Hill-Rom, headquartered in Batesville, Indiana, found revenuegrowth slowing and competition increasing and began considering lower priced alternatives.Top management noticed that cost of sales had risen gradually but persistently over the past5 years. Hill-Rom decided to take a closer look at its customers and determine if it was allo-cating its sales resources appropriately and if the sales force was performing the correct setof activities to generate needed revenue and profit growth.

Hill-Rom’s core product line is patient’s beds and specialty mattresses for hospitals,long-term care facilities, and home care. The company also has strong complementary prod-uct lines in stretchers, furniture, architectural equipment, and nurse-to-patient communica-tion products. Prior to seeking outside help from Mercer Management Consulting, salesresources were allocated based on the size of the health care facility because this size influ-enced the level of spending on Hill-Rom products. This was logical since the more beds ahospital or nursing home has and the more services it offers, the more likely that capital

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funding will be set aside on a regular basis to replace or acquire equipment. The sales forcewas structured into teams calling on all customers in a particular geographic location. Mer-cer, along with company management, discovered on closer examination that while size offacility is important, less obvious factors also affected purchasing behavior. These factorsincluded financial metrics such as customer capital spending and profit margins, operatingmetrics such as occupancy rates, and even a facility’s mix of insurance payers.

Based on regression analysis of existing customer date, customers were divided into twogroups, key and prime customers, based on overall similarities of needs and priorities. Keycustomers have far higher capital expenditures for medical equipment, replace equipmentsooner, seek out customized consultation, and look for comprehensive solutions to their prob-lems. Prime customers, because of greater cost pressures, are more concerned with paying thebest possible price, less able to afford high-end products and services, more likely to buy indi-vidual products rather than systems, and often wait to make a purchase until the need is urgent.

A time and cost analysis revealed that the company had been making a significant effortto sell to and serve both segments in the same manner, resulting in a skewed allocation ofsales resources and high overall sales costs. Salespeople were expected to cover all facilitiesin a given geography and felt compelled to make regular calls on each account. As a result,sales teams were often taking a consultative approach when the account’s profile and pur-chase behavior warranted another approach. Not surprising, it was discovered that the costof sales for prime customers was four to five times higher than for key customers. At thesame time, penetration of key customer accounts was less than desired because there was notenough time left to provide the in-depth and customized type of solutions that customersvalued. The sales force had basically been treating all customers the same and trying to sellprime customers a level of service and product that they did not value or could not afford,while underselling to key customers.

Armed with a method for prioritizing customers, Hill-Rom decided to restructure itssales force into two separate sales forces dedicated to each type of customer, the team struc-tures, skill sets, compensation plans, the selling process, and the reporting structures of thesales force. All these efforts were designed to ensure that resources were allocated to thesize of the opportunity. After 2 years, the cost of sales is down, short-term revenue growth isup, the outlook for long-term revenue growth appears bright, profit margins are up, and cus-tomers are reporting higher satisfaction.1

As Hill-Rom learned, it is critical to prioritize sales opportunities in order to effectivelyand efficiently allocate resources. All sales opportunities are not equally important. Simi-larly, time available for face-to-face communications with customers is a significantresource that must be managed wisely. Tackling the problem of opportunity prioritization isthe focus of this chapter.

We started our discussion of the sales force program at the end of the last chapter by talk-ing about the account relationship strategy element of the sales program. Recall that the rela-tionship strategy decision will influence each of the other four elements of the sales force pro-gram. We now turn our attention to the selling process or sales activities element of the salesforce program. This chapter focuses on efficiency or “doing the right things.” Salespeople haveconsiderable latitude in deciding how they are going to allocate their valuable selling time.Management’s job is to get the sales force’s priorities in line with those of the company’s mar-keting plan. Nowhere is this more important than with respect to the firm’s growth strategy.

There are essentially two paths by which to grow sales: obtain new customers and growthe business with existing customers. This chapter is organized accordingly. The first part ofour discussion focuses on strategies for growing sales. We begin by discussing the impor-tance of growing by acquiring new customer prospects, and we present various methods forgenerating qualified prospects. We shift our focus to existing customers by discussing spe-cific tools for allocating effort across a set of sales opportunities. First, we show how todetermine the minimum-size opportunity a salesperson should pursue, followed by a discus-

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sion of how to allocate time among selling opportunities. We conclude the chapter with adiscussion of the profit impact of these decisions and time management in sales.

One way to increase productivity is to focus sales force time on those prospects thathave a high probability of becoming important customers. The next section discusses theimportance of building your customer base by acquiring new customers and companyefforts to increase sales force efficiency in this area.

A PROCESS FOR GENERATING NEW ACCOUNTS

The business press places a lot of emphasis on growing by getting closer to your presentcustomers. Although this is certainly an important opportunity for businesses, many compa-nies focus on finding new customers to achieve their growth objectives. A recent surveyconducted by consulting company Towers Perrin indicated that 33 percent of sales execu-tives cited acquiring new customers as their biggest opportunity for growth (see Figure 3-1).

No matter how strong your products, how great your customer service, or how aggres-sive your sales force, businesses lose customers every year when companies are bought andsold, management changes, industries consolidate, and global economies fluctuate. Fewcompanies can afford to neglect new business development. Indeed, according to recentresearch findings, firms who have developed effective customer acquisition capabilities aremore profitable than those who have the capability of developing close customer relation-ships, but are not good at acquiring new customers.2

The key to building sales through prospecting is to spend time with prospects that arelikely to become good customers. Therefore, an important first step in acquiring new cus-tomers is for salespeople to build a good prospect profile.

A PROCESS FOR GENERATING NEW ACCOUNTS 95

Sales opportunity management

Generatingnew

accounts

Managingexisting

accounts

Salesversusprofits

Personaltime

management

Mergers andacquisitions

10%

33%

42%

15%

Introducingnew

products

Increasingbusiness with

existing customers

Acquiringnew

customers

FIGURE 3-1 What’s the Best Way to Grow?

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Building a Prospect ProfileNot all businesses will want or need your product or services. Some prospects will clearly bea waste of your time, while others will not buy enough to make it worth your time. Youmust first decide what factors determine who is a good prospect. This means building aprospect profile, which is simply a profile of what the best prospect looks like.

A starting place for building this profile is a review of the target markets for your prod-ucts, as specified in your marketing plan. Allnet Communications Services, a small long-dis-tance phone company in Michigan, defines its target niche as small- to medium-sized busi-nesses that bill between several hundred dollars and several tens of thousands of dollars permonth. This target was identified to avoid head-to-head competition with AT&T and Sprint.If a target market has not been clearly identified, a new salesperson may need to rely on thepast experience of other salespeople in the company by asking them what types of businessbecame their most valuable customers. Veteran salespeople are probably best advised toexamine their own past successes.

If you are selling blood-processing machines, for example, then your best prospectsmay be hematologists (hospital consultants specializing in analyzing and treating blood dis-orders). Upon closer examination, the hottest prospects may be young (under 30) and trainedat a handful of teaching hospitals.

The blood-processing example points out a few important aspects of building a profile.First, the profile is defined in terms of demographics, the physical characteristics that definethe individual buying environment. In the blood-processing example, demographicsincluded the customer’s business, age, and educational background. This information oftencan be obtained before meeting with the prospect. Other examples of demographics fre-quently used to build a prospect profile include the following:

• Size of the business• Age of the equipment to be replaced• Geographic distance from shipping points• Product line specialty

The Internet can also play an integral role in building a prospect profile. Once on-line,you can access databases containing government statistics, journals, books, and up-to-datenewswires. There are also about 7,000 newsgroups and any number of bulletin boards,forums, and roundtables that cover almost every subject imaginable. Web sites useful fortarget marketing and identifying new customers include www.census.gov or www.city.net.A good site for identifying the top business in a geographic market area is www.toplist.com.

Building a Prospect ListWith a prospect profile clearly in mind, the next step is to develop a list of prospects match-ing the profile developed in the first step. The traditional method of generating prospects isthrough cold canvassing. Cold canvassing involves contacting prospective customers with-out appointments; that is, salespeople call on firms or knock on doors until they find goodprospects. Direct sales organizations such as Avon Products have had success with thisapproach. Salespeople selling office supplies, air conditioning, paper supplies, and insurancealso use it with some regularity. Cold canvassing is used in these situations because the tar-get markets for these products are fairly broad. The drawback to this approach is that asalesperson could waste time soliciting low-quality prospects. Canvassing may also be moreefficiently accomplished by telephone.

The key is to efficiently gather a high-quality list. Some of the more efficient methodsbeing used to identify good prospects include direct inquiries, trade shows, directories, andreferrals.


