Most of the time we look at our sales process and think of it as producing deals, orders, or revenue. Don’t get me wrong, those are still critical outputs of the sales process. However, too often we fail to think about the quality of the deals we close. In our competitiveness or hunger to close business, we sometimes win the wrong deals.
A key goal of the sales process needs to be producing profitable customers.
This sounds obvious, but too often, we don’t know a customer has the potential of being unprofitable until after we get the order, or until very late in the process–when we may be so emotionally attached to closing the deal that we close it regardless of the cost!
How does this happen?
The most obvious are the deals we win by taking pricing actions! More and more, I see sales people discounting. Sometimes the “door opener” is, “Have I got a deal……..” with the very first call introducing a discounted price. Over the course of the sales process, the price will only go one direction, down! Over time, deal after deal, margins decline. Managers do the analysis, deal by deal, simplistically saying, “the revenue we are getting is more than our costs.” But over time, our ability to invest is diminished—-we can’t invest as much in supporting those customers, they become unhappy and leave. We can’t invest in new product development, we become less competitive, sales volumes decline, Overtime, little things accumulate, taken individually, none is dangerous, but cumulatively, they erode our abilities to support our customers, grow our businesses and thrive.
Chasing customer outside our sweet spot–going for the marginal sale. Our sweet spot exists for a purpose. It identifies both those customer segments where our offerings are most competitive and those customers we can support profitably. Yet, too often we chase deals outside our sweet spot–or we don’t even define the sweet spot. Customers outside our sweet spot aren’t more difficult customers, but they are more difficult customers for us. We don’t know how to sell to them, we don’t know how to support them. Our products may not be the best fit, so keeping them happy and productive involves much more work and is always tougher for us. We start “not liking” them–you know where things go from here.
Not all revenue is good revenue! Yes, sometimes we choose to book marginal business, but each time that needs to be something that is carefully reviewed. We have to focus on developing good business, getting good revenue. Good revenue is business we can acquire, support, and grow profitably. Good revenue is business that reinforces our strengths and enables us to build and grow–for instance leveraging a deal for more and profitable penetration of an account, a segment, a market.
Does your sales process screen for good business, profitable deals and customers? Is it part of your qualification/disqualification process? Do you define this as part of your sweet spot?
Do you continually review deals as they progress through the buying process? Do you focus on the quality of the opportunity, your ability to support it, your ability to grow it profitably?
Do you understand the long term implications of taking pricing actions to win each deal? Do you actively minimize discounting, knowing that if cusotmers are not willing to compensate you for value delivered, they are likely to be unprofitable customers?
Do you find yourself regretting that you won a deal?
Good business is profitable business! Make sure that’s what you chase and close.
Dave, great post. I’d add that in the small companies I work with, there’s another effect of chasing business that’s out of the sweet spot (what I call “chasing shiny objects”). These companies not only cut their margins, but they don’t develop and establish the expertise in their customer’s business that contributes to differentiation in the sweet spot. So they never are able to justify the investment in their product or services and, as you say, their margins and ability to generate the excess cash they need to re-invest in their business slowly erode. I’ve found that the single most important message I can carry to these companies is to stay in the sweet spot and become the best in that spot.
Andy, it’s always great to see your comments here! You are absolutely right. The power of the sweet spot is it builds your experience, it builds your references, it builds the depth and quality of relationships with customers in the sweet spot. But what we also overlook is it increases our liklihood of winning, decreases our sales cycle, decreases our cost of selling, and increases our profitability.
Selling outside your sweet spot is like going back to go and not collecting $200. It’s a new adventure for you and the customer every single time. You have no experience base, no references, etc. It’s crazy to do enything but focus on the sweet spot!
Thanks so much for pointing this out. Regards, Dave
And there’s another thing that happens, Dave. When you “own” your sweet spot through true differentiation of your product, service, and understanding of your customer’s business, you gain pricing flexibility, enabling wider margins, Wider margins mean more excess cash, enable expansion or movement to a wider or additional sweet spot, and generally create a virtuous cycle in your business. Maybe that’s why we call it “sweet.”
Great minds think alike. Look at my blog post for today! The sweet spot keeps getting sweeter!! Regards, Dave