New study on "Sales performance in difficult times"

• Pure cost cutting in sales is out
• Companies want to boost their market clout
• There are three main levers for quickly improving sales performance

According to the Roland Berger Strategy Consultants study on "Sales performance in difficult times" presented today in Munich, nearly 80 percent of German companies consider sales performance to be a key success factor in international competition. Some 70 percent of the sales managers surveyed indicated that they had implemented individual cost-cutting activities. At the same time, however, 65 percent believe that they could boost the clout of their sales organization even further by combining different action packages. The study shows that this would allow them to cut costs by around 15 percent and boost sales by up to 10 percent. This would require companies to activate three levers to quickly reform sales: First, they must tap all sales potential. Second, they must distribute resources in a more targeted manner. Third, they must selectively improve their margins.

The multi-industry study, conducted in the summer of 2003, surveyed sales managers from 61 German companies with annual sales of more than EUR 250 million. Numerous companies have spent the past two years focusing on lowering their selling costs and reorganizing their sales structures. As the study shows, many companies are currently shifting the focus of their activities in order to boost the power of their sales organization in the run-up to the expected economic upswing.

"Companies that use targeted reforms now to boost their sales power will see a considerable increase in their market share when the economy gets back on track," says Kai Howaldt, Partner in the Marketing & Sales Competence Center at Roland Berger Strategy Consultants.

Three levers for successful sales

The study shows that three levers are the main key for companies that want to boost their sales performance quickly. First, they need to exploit as yet untapped sales potential. In order to do this, many sales managers need to acquire better market and customer knowledge. More than half of those surveyed claimed to know their customers' sales potential. Nevertheless, more than 35 percent believed that they could boost sales by more than 10 percent by focusing on customers with high potential. Companies also see cross-selling as a source of revenue that is not being fully exploited. "Attention should be paid primarily to structured cross-selling and up-selling activities. This is an area in which many companies are still throwing away money and market share," says Dr. Björn Reineke, Associate Partner in the Marketing & Sales Competence Center at Roland Berger Strategy Consultants.

The second lever for effective sales reforms is better resource allocation. The study discovered that the managers surveyed did not consider this key tool in terms of efficiency: more than 70 percent do not consider decentralized sales to be cost intensive. Based on Roland Berger experience, even efficient decentralized sales rack up as much as 40 percent of total selling costs. Some 46 percent of the sales managers admit that their field sales representatives also support unprofitable customers. Companies lack rigorous customer segmentation and value-based, differentiated support concepts.

The third lever for powerful sales is optimized margins. More than two thirds of the companies have recognized the importance of appropriate prices for services. However, only 40 percent of the companies have succeeded in systematically defining their service prices and enforcing them on the market. The result is that services for which customers would be willing to pay are provided free of charge, while services that customers do not want needlessly drive up product prices. Earnings potential and costs of added services need to be more transparent. "Achieving good service margins requires two things: customer needs must be analyzed closely, and their willingness to pay must be assessed realistically," says Björn Reineke.

Greater courage to reform

The success of realignment projects in sales, more so than in any other corporate division, depends on staff motivation and their desire to change. Many activities for boosting sales performance fail in practice due to internal barriers and implementation problems. For example, 40 percent of sales managers cite rigid structures as the main obstacle. Furthermore, 70 percent of those surveyed confirmed that decision-making processes are often based more on emotional discussions than on rational analyses.

If companies want to boost their sales power long term, they should take a number of success factors into consideration:

• Programs will succeed only if top management attends to them
• They should be broadly based, but focus on specific issues that lead to quick wins
• Sales staff should be integrated into the program right from the start
• Objective analyses and benchmarks show everyone involved what direction they need to take
• Targets and actions should be transparent and backed up with figures
• The progress of the reform measures and initial successes should be communicated openly and directly
• Implementation should be monitored systematically

"If companies take these seven success factors to heart, their courage to rigorously reform their sales organizations will be rewarded: with higher sales, a stronger market position, and motivated, high-performance sales teams," says Kai Howaldt.