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Direct Mail. All companies receive direct inquiries about products or services from poten-tial customers. Direct mail is an excellent vehicle for locating prospective customers. Thefact that the potential customer is giving permission for a sales call allows salespeople toconcentrate their efforts on those prospects most likely to purchase. The use of e-mailinquiries has made it possible to dramatically increase the speed with which companies canrespond to a direct mail inquiry, which helps to increase the rate at which inquiries are con-verted to sales. At Tribute Inc., a software company in Cleveland, a business developmentcoordinator will analyze the responses from mailings to discern the prospect’s critical busi-ness issues, including their buying time frame and budget constraints. As a result, Tribute’shigh-priced salespeople are focusing their efforts only on high-quality prospects.3

Trade Shows. Trade shows are also an excellent vehicle for generating good prospects. Itis estimated that more than 145,000 firms participate in over 8,000 trade shows at a cost of$10 billion annually. The National Restaurant Show held annually in Chicago, for instance,draws more than 100,000 food buyers and business owners. One reason for the growingpopularity of trade shows is the relatively low cost per customer contact—approximately$89 per qualified contact. (A qualified contact is a customer contact whose interest in pur-chasing has been verified.) Another reason for this popularity is that organizations can pro-ject a coherent and consistent message to all prospects through exhibit structure, graphic andproduct displays, product demonstrations, and other support material. Although some salesare consummated at trade shows, it is more likely that the lead is passed on to the appropri-ate salesperson; in fact, some trade shows do not permit the writing of orders.4

Directories. Special direct inquiry directories and open-to-bid announcements are impor-tant sources of leads for many firms. For example, the Thomas Register of American Manu-facturers provides names, addresses, and other information compiled by types of productsand by state. Furthermore, the firms in the Register are scored according to their assets,which enables the salesperson to judge the size of each potential customer. Industry tradeassociations often publish directories of their members by targeted segment or organizationfunction.

Internet. The Internet has revolutionized the process of selling and qualifying prospects.See the Strategic Action Competency box, “Dell On-line” for a discussion of how successfulDell has been in selling over the Internet. Not only can potential customers make purchasesover the Internet, but a wealth of information is available over the Internet. Most of thesearch engines available today are quite good at locating company Web sites. In addition,published information on companies is readily available at Web sites, such as BusinessWeek and the Wall Street Journal.

One of the hottest lead-generating tools today is Webcasting. Webcasting requires nospecial equipment on the part of the host company or the audience and can be as simple assitting at a computer and talking over the phone, which is all that is required at WebEx.Standard features include live streaming video and audio, online statistics and reporting, andpolling to gather opinions and engage viewers. Inverwoven, a Sunnyvale, California-basedcontent-management company, lured 2,000 information technology pros to sign up and par-ticipate in a 60-minute presentation.5 As broadband connectivity becomes more ubiquitous,this type of lead generation is likely to expand in use.

Referrals. With referrals, a satisfied customer is asked to provide the names of others whomight be interested in a product. In some cases, the person may also supply an introductionof the salesperson to the prospects. The advantage of referrals is that the person can saythings about the salesperson and the product line that might not be as credible comingdirectly from the salesperson.6

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Referral programs have gained wide acceptance among companies selling big-ticketgoods and services because prospects considering spending six or seven figures on onetransaction want all the information they can get. Siebel Systems, Sun Microsystems Inc,and J. D. Edwards & Company are some of the companies with well-developed referenceprograms. In these programs, reference companies are involved in speaking engagements,videos, white papers, and articles. The benefits to the reference companies include network-ing with other customers and Siebel executives, the opportunity to expand their brandthrough speaking engagements and media activities, and previews of new products.7

Qualifying ProspectsRegardless of the process used for generating a list of leads, salespeople ultimately mustqualify a prospect, that is, determine if the prospect is likely to be converted to a buying cus-tomer. As described earlier, some companies may initially qualify leads by telephonebecause of the lower cost of doing so. But ultimately, a salesperson is usually needed toqualify a lead. At Southwest Networks in Austin, Texas, salespeople profile all leads of 12characteristics, such as current vendor, percent savings, equipment specs, and paybackperiod. After the first call on a prospect, the salesperson answers all 12 characteristic ques-tions. The purpose of the profile is to tell salespeople how good a prospect a lead is andwhen to walk away from the lead. Note from this example that the salesperson needs infor-mation about customer needs, buying authority, and ability to pay.

Needs. Qualified leads are those that have a use for the seller’s goods or services and areplanning to buy in the near future. A prospect that is satisfied with the present supplier andhas no desire to change is going to be very difficult to convert into a customer. You will sellsuch a prospect only if you can discover a desire or need that the present supplier is not ful-filling adequately and you can get the buyer to focus on these needs. This is not an easy task.Even if the prospect has an immediate need that you can meet and a desire to buy, you muststill determine whether the size and profitability of potential orders are sufficient to warrantfurther attention.

Buying Authority. Beyond the question of customer needs is the issue of buying authority.The plant manager may want a milling machine, but if he or she does not have the authorityto buy, then a sales call may help create a favorable impression but will not necessarily pro-duce a signed order. Business-to-business salespeople often have problems identifying whohas the authority to buy within an organization because of the number of people involved inmaking a purchasing decision. Methods for identifying the buying authority are presented inChapter 4.

Ability to Pay. Finding prospects that want a product and also have the authority to buywill not be productive if they lack the financial resources to buy. Selling products that mustbe repossessed later for nonpayment of bills is not the way for salespeople to get ahead.Hence, salespeople should make an initial screening of prospects on their ability to buy. Theobjective is to eliminate prospects who represent too high a credit risk. Credit ratings arereadily available from banks and credit services such as Dun and Bradstreet.

Successful salespeople differ from less successful salespeople in the way they thinkabout prospects. Although both groups of salespeople generally use the same cues to qualifya prospect (e.g., income, need), successful salespeople utilize higher qualifying standardsand are more likely to cut their losses early. For example, they may require a higher creditrating or a greater need for the product or service to consider a lead to be a hot prospect.This is yet another example of how wasted time can hurt productivity and how time man-agement is critical to sales success.


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MANAGING EXISTING ACCOUNTS

Generating new customers is important, but many sales and marketing managers feel thatthe companies that will prosper will be ones that maintain strong customer loyalty. Refer-ring to the results of the Towers Perrin survey shown in Figure 3-1, we see that 42 percentof the sales executives surveyed felt that the greatest opportunities for growth lay in keepingand growing existing customer relationships—in short, in winning a greater share of the cus-tomer’s overall business.

As a sales force program moves from a transactional to more of a consultative-typeaccount relationship, the opportunity management task shifts to one of prioritizing opportu-nities with existing accounts, as opposed to generating new accounts. The need for prioriti-zation and opportunity management of existing accounts is just as important as withprospects. Models for prioritizing account opportunities are presented in this section, butfirst we address the important issue of determining whether an opportunity justifies an allo-cation of precious sales resources.

When Is an Account Too Small?An important starting point in managing existing accounts is determining the minimumopportunity on which you should be spending your time. The individual salesperson is in anexcellent position to determine the long-term value of a customer. For example, salespeopleshould know customers’ short-term growth potential, as well as their competitive anddemand situations. Salespeople who are supplied with the necessary direct selling expenseinformation are in an excellent position to perform a minimum account size analysis. Thisanalysis involves two steps: calculating a personal cost per sales call and a breakeven salesvolume. We turn our attention to these analyses in this section.

Cost per Call. The first step in addressing the minimum customers size issue is to calculatethe costs of making a sales call. Cost per call is a function of the number of calls you makeper day, the number of days available to call on customers, and your direct selling expenses.Direct selling expenses include such expenses as compensation, travel, lodging, entertain-ment, and communications. These expenses are referred to as direct selling expensesbecause they can be attributed to an individual salesperson. In other words, the companywould not have incurred these costs had a salesperson not been present in the territory.

The procedure for computing the average cost per call is illustrated in Table 3-1. In thisexample, compensation includes salary, commissions, and bonuses, as well as fringe bene-fits such as insurance and social security. These total $80,020, which is about average for anonretail salesperson.8 Other direct selling expenses equal $25,450, for a total direct sellingexpense of $105,470.

For this salesperson, 205 days a year are available for selling. If the average number ofcalls per day is 3, then under normal circumstances the total number of calls for the entireyear is 615 (3 × 205). Using these estimates, the representative can now compute the cost ofan average call as $171.50 ($105,470/615).

How does the cost per call of $171.50 compare with that of other salespeople? Accord-ing to one survey, the average cost per call for all salespeople is $164.70.9

Breakeven Sales Volume. Breakeven sales volume is the sales volume necessary to coverdirect selling expenses. It is necessary to calculate breakeven sales volume in order to deter-mine the minimum size customer that should be pursued. Calculating the breakeven volumerequires that we know the number of calls necessary to close a sale and what direct sellingexpenses are budgeted to be as a percentage of total sales.

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A commonly referenced figure is that it usually takes five sales calls to close a sale. Forcalculating the breakeven sales volume, a sales call refers to a personal face-to-face contactwith the customer. Telephone calls, e-mail, and notes that are dropped off are not consideredsales calls in this case. Determining the number of calls needed to close a deal may be basedon your own experience or that of other salespeople in the company.

It is also necessary to know the company’s target for direct selling expenses as a per-centage of sales because this figure indicates how large sales need to be for a given dollaramount of direct selling expenses. If direct selling expenses are higher than this target, thenprofits will be lower if there are no offsetting cost or gross margin adjustments. Managementshould provide the target for direct selling expenses.

Both the number of sales calls needed to close a sale and direct selling costs, as a per-centage of sales, will vary considerably among industries and even between companies inthe same industry. Table 3-2 shows these numbers for 10 industries. The number of callsneeded to close a sale varies from 2.8 in the construction industry to 5.3 in the instrumentsindustry. Sales costs as a percentage of sales are 22.2 percent in printing/publishing but only2.4 percent in office equipment.

Armed with this information, breakeven sales volume for an individual sale can be cal-culated as follows:

Cost per call × Number of calls to closeBreakeven sales volume = —————————————————

Sales costs as a percentage of sales

If the sales representative is in the chemicals industry, where the cost per sales call is$165.80, 2.8 calls are needed to close a sale, and sales expenses are 3.4 percent of sales, thenthe breakeven sales volume would be $13,654 ([$165.80 × 2.8]/.034). As a point of compar-ison, breakeven sales volume for an average salesperson in the instruments industry is$8,093 ([$226.00 × 5.3]/.148). At first it may surprise you that the breakeven volume forinstruments is lower than for chemicals, while both the cost per sales call and number ofcalls needed to close a sale are higher. Notice, however, that the higher cost per call and the


TABLE 3-1 Computing the Cost per Call for an Industrial Products Salesperson

CompensationSalary, commissions, and bonus $69,035Fringe benefits (hospital, life insurance, social security) 10,985 $80,020

Direct Selling ExpensesAutomobile 8000Lodging and meals 6250Entertainment 3250Communications 4500Samples, promotional material 1750Miscellaneous 1700 25,450

Total Direct Expenses $105,470Calls Per Year

Total available days 260 daysLess:

Vacation 10 daysHolidays 10 daysSickness 5 daysMeetings 18 daysTraining 12 days 55 days

Net Selling Days 205 daysAverage calls per day 3 calls

Total Calls per Year (205 × 3) 615 callsAverage Cost per Call ($105,470/615) $171.50

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greater number of calls needed to close an order in the instrument industry are more thanoffset by the fact that direct selling costs are normally 14.8 percent of sales in this industry,compared to 3.4 percent in the chemicals industry.

So far, our discussion has focused on sales in which multiple calls are needed to close asale. This is most typically the situation when calling on new customers or when selling high-ticket equipment or services to business. In many industries, a salesperson’s primary functionis a combination of selling new products and services and taking orders to replenish inven-tory levels. This is typical of the job responsibility of most consumer and industrial goodswholesale salespeople, for instance. The process for calculating breakeven in this case isquite similar to what we have done so far. Instead of examining the number of calls needed toclose the sale, however, the number of calls made on an account each month may be substi-tuted in the breakeven sales volume equation to arrive at a breakeven volume per month. Forexample, if the cost per call is $146.75, the number of calls made on a customer is four timesa month, and selling costs are 9 percent of sales, then a customer should place, on average, atleast $6,522 worth of business with a salesperson each month ([$146.75 × 4]/.09).

MANAGING EXISTING ACCOUNT 101

TABLE 3-2 Selected Statistics on Cost per Call and Number of Calls Needed toClose a Sale

Cost per Number of Calls Sales Costs as a Industry Call Needed to Close a Sale Percentage of Total Sales

Business services $ 46.00 4.6 10.3%Chemicals 165.80 2.8 3.4Construction 111.20 2.8 7.1Electronics 133.30 3.9 12.6Food products 131.60 4.8 2.7Instruments 226.00 5.3 14.8Machinery 68.50 3.0 11.3Office equipment 25.00 3.7 2.4Printing/publishing 70.10 4.5 22.2Rubber/plastic 248.20 4.7 3.6

In late July 1996, Dell began conducting business through its Internet site. Almost immedi-ately Dell began selling $1 million of computers per week through the Web. Within 6 months,more than 150,000 customers were visiting the Web site each week, generating sales ofapproximately $1 million per day. According to people inside Dell, everyone sensed that theInternet would be a big win because of its compatibility with Dell’s overall strategy of sellingcomputers direct to the end-user rather than through retailers, but few envisioned that it wouldbe so big so soon. In fact, 3 months later Dell was selling $2 million a day over the Web, andbefore 1997 sales had grown to $3 million in revenue per day. According to one source, Dellnow moves over $14 million per day in direct computer sales over the Internet. Dell’s cus-tomer surveys indicate that about 25 percent of the volume was incremental business that Dellwould not have obtained without the Web site. Perhaps the most important development,however, was the cost savings that were achieved through increased selling efficiency andproductivity. For more on Dell, visit www.dell.com or visit their on-line store atwww.dell.com/store/index.htm.

STRATEGIC ACTION COMPETENCY“Dell On-line”

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I Cannot Afford to Lose This Business. Having performed a breakeven analysis, how can asalesperson use this information? Should a salesperson not call on customers or prospectswhose sales volume does not exceed the minimum sales volume?

People, and companies too, are rarely inclined to turn their backs on a sale. Other fac-tors must be considered before dropping a customer or reducing the selling effort. For exam-ple, sales to a customer may be growing, which may be due to one of two causes. The cus-tomer’s business is growing rapidly, so its need for supplies is also increasing. Alternatively,your sales to this account may be growing because you are getting a larger share of the cus-tomer’s business. If this is the case, then it is important to know how much of your cus-tomer’s total purchases are with your company and how much more is available. What if acustomer is located next door to a major account, so that a call takes little time and no realtravel time is involved? Should you walk away from this opportunity, even though it doesnot take as much time as your average sales call? Another important consideration is that acustomer may purchase a mix of high-profit products, so that this customer’s gross marginsare 25 percent higher than the average for the territory. As you can see, a number of factorsmust be considered when judging the value of an opportunity. On the other hand, see theStrategic Action Competency box, “Firing Some of Your Customers,” for an example of onecompany, CRI, that made the strategic decision to eliminate low-volume, low-margin cus-tomers and changed its business around.

Top management may choose to address the smaller, less profitable accounts in waysother than reducing the number of sales calls made on these accounts. The Gillette Com-pany’s Safety Razor Division decided to hire part-time merchandisers to assist salespeoplein calling on individual small retailers. The Commercial Systems Division of Hewlett-Packard hired inside sales and technical reps to work the phones. See the Team-BuildingCompetency box, “How Cisco Is Partnering to Reach New Customers” to see how Cisco is


The discussion in this chapter focuses largely on the behaviors and actions of salespeople, butthe allocation of resources is also strategic to the organization, depending on how big a changeis made. Proper allocation of sales and marketing resources across existing customers helpedCustom Research Inc. (CRI) to rejuvenate its business. CRI provides marketing research, cus-tomer satisfaction measurement, and database analysis services to a select group of Fortune 500companies. Early on, CRI concentrated on acquiring clients. However, when the profit andeffort relationship was examined across its 157 customers, the results were surprising to CRI:

• High volume, low margins: 11 customers

• High volume, high margins: 10 customers

• Low volume, low margins: 101 customers

• Low volume, high margins: 35 customers

This analysis demonstrated that CRI was not efficient in allocating its resources in as muchas only 10 accounts provided both high volume and high margins, while 101 customers pro-vided low volume at low margins. CRI made the strategic decision to develop long-term one-to-one relationships with a limited number of clients. As a result, CRI was able to deploy moreresources to these handpicked customers, and clients responded by treating CRI as their partnerin making marketing decisions. CRI became the preferred research partner for companies likePillsbury, Procter & Gamble, and Dow Brand. As a result, CRI’s bottom line also showedhealthy improvement. For more on CRI, visit www.cresearch.com.

STRATEGIC ACTION COMPETENCY“Firing Some of Your Customers”

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reaching small- and medium-size businesses. Alternatively, a plumbing fixtures manufac-turer chose to raise prices to discourage the “worthless” small customer orders that were dis-rupting its production scheduling. These small orders subsequently became the company’smost profitable. The new higher prices more than compensated for the costs; customersweren’t changing suppliers because of high switching costs; and competitors had shied awayfrom these small accounts because of the conventional wisdom in the industry regardingtheir profitability.

As you can see from these examples, the minimum-size customer on which a salesper-son should call depends on the direct selling costs involved, the number of sales calls madeover a period of time, and the cost structure of the company, as well as other considerations.There is rarely a hard-and-fast dollar volume below which a customer’s business should notbe pursued. However, when supplied with the right information, sales professionals are in abetter position to judge whether an account is likely to become a profitable one.

Three Methods for Setting Account PrioritiesBreakeven account analysis provides a starting place from which to determine the mini-mum-size account that should be called on. This analysis does not fully address the issue ofhow much time should be allocated to prospecting and how much to existing accounts in aterritory. Following are four methods for setting account priorities along with the situationsin which each is most appropriate.

Single-Factor Model. The easiest and probably the most widely used model for allocatingsalespeople’s time is the single-factor model. This model examines a single customer char-acteristic, usually sales volume, to arrive at an initial allocation of sales calls. Thomas CookTravel, a division of the Thomas Cook Group, an international travel and financial servicescompany based in the United Kingdom, divides its clients into A’s (those who spend $750


In today’s economy, eight people gain Internet access every second, and electronic mail mes-sages outnumber regular mail by more than 10 to 1. If you have accessed the Internet or sente-mail to a friend, it is likely that Cisco products transferred your data. The growth and evolu-tion of the Internet have caused Cisco to embrace a new set of customers, which it had beenunable to reach in the past—small- and medium-sized business. The obstacle was Cisco’s tra-ditional sales force system. Visiting each customer in person may be the preferred strategy,but with smaller accounts the costs aren’t justified. According to Cisco management, “Wecan’t put enough feet on the street,” even though Cisco already employs several thousand fieldsalespeople.

The new model Cisco has adopted is to have account managers work with resellers to tapthe opportunity in the small to medium businesses. The new model forced account executivesto switch roles from salespeople who pitch technology to business partners who create solu-tions, often for start-up businesses. This involves a whole new set of issues. The account execu-tive must coordinate his or her own activities with those of the reseller. There are some activi-ties that resellers can perform more efficiently because they already have a relationship with thecustomer and others that the Cisco salesperson with technical expertise is better equipped toaddress. This type of teamwork has resulted in a better than 50-percent increase in businessfrom these new customers. For more on Cisco systems Inc., see www.cisco.com.

TEAM-BUILDING COMPETENCY“How Cisco Is Partnering to Reach New Customers”

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or more in annual revenues), B’s (those spending $250 to $749), and C’s (those who spendless than $250). Differentiating its client services according to their classification has freedup travel agents to spend more time with A and B clients.

The basics of a single-factor allocation model based on total sales volume are presentedin Table 3-3. This is referred to as an ABC account classification. Customers are arrangedaccording to their total sales volume. In this case, the top 15 percent of all accounts are clas-sified as A accounts, the next 20 percent are classified as B’s, and the remaining accounts asC’s. Column 4 is a calculation of each type of account’s sales as a percentage of total terri-tory sales. In this example, A’s generate 65 percent of total territory sales, B’s account for20 percent, and C’s represent only 15 percent. Based on surveys of sales executives, theseresults are fairly typical for a variety of businesses.

All too often customers are treated equally, so that each customer is called on with thesame frequency. Columns 5 and 6 in Table 3-3 illustrate the problem with making equalnumbers of calls on all customers. Notice that if you treat all accounts as equal, say by call-ing on each account weekly, you will be spending 65 percent of your time on your Caccounts. A sales call on an A customer, however, is on average 20 times as productive as acall on a C customer. Spending too much time with C customers may allow the competitionto steal an A customer through better service.

The main limitation of single-factor models based on sales volume, such as the ABCaccount classification procedure, is that they may not include all the factors that should beconsidered when evaluating an account’s sales potential and life-time value. Also not con-sidered is the opportunity to obtain greater account penetration (a greater share of theaccount’s total purchases), vulnerability to competitive efforts, or account profitability.Because of these considerations, a single-factor model is most likely to be used in maturemarkets, when demand and competition are fairly stable. It is also more likely to be appro-priate for sales force programs with a transactional type of account relationship strategy.

Portfolio Models. Portfolio models attempt to overcome the limitations of single-factormodels by considering multiple factors when determining the attractiveness of individualaccounts within a territory. Selling effort is allocated so that the most attractive accountsreceive the most effort.10 For instance, one company classified its portfolio of accountsaccording to their average gross margin and the cost to service each account. In anothercompany, the Surgical Division of Cardinal Health, Inc., a customer classification systembased on the type of hospital (e.g., teaching/research, regional medical center,government/federal, community), location (rural versus urban), and size was instituted.Sales effort and marketing programs were designed for each type of customer within theclassification system. The criteria a company uses to classify its customers will depend ontheir competitive situation, its ability to capture and disseminate relevant customer informa-tion, and what the sales force is being asked to accomplish.

Figure 3-2 illustrates one well-known portfolio model. This model classifies accountsinto one of four categories by determining account attractiveness based on two criteria:account opportunity and competitive position. Account opportunity refers to the magnitude


TABLE 3-3 ABC Account Classification

No. of Total Sales Total Total calls Sales ($) Account Accts. Accts. (000) Sales per Classif. per Call Classification (1) (2) (3) (4) (5) (6)

A 21 15% $910 65% 105 $8,667B 28 20 280 20 140 2,000C 91 65 210 15 455 462Totals 140 100% $1,400 100% 700 $2,000 (Avg)

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of an account’s present and future need for the salesperson’s offering. Ratings of accountopportunity may be based on the account’s present and projected growth rate, its financialhealth, and its present and future strength in the marketplace. Competitive position, the sec-ond dimension on which accounts are classified, refers to the strength of the salesperson’spresent relationship with an account. Competitive position may be based on outcome mea-sures such as an account’s total gross profit dollars, share of the account’s total purchases,type of contract, and contract compliance. Additional indicators of competitive position mayfocus on the account relationship and may include the account’s attitude toward the com-pany and familiarity with the decision makers in the account. Once all accounts have beenrated on both dimensions, we can proceed to prioritize our accounts by splitting them at themedian of both dimensions and forming a four-quadrant grid, as shown in Figure 3-2.

As an extension of single-factor customer classification models, portfolio models offerseveral benefits:

• Help the sales team to identify the important customer and relationship issues.• Facilitate communication between salespeople and sales managers.• Help isolate information gaps and set priorities for customer data collection and analysis.• Force the sales team to think about the future and consider ways of achieving a more

desirable portfolio configuration.

Portfolio models for setting account priorities are most likely to be used in sales forceprograms with more of a consultative type account relationship strategy where understand-ing individual customer needs and the strength of the relationship are critical. As the Cardi-nal Health case demonstrates, a sales team is likely to be involved, so there is a need forgreater depth of analysis than is available in a current sales volume-based model.

Decision Models. Although portfolio models have the advantage of using multiple charac-teristics to classify accounts, several shortcomings remain. First, accounts must still begrouped into the four quadrants for the purpose of allocating sales calls. Differencesbetween firms in the same quadrant are therefore not taken into consideration. Second, theprocess does not arrive at an optimal allocation of sales calls.

Decision models for allocating sales calls overcome these two shortcomings by focus-ing on the response of each account to the number of sales calls made over a period of time.


CoreAccounts

Accounts are veryattractive.

Invest heavily in sellingresources.

GrowthAccounts

Strong

High

Low

Competitive Position

Weak

Accounts are potentiallyattractive.

May want to investin heavily.

DragAccounts

Accounts are moderatelyattractive.

Invest to maintain currentcompetitive position

ProblemAccounts

Accounts are veryunattractive.

Minimal investmentof selling resources.

Acc

ount

Opp

ortu

nity

FIGURE 3-2 Portfolio Model

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Though mathematically elegant, these models consist of only two parts. The first part devel-ops the relationship between the number of sales calls over a period of time and sales to aparticular account. This is referred to as a sales response function. The response functionmay be derived either through regression analysis on historical data or judgmentally. Withjudgment-based decision models, salespeople are first given information about how manytimes they called on a particular account over a period of time and the sales generated.Salespeople are then asked to project sales in the next period of time if the same number ofcalls are made on the account, if the number of sales calls is decreased by 50 percent, if theymake no sales calls, and if they make the maximum number of sales calls possible. Theseestimates are used to construct a sales response function like the one shown in Figure 3-3.11

A close examination of the response function in Figure 3-3 indicates that customers willnot respond dramatically when only one or two calls are made per quarter, but sales areexpected to increase dramatically when the number of sales calls increases from two to four.The response function flattens out after four calls, suggesting that there is little left for thesalesperson to accomplish by calling on the account more than four times in a quarter. Soft-ware is available to constructing sales response functions.

The second part of these models uses the individual response functions to allocate callsso as to maximize sales. Essentially, these models continue to allocate sales calls to anaccount until more sales can be generated by calling on another account. For example, athird and fourth call may be allocated to the account in Figure 3-3, but greater sales arelikely to be generated by calling on another account rather than by allocating a fifth call tothis account.

The allocation task in decision models is complex and involves a large number of calcu-lations as the number of accounts increases. Therefore, computer models such asCALLPLAN have been developed. CALLPLAN is an interactive computerized programbased on decision model logic. CALLPLAN is self-instructing, and salespeople can workwith the model at remote computer terminals using simple conversational language.Research results on the use of decision models have consistently supported the use of thesemodels, with reported sales improvements ranging from 8 to 30 percent.12

To test your understanding of setting account priorities see Team Exercise, “WorkingHard or Working Smart.”

Sales response models are most likely to be helpful in setting priorities when the salesforce program is more transactional in nature because the response estimates are most reli-


Number of sales calls per quarter

Dol

lar

sale

s pe

r qu

arte

r

$20,000

1 2 3 4 5 6

$10,000

FIGURE 3-3 Number of Sales Calls Response Function

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able in such selling situations. As the account relationship strategy becomes more complexand involves increased investments from both suppliers and customers, it is not as meaning-ful to think in terms of the number of sales calls needed to generate a sale. In such situa-tions, a sales process model is more appropriate. We discuss these models next.

Sales Process Models. Despite the advantages of sophisticated call allocation programs,they are not appropriate for all situations. See the Coaching Competency box, “Intel: Sales-people Who Don’t Call on Customers,” for an example of when a decision model would notbe appropriate. Instead of calling on microprocessor customers, some people in Intel’s salesforce call on software vendors, information technology buyers, and retail outlets, selling theidea of PCs on every desk and in every household. In the case of these Intel salespeople,


You have recently been transferred to Chicago as the new district sales manager and have had achance to spend some time with each of your salespeople. For the most part, the sales team youare managing has done well, but, as usual, there is a big difference in the sales generated byeach salesperson. One of your low producers is Tim, whom you are meeting with today. Atfirst, you thought that Tim may just not be right for the position, but after spending some timeriding along with him in his territory you believe he has what it takes to be a good salesperson.Observing him during sales calls, you are convinced he has the right presentation skills; he alsoset a challenging schedule of calls during the 2 half-days you spent with him.

After some opening chitchat, you ask Tim to explain why he thinks his sales are not ashigh as they should be. “I really don’t know,” exclaims Tim. “My close rate is good. I make asmany calls as the next guy. I have a good territory with potential. I work hard. I think I have theright customer service attitude. I try to treat all my customers the same—as if they are the mostimportant customer I have. I work my territory systematically and I call on each customer oncea week. I really don’t understand how these other agents do it.”

How would you respond to Tim? Based on this conversation, describe the steps you wouldtake to guide Tim toward greater productivity.

TEAM EXERCISE“Working Hard or Working Smart?”

An important aspect of coaching is sharing best practices from other companies. Certainly, Intelwould qualify as a company whose marketing and sales practices are worthy of consideration.It would probably surprise many people to learn that a large number of Intel’s salespeople don’tcall on customers. Instead they call on software vendors, information technology buyers, andretail outlets—companies that are traditional partners and customers of PC manufacturers.These salespeople don’t sell the microprocessors made by Intel; instead they sell the idea ofPCs on every desk and in every household. Salespeople are also responsible for knowing whatis going on in those industries that affects Intel. For instance, Intel is represented on most soft-ware standards committees. That gives Intel a voice in what shape such things as the Internetwill take. It’s a voice Intel uses to foster consumer and corporate interest in PCs—rather thanlow-end devices that don’t require Intel processors.

COACHING COMPETENCY“Intel: Salespeople Who Don’t Call on Customers”

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immediate and near-term sales volume is not a relevant measure of the opportunity thesesales calls represent.

In other sales situations, the selling cycle can be quite long because of the dollar com-mitments associated with the sales. This is especially true in industrial goods and high-techmarkets, as well as in major account selling where many people may be involved in the pur-chase decision and where an enterprise-type account strategy exists. In such situations, thefocus is on developing opportunities within one or a few accounts, so the focus is not on pri-oritizing accounts so much as on prioritizing opportunities, all of which may reside in a sin-gle account.

Unlike the earlier models, which focus on the relative sales volume or profitability ofopportunities, sales process models focus on where the opportunity is currently classified inthe selling process. In these models, opportunities are assigned to different stages of the sell-ing process according to the probability that they will ultimately result in a sale. This sort ofopportunity categorization is most appropriate when the selling cycle is fairly long and mul-tiple opportunities may exist within the same account.

One example of a selling process model is the sales funnel (see Figure 3-4).13 Initiallydeveloped for training salespeople at Hewlett-Packard, this system categorizes and priori-tizes sales opportunities or objectives, not accounts.14 This is necessary because a salesper-son or sales team may have multiple selling objectives at one account at the same time. Theaccount executive may be attempting to get a pilot installation in one of the client’s depart-ments, for example, while wanting to upgrade to a more sophisticated piece of equipment inanother department.

Each sales opportunity is categorized based on the level of uncertainty in meeting theopportunity:

1. Unqualified opportunities. In this case, data suggest that a possible need exists, but thisneed has not been verified with key people in the account. For example, you have learnedthat a customer’s existing contract with a competitor is about to expire. The selling jobneeded in this situation is to qualify the account by verifying that a need exists accordingto the criteria discussed earlier in this chapter.

2. Qualified opportunities. A qualified opportunity must meet four criteria:• The need has been verified with at least one of the buying influences (e.g., the techni-

cal, user, or economic buyers to be discussed in Chapter 4).


1 243

8

13

24

21

20

15 23

19 17

2216

18

14

6

57

9 1210

11

Best few

Qualified

50% closureprobability

Unqualified



FIGURE 3-4 The Sales Funnel

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• There is a confirmed intention to buy a new product or service, replace an existing one,or switch suppliers.

• Funding for the purchase has been approved or already exists.• There is an identified time frame within which the purchase will be made.

3. Best few opportunities. All the buyers have been contacted and their needs identified, andin your judgment have been sufficiently developed to make the sale. You have all but elim-inated luck and uncertainty in the sale and are at least 50 percent along in the selling cycle.That is, it should take you half as long to close these sales as is normal in your territory.

The term sales funnel is derived from figuratively placing the sales opportunities in afunnel. Unqualified opportunities appear just outside the top of the funnel, qualified oppor-tunities inside the funnel (depending on the probability of closure and the position in theselling cycle), and the few best opportunities at the bottom of the funnel.

In the sales funnel shown in Figure 3-4, each numbered bubble represents a unique sell-ing opportunity. Notice that the qualified opportunities are divided into those with a 50-per-cent probability of closure and those with a 75 percent probability. This distinction is madeto portray the current situation more clearly and to facilitate communication between sales-person and sales manager. The situation in Figure 3-4 appears to be healthy in that a numberof opportunities are likely to result in sales during the current period, but an even largernumber of opportunities for future sales results. Some companies will alter the shape of thefunnel to reflect the number of opportunities at each level, which quickly indicates the pre-sent and future health of the territory.

At first glance, it would seem advisable to work on your best few and qualified opportu-nities, while spending whatever time remains on unqualified opportunities. The problem withthis approach is that when given low priority, prospecting rarely occurs. Having closed thebest few and exhausted the qualified opportunities, there is nothing left to replace theseopportunities. Therefore, experts suggest a prioritization sequence of (1) closing your bestfew sales opportunities first, (2) prospecting for unqualified opportunities next, and (3) work-ing the qualified opportunities last to ensure a constant and predictable flow of sales overtime.15 It is always important to keep the funnel full by prospecting for new opportunities.

SALES VERSUS PROFITS

There is a tendency in sales to evaluate opportunities in terms of dollar sales. Faced withtough buyers in mature markets, however, some companies are beginning to focus on thebottom line instead of the top line. A recent survey of 200 leading executives in NorthAmerica, Europe, and Asia reported that 49 percent expected to track customer profitabilitybased on return on investment.16 Profit, of course, is the difference between net price and theactual cost to serve a customer. There can be dramatic differences between the price anaccount pays and the costs incurred in servicing an account.17 Why is this true?

Customers may pay very different prices for similar products and services. Althoughthere are some legal constraints, such as the Robinson-Patman Act, some customers are ableto negotiate lower prices and higher discounts because of their size. In other words, largecustomers can demand and get lower prices because a seller cannot afford to lose their busi-ness. Other customers are simply able to get lower prices because of their negotiating skills.And still other customers exploit deals and promotions more than others and “forward buy,”which means they buy a large amount of their annual needs at one time when the product ison discount.

The cost to serve is also likely to differ between customers. Some accounts are locatedfar from the salesperson’s normal route, so more travel time is involved. Some customersplace their orders by phone or over the Internet, whereas others require endless face-to-facesales calls to close a deal or to place even a routine order. Some customers demand intensive

SALES VERSUS PROFITS 109

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presale services like applications engineering and custom design support, while othersaccept standard designs. Costs may also vary according to preferred transportation mode,number of receiving locations for an order, and opportunities to back-haul. (Back-haulingrefers to transporting goods back to an origination point after delivering supplies. As aresult, a truck does not travel without a load, which wastes time and money.) The list of cus-tomer service cost differences sometimes seems endless.

The main point we would like to make here is that companies and salespeople need tobe aware of the price, cost, and profit differences between customers and allocate their saleseffort accordingly. It is not at all unusual for there to be a 50- to 75-percent difference in theprofitability of customers who purchase a similar quantity of product. This is what FedExfound out when it began studying the profitability of its customers. This issue is so importantto FedEx that it now searches its database to compare the costs of doing business with par-ticular customers and rates its customers according to profitability. FedEx also now matchestransaction information with demographic data to pinpoint the characteristics to seek inprospects or existing customers that might offer more business.

Perhaps the most surprising discovery for firms that closely examine the profitability oftheir individual customers is that many of their largest customers are not their most prof-itable ones. Typical of the experience of many companies today is that of a major U.S.-based component manufacturer. They decided that it was time to examine the profitability oftheir 10 largest accounts. In 1987, these accounts had represented 72 percent of the com-pany’s overall profits. Ten years later, in 1997, their contribution had shrunk to less than 40percent of profits. In fact, 2 of these 10 large accounts were producing a loss for the com-pany, and 2 others were barely breaking even. Many other organizations are finding that sizeis no longer a good proxy for profitability. As a result, businesses are investing heavily ininformation technology to help them identify their most profitable customers.18

To test your understanding of the profit versus sales issue, try your hand at answeringthe questions posed in Team Exercise, “Destructive Discounting.”

Customer Lifetime Value. You may recall that one of the problems with the single-factormodel was that, based on historical sales volume, it was not forward looking enough in con-sidering future sales and profits. Consistent with the shift from a transaction view of rev-enues and profits to a relationship perspective, marketers are starting to adopt CustomerLifetime Value (CLV) as an appropriate metric for measuring marketing performance.19

Who cares if profits are good for one period, if the customer is alienated as a result? Taking


You have recently been hired as vice president of sales for an Original Equipment Manufac-turer (OEM) of small electronic components. After 3 months on the job, you don’t like whatyou are seeing from the company’s nine salespeople. The sales force seems focused on closingas many deals as possible, regardless of whether they provide good solutions for customers.Salespeople are discounting so much that your margins have continued to decline. Clearly, youwould be in trouble if this continues since this was precisely what you were hired to change.Further, your bonus is based on achieving profit margin objectives. When you talk with thesalespeople, however, they say that they were previously taught to focus on sales volume, notthe profitability of the deals. What should you do first? To help communicate the critical finan-cial consequences of price discounting, create a simplified income statement illustrating theeffect of a 10 percent discount on profits.

TEAM EXERCISE“Destructive Discounting”

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a long-term view of profitability is the motivation behind using CLV as an appropriate per-formance and resource allocation metric.

Customer Lifetime Value is based on the notion that the value of a customer is the sumof the customer’s discounted flow of profit contributions into the future. Calculating CLVrequires knowing or making judgments about the following inputs:

• The company’s discount rate (cost of capital)• The company’s planning horizon (3 years, 5 years, 10 years)• The customer’s product category purchases in each period• The average contribution from purchases• Each supplier’s share of total category purchases20

The experience of one pharmaceutical company illustrates the potential significance ofswitching to CLV as its resource allocation metric from past sales volume. The company hadbeen allocating sales effort according to the number of prescriptions a physician wrote—asurrogate for sales volume—which led to a focus on doctors in midcareer. When theyswitched to calculating the CLV of a physician, their analysis revealed the importance ofyoung physicians, including residents and new practitioners, who, though not currently bigprescribers, were specialists in a given area and could thus be expected to prescribe moreover time. This lifetime emphasis brought a whole new set of doctors to the company’s atten-tion, displacing a quarter of the physicians it had previously thought were of greatest value.21

TIME MANAGEMENT

In most surveys of business training programs, time management is one of the most fre-quently mentioned training topics. The reason is that significant productivity gains can bemade through better time management. Figure 3-5 shows how salespeople spend their time.The amount of time spent selling, either face to face or over the phone, increased during the1990s to 54 percent from only 50 percent in 1990. Most of this increase is due to a greateruse of technology when selling.

Improving the amount of time spent selling is an opportunity for significant productivitygains. A task force for one Fortune 100 company estimated that a 10-percent improvement inthe time its sales force spent selling would generate more than a 5-percent increase in overallsales volume. This helps to explain why, in a recent survey, 72 percent of sales executiveslisted a cellular phone as the technology most essential to their salespeople’s job.22

Notebook computers and the Internet were also highly ranked by the sales executives asessential technologies. To understand the reason for this rating, consider how things have

TIME MANAGEMENT 111

Servicecalls

Administrativetasks

Selling overthe phone

Waitingand travel

Sellingface-to-face

29%

13%

16%

17% 25%

FIGURE 3-5 How Salespeople Spend Their Time

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changed for the salespeople in Quaker Oats’ chemical division. In the 1980s, tracing a ship-ment of solvent for a client meant numerous hours of phone calls and plenty of headaches.Today, Quaker Oats salespeople simply open their laptop, go into the company’s internalWeb site, click on a button that says “shipment information,” and in just a few minutes theyare able to tell the purchasing agent that the tank car is in Houston, 20 miles away. Theimportance of this technology is indicated in Figure 3-5, which shows that salespeople spend13 percent of their time on service calls.

The “Traveling Salesperson” ProblemOn average, 17 percent of salespeople’s time is spent traveling and waiting. Careful schedul-ing can produce substantial savings in travel time. The task of selecting sales routes is usu-ally handled by the salesperson, but at some companies the sales manager or staff specialistsdevelop it. The rapidly increasing costs of automobiles, gasoline, and automobile repairs, aswell as the possible savings in time, have encouraged many firms to employ more sophisti-cated technologies to find the best travel routes.

Techniques used to schedule and route salespeople have received considerable attentionfrom management scientists; the issue has become known as the traveling salesperson prob-lem. The dilemma is usually stated as a search for a route through the territory that allows asalesperson to visit each customer and return to the starting point with a minimum expendi-ture of either time or money. A variety of techniques have been employed to search for thebest routes including linear, integer, nonlinear, heuristic programming, and branch-and-bound methods. Discussion of these complex procedures is beyond the scope of this book.23

A simple way to find a good sales call route, and one that is often very effective in min-imizing travel time and costs, is to plan a travel route based on four basic rules:

1. The route should be circular.2. The route should never cross itself.3. The same route should not be used to travel to and from a customer.4. Customers in neighboring areas should be visited in sequence.

Circular routes are reasonable because salespeople usually start at a home base and thenreturn to it at the end of the sales trip. Similarly, if sales routes cross, a salesperson knowsthat a shorter route was overlooked. Sometimes a salesperson will be forced to use the sameroute to travel to and from a customer because of local road conditions or scheduled appoint-ments, but this should be avoided when possible.

In reality, other factors often interfere with plans that appear to be ideal on paper. Ingeographic routing problems, circumstances such as availability of good roads, traffic flowsat different times of the day, traffic lights, and congestion often lead to a different route thanthat originally planned. This does not mean that operations research approaches are not ofvalue; they are an excellent starting point for your analysis.

One additional factor to consider is the work schedule of the account. The best approachis to travel when clients are not available and so avoid wasting valuable selling time. If cus-tomers are not available early in the morning, then this may be a good time to get in themost travel miles. As a result, you may make your first call on the customer farthest fromyour home rather than making a circular route. Better routing usually comes with experienceand greater familiarity with the territory.

Overall Time ManagementDespite all the emphasis companies are putting on increasing selling time, 16 percent of asalesperson’s time is spent on administrative tasks. This figure has not changed much duringthe past two decades. Although it is important for salespeople to provide customer and com-


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petitor information to their company, a key aspect of managing time effectively is to recog-nize and control things that tend to waste time. Following is a list of what many salespeopleconsider some of the most common time wasters:24

1. Telephone interruptions2. Drop-in visitors3. Lack of self-discipline4. Crises5. Meetings6. Lack of objectives, priorities, and deadlines7. Indecision and procrastination8. Attempting too much at once9. Leaving tasks unfinished

10. Unclear communication

Note that the top two time wasters are telephone interruptions and drop-in visitors. Therest of the time wasters, such as lack of discipline, lack of objectives, and procrastination,indicate poor self-management by the salesperson. How different is this list from the oneyou would make for yourself? One aspect of time management that is particularly importantin sales is to know when the customer is available. This is the key selling time during theday, and salespeople should strictly adhere to customer contacts during these times. Thistime must be protected, while other duties and issues are handled at other times of the day.

A key step frequently recommended for improved time management is preparing a list ofpersonal and professional goals and then pursuing them one step at a time. Planning does nothave to be elaborate to be useful. Simply writing down a list of things you want to do tomor-row is a good place to start. The next step is to rank the tasks on the basis of their importance.Then when you start the day, begin task 1 and stay with it until it is completed. Recheck yourpriorities and begin task 2. Continue with tasks as long as they remain most important.

Once people get into the habit of daily planning, the next step is to plan a week or moreahead. Many salespeople, for example, are required to prepare weekly call plans. The idea isto encourage salespeople to plan a series of calls for each day, to call ahead for appoint-ments, and to make better use of their time. A useful device that helps with planning is asmall diary for the pocket or purse. Carrying a diary allows you to keep track of appoint-ments and to reschedule them as needed.

Stephen Covey, a well-known consultant in personal and professional development,advises people to analyze their time management using a framework like the one shown inFigure 3-6.25 Importance refers to activities that are of importance to you in meeting yourobjectives. Urgency, on the other hand, is the time pressure we feel to perform certain activ-

TIME MANAGEMENT 113

Emergencies

Importance

Urge

ncy

Time wasters

High Low

Personal growth

High

Low Recreation

FIGURE 3-6 Time Management

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ities. Notice that we may feel this pressure for both important and relatively unimportantactivities. According to Covey, activities in the Emergencies and Recreation quadrants willgenerally take care of themselves. People can gain control over their lives by spending lesstime on Time Wasters and more on Personal Growth activities. Time Wasters (high urgencybut low importance) include phone calls, some meetings, and unnecessary administrativework—in other words, things that demand our immediate attention. Personal Growth activi-ties (low urgency but high importance) are easily put off but are very important to our futuregrowth and development. Activities in this category may include reading professional jour-nals or books, enrolling in professional development or executive courses, learning howother functional areas operate, or prospecting for new customers. Notice that many peoplecan postpone these activities indefinitely. Considering both urgency and importance mayprovide us with a useful perspective on how we can spend our time more productively.

SUMMARY

Over the past decade, sales force productivity has lagged behind the double-digit increase inselling costs. As a result, top executives are giving added emphasis to improving sales forceproductivity by increasing the amount of time salespeople spend face-to-face with cus-tomers. Salespeople are being armed with laptop computers, cellular phones, and the Inter-net to fight this battle.

1. Describe effective steps for generating new accounts. First, a prospect profile shouldbe constructed which describes the best prospects for your company’s offerings. The pro-file may be based on sophisticated database analysis of the purchasing patterns and prof-itability of your current customers. With an ideal prospect profile clearly in mind, a list ofprospects should be developed using a variety of methods, including direct mail, tradeshows, directories, referrals, and cold canvassing. Finally, prospects need to be qualifiedbased on their need for the seller’s offerings and intention to buy in the near future, theirauthority to buy, and their ability to pay for the offering.

2. Explain how to determine the minimum account opportunity a salesperson shouldpursue. Two techniques for making this determination should be used. First, the cost persales call should be identified. This is calculated by identifying all direct selling costs forthe period of time being evaluated and dividing this sum by the number of sales calls thatare expected for the time period. The cost per call figure is then included in a breakevensales volume analysis, which consists of multiplying cost per call times the number ofcalls necessary to close the sale and dividing this product by the company’s sales costs asa percent of sales target. This provides a base figure from which to determine whether asales opportunity is of sufficient magnitude to warrant a face-to-face selling effort.

3. Describe four methods for prioritizing sales opportunities. The single factor modelfocuses on sales volume to classify account opportunities and allocate salespeople’s time.Portfolio models expand the criteria for classifying account opportunities by consideringboth competitive position and account opportunity factors. Decision models allocate effortaccording to a sales response function, which is based on the sales response to differentnumbers of sales calls during a period of time. The sales process model allocates time tosales opportunities based on their stage in the selling process. The appropriate model willdepend on market demand, the competitive, and selling situation of the company.

4. Explain why emphasis is shifting from sales volume to profit flow. The main reasonfor shifting from sales volume to profits as a performance and resource allocation metricis because profits may be quite different for customers purchasing the same total volumeof products and services. This is caused by the price concessions some customers obtain,the mix of product they purchase, the services they require, as well as their future profit


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growth potential. A corresponding shift is taking place from emphasizing past sales andprofits to valuing customers based on their future stream of profits. Customer LifetimeValue (CLV) is one method for calculating the discounted flow of future profit contribu-tions.

5. Tell how salespeople can spend more time selling. A recent survey indicates that sales-people spend about 54 percent of their time selling either face to face or over the phone.Three avenues for increasing this percentage are incorporating technology into the sellingand planning process, more efficient routing of sales calls within a territory, and reducingtime wasters through personal time management techniques.

KEY TERMS

DEVELOPING YOUR COMPETENCIES 115

Account opportunityAcquisition costsBest few opportunitiesBreakeven sales volumeCold canvassingCompetitive positionCost per callDecision modelsDirect mail

DirectoriesDirect selling expensesMinimum account sizePortfolio modelsProspectingProspect profileQualified opportunitiesQualify a prospectReferrals

Sales funnelSales process modelsSales response functionSingle-factor modelTime managementTrade showsTraveling salesperson problemUnqualified opportunities

DEVELOPING YOUR COMPETENCIES

1. Self-Management. One of the most important aspects of self-management is to develop aclear understanding of your personal and career goals. One highly successful method ofarriving at a better understanding of your goals and of the steps that should be taken toachieve those goals is the time management analysis developed by Stephen Covey. First,list your personal and professional goals in any order. Next list the actions that you willneed to take to get yourself in position to achieve these goals. Third, draw the Time Man-agement Matrix presented Figure 3-6, labeling the axis as high versus low importance andhigh versus low urgency. List the activities on which you spent time over the past week ormonth. Now compare these activities to the list that you developed for achieving your per-sonal and professional goals. In which quadrant would these goal-directed activities fall?How could you adjust your time to put yourself in a good position to achieve your goals?

2. Coaching. You are spending the day with a new salesperson in your district who hasbeen with your company, Consumer Research International (CRI), for less than a month.CRI is a marketing research company that competes with the likes of M/A/R/C Group,Market Facts, and Burke Marketing Research. Although CRI has a number of accountswith which it has worked for a number of years, each month between 20 and 30 callerswill contact your company to investigate engaging it in a marketing research project;however, only about two or three of the calls warrant further attention. A new salespersonis having a problem determining in a reasonable amount of time, which of these callers isa real prospect and which is a waste of time. Time is precious, however, but you do notwant your salespeople walking away from important growth opportunities. Because thesalesperson is new on the job, you would like to give him a set of questions that he couldask to determine whether this is a “hot” prospect or one that is “just looking.” Whatwould be your advice?

3. Global Perspective. Dendrite International is one of the world’s leading suppliers ofsales force automation software in the pharmaceutical industry. Pharmaceutical firms

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worldwide are arming their salespeople with laptop computers and looking for softwareto design call plans and collect call reports to increase sales force efficiency and effec-tiveness. More than 15,000 salespeople in 40 companies in 11 countries use Dendrite sys-tems. One of the issues Dendrite faces is that software demands differ greatly from coun-try to country. How would software requirements differ in each of the followingcountries? For more information on Dendrite, see www.drte.com.• U.S. pharmaceutical sales forces are among the largest in the world, ranging from 500

to more than 3,000 reps per firm. Sales reps call on medical personnel every 4 to 6weeks to leave product samples and literature, perform service tasks, and build relation-ships with prescribing physicians.

• In Western Europe, sales forces are generally 100 to 200 reps in size. Governmentfunding of health care and large, managed-care organizations are common. In England,a rep sees a doctor once a year, always by appointment, and can only leave one sample.

• In Japan, sales forces are like those in the United States, and, with fewer doctors, thereis one pharmaceutical salesperson for every six physicians. Unlike in the United States,where physicians cannot sell drugs, Japanese physicians combine prescribing and dis-pensing of drugs. Sales reps negotiate prices with individual physicians, who alsoderive income from selling free drug samples to their patients. Most Japanese doctorswork in clinics or hospitals that require sales reps to wait outside to see the doctor. As aresult, “social selling” is very important in Japan. Reps develop face time with doctorsby washing their cars, entertaining them, and running all sorts of errands.

4. Technology. Wisdom Ware Inc., a small software firm, has developed a slick tool thathelps salespeople to be better informed and more efficient. It requires salespeople andtheir bosses to do things just a little differently. The issue Wisdom Ware attempts toaddress is keeping the sales force informed about products, the market, and the competi-tion. Even more important, the software is designed to enable every piece of informationto link with any other piece. That way, salespeople can assemble just the right combina-tion of facts necessary for the immediate task without being inundated with information.In short, this software is the interactive equivalent of Cliff Notes. While planning a call, asales rep makes a few menu choices to identify the customer, the product, and such. Oneclick creates the most up-to-date qualifying questions, another reveals how the competi-tion stacks up, another reports the most common objections, and still another suggests aquick product positioning statement. Though only a few concise sentences pop up on thescreen, detailed reports are just a click away. Unfortunately, Wisdom Ware has been lessthan wildly successful so far. The problem isn’t training, which takes less than an hour.Nor is it compatibility; Wisdom Ware works seamlessly with other front-office software.Neither has any customer winced at the price of $500 and up per user. What do you thinkcould be the problem? For more on Wisdom Ware, see www.sellmorenow.com.

5. Strategic Action. IBM has proved it can market successfully to fellow corporate giantslike General Motors and Citibank. But will the company be successful in selling to themillions of enterprises with 1,000 or fewer employees who make up the world’s fastestgrowing segment? It had better be because for IBM entrepreneurial companies are thefuture in information technology. In the United States, small businesses are responsiblefor 50 percent of the gross national product. That segment is growing at 11 percent annu-ally, three percentage points higher than the growth of large companies. What’s more,IBM estimates that last year 75 million small and medium-size companies worldwidespent $305 billion in information technology.

But IBM faces an enormous challenge simply trying to prove to smaller customers thatit really cares about them. “My small customers don’t feel comfortable with IBM,” saysGunther Obhlschlager of TransCat, an IBM reseller in Karlsruhe, Germany. “Unless youspend millions of dollars with the company, you can’t get someone on the phone,” hesays. Richard Laermer, a New York entrepreneur, adds, “I don’t believe they’re really


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going after small businesses.” He adds, “Their attitude is, ‘If you don’t have a thousandemployees, get out of my face.” Should IBM go after the whole market—large, medium,and small firms? Can they? If so, how?

6. Team Building. One of the most important jobs of the first-line sales manager is to cre-ate an atmosphere in which individual salespeople feel that they are part of a team andare also responsible for carrying their own weight. Perhaps one of the most controversialaspects of this balancing act is the degree to which the sales manager should get involvedin territory and account planning.

The attitudes and advice of sales managers run the gamut from close supervision to atotally hands-off attitude. At Ziegler Tools, an Atlanta industrial distributor, for example,salespeople are required to fill out weekly detailed itineraries and call reports, which arecompared with quarterly itineraries. Turner Warmack, vice president of sales and mar-keting at Ziegler Tools, states, “Generally speaking, salespeople are poor managers andcan be thrown off course pretty easily. What we feel our system does is help them focustheir efforts.” At the other end of the spectrum are sales managers who do not requiretheir salespeople to submit call reports and detailed reviews of customer status. Typicalof this approach is Rick Horn, president of Stahl Company, a specialty truck body manu-facturer, who states: “I didn’t feel I had to tell them what to do. They were big boys andknew their territory. All I wanted to know is where they were in case I had to reachthem.” Which approach do you feel is best? Does it depend on the circumstances? If so,what circumstances should be considered?

PROBLEMS*

1. You are a rookie salesperson with Associated Medical Supplies, Inc., a wholesaler of dis-posable medical supplies. As a new salesperson, you are finding it difficult to convinceaccounts to switch from their current suppliers. The doctors with whom you are havingthe most success tend to be small, single practices located in rural areas. Competition forthese accounts is not as intense, perhaps because their purchases are fairly small. Theyusually place about $900 worth of business with you every month. Nevertheless, theyseem to be most appreciative of your weekly visit to take inventory of their supplies andwrite an order. Furthermore, it is better than no sales at all. Lately your boss has beenhassling you because productivity has not increased as much as he had hoped when heplaced you in the territory. In particular, direct selling costs, including compensation, arecurrently 15 percent of net sales, whereas the total company’s target is for direct salescosts to be 10 percent of net sales. In light of this, you are wondering if spending time onsmall rural physicians is the best way to manage your territory. You have calculated thatyour cost per call is currently $34.50. Should you be calling on these small physicianpractices? What is the smallest size customer you should pursue in order to meet yourcompany’s selling cost objectives? What actions might you consider in managing yourterritory better?

2. As a salesperson for Strength Footwear, Inc., you have been very successful. Your com-missions are well over $70,000 per year. Demand for your product line is strong, but sois the demand on your time. You work your territory 220 days a year and can make fourcalls a day. The maximum number of times you need to see any account is every otherweek, but you need to call on each account at least once a quarter. To help you allocateyour time according to sales results, you have gathered the following information on cus-tomer sales:

PROBLEMS 117

* Excel spreadsheets for working these problems are available at www.wiley.com/college/dalrymple. Go to “Stu-dent Resources.”

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Develop and justify a call schedule for allocating time across the 110 customers in yourterritory.

3. You have just finished your annual account review of the telecom purchases of one ofyour largest customers. They had purchased $125,000 worth of telecom equipment fromyou last year but are indicating that they want a 10-percent discount on next year’s pur-chases or they will switch their business to one of your competitors. Technical, installa-tion, and other account services that were provided to this customer last year totaled$11,000 and are expected to be about the same next year. You earn a commission of 10percent on sales. Last year this account’s gross margin was 40 percent, and they areexpected to purchase a similar quantity of equipment next year. Assuming that the listprice for the equipment would be the same as last year, but discounted by 10 percent,how would the discount affect the profit contributions this account is estimated to gener-ate next year?

4. Continuing with the account analysis from problem 3, assume that the account purchasessome of its telecom equipment from one of your competitors. How much would you needto increase your penetrations of this account through increased sales in order to justify the10 percent discount the account wants on next year’s purchases?


FEATURED CASE D & M INSURANCE: “LEAD GENERATION”

One method by which D & M identified leads onnew prospects was through mailing of informa-tion to businesses in the area accompanied by a

mail-back card and an email address for those interestedin learning more about the programs D & M could offer.Since this type of lead generation program had not beenused for some time in the Des Moines area, Doug, thesales manager at the Des Moines office, decided to runthe program after some disappointing first quarter salesresults. To his surprise and thrill, 79 requests for moreinformation were received in the next 10 days followingthe mailing. Doug gave each of the salespeople in theoffice around 10 leads to follow up on.

A month later, at the monthly sales meeting,Doug asked for a progress report on the status of thoseprospect leads. Only two of the reps had followed upon any of the leads. Of those five leads, three saleswere made and two prospects were still being devel-oped. Doug was now concerned. After all the hardwork that went into generating these leads, he wasn’tabout to see them gather dust on his salespeople’sdesks. Moreover, he didn’t want to lose easy salesfrom prospects that were ready to buy. Doug voicedhis concern to the salespeople and said he would becreating a standard plan that the salespeople wouldhave to use when following up on leads.

O

Accounts Sales Last Year

Top 10 accounts $150,000Next 10 best accounts 37,500Next 10 best accounts 37,000Next 20 best accounts 56,250Next 20 best accounts 55,500Next 20 best accounts 18,750Last 20 accounts ___15,000

$370,000

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Questions

1. Should Doug have taken an approach other thansaying that he would create a standard plan?

2. If you were the sales manager, what would you doabout the reps’ obvious lack of motivation to followup on the leads generated by the mailing?

3. What are the possible reactions from the leads notcontacted by D & M?

4. What is an “ideal” course of action given all theissues involved?

5. Write a brief step-by-step plan to handle this situa-tion.

D & M INSURANCE: “LEAD GENERATION” 119

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Documents

chapter 3