Increase Sales by Increasing Sales Productivity

by Rene T. Domingo

In a protracted economic downturn, as in the on-going global recession, the company’s top line or sales will be the most threatened and vulnerable compared to other business concerns such as costs, profits, and cash. To guard your top line, it is important to have a comprehensive dashboard of sales metrics and analytics. However, traditional sales metrics are often lagging indicators and too gross to serve as early warning signals. Sales growth, market share, and customer retention rates are historical data that will not allow you to recover from mistakes or lost opportunities. What you need to complement these conventional measures are leading indicators of sales, the most important of which is sales productivity. Tracking sales productivity will help you optimize use of resources to generate maximum results. In a dwindling market, you do not want to waste any opportunity, sales effort, or asset deployed in the marketing of your goods and services.

We always associate the concept of productivity with the production function and the manufacturing industry where it was introduced by Frederick Taylor, the founder of modern scientific management. However, its benefits to the sales and marketing functions when applied correctly are much greater. In the simplest of terms, productivity is the ratio of output to input. Output is the desired result, while input is the set of all resources and assets employed to produce or deliver that result. The higher the ratio, therefore, the higher the productivity. In manufacturing, the output is usually tangible, like finished goods, and the inputs are both tangibles like raw materials and intangibles like labor hours. Productivity is closely related with the concepts of efficiency, yield and conversion rates. For instance, process yield is measured on how well you convert tons of lumber (input) into tons of plywood (output). The higher the yield, the lesser the loss and leakage of precious raw materials from the system, and the more efficient the conversion process. Productivity may also be used to measure how efficient you are in converting opportunities into concrete results.

Productivity is often not a common and major key performance indicator in sales and marketing. It is not the basis of incentives or commission unlike sales volume, market share, or sales growth. But sales productivity can be a powerful tool to boost sales since it can fine tune your marketing system, optimize use of scarce resources for maximum effect, and enable you not to miss even more scarce opportunities that can be converted to sales. Sales productivity can be a life-saver in a down economy.

In calculating sales productivity, the outputs are typically bookings, purchase orders, contract signed or renewed, repeat orders, and other intangible indicators of sales. Inputs are resources deployed in sales and marketing which can both be tangible as well as intangible like sales personnel, agents, sales branches, sales man-hours, space or shelves utilized, vehicles used. The basic indices are sales per head, sales per branch, sales per sq. meter of shelf space or showroom. If these are too gross to be useful or insightful, you may drill down to more detailed indices like: sales per table (e.g. restaurant), sales per hour per counter or booth (especially during peak time). When you visit a hospital, you would probably see scores of medical representatives (med-reps) of drug companies milling around while waiting to see the doctors who are most of the time busy seeing patients. You notice right away how unproductively these expensive human resource spend their time – walking, riding elevators, waiting, and more waiting if they arrive late and miss their appointment because they had to find a place to park their cars. Their contact time with the MD’s (their output) is probably less than 10% of their working time (input). To improve their productivity, one drug company thought of reserving parking spaces and pre-paying them so that the med-reps can immediately go to the doctor’s office upon arrival at the hospital or medical arts building.

An important group of sales productivity indices is the sales conversion type wherein the input is not a resource but opportunities. For example, if measures how efficient or effective you are in converting an inquirer or caller into a buyer. In managing shopping malls, there are four critical sales productivity indices:

• maller/passer-by which measures the percentage of passers-by or pedestrians who enter the mall

• window shopper/maller which measures how many of those who enter the mall actually stop by a store window or pass by a group of stores in a section of a mall

• inquirer/window shopper measures how many of the window shoppers enter the store

• buyer/inquirer measures how many of the inquirers actually buy something or leave the store with a bag.

In short, if everything goes well with these four sequential conversion processes, you are enticing a pedestrian or passer-by to become a buyer of one or more stores of the mall.

In a more traditional sales setting, the conversion indices of productivity are:

• sales leads/calls measures how may sales calls translate to solid sales leads

• quotation/sales leads measures how many of the leads results in request for quotation or proposal (RFQ, RFP)

• presentation/quotation measures how many of the quotations submitted lead to actual sales presentation of the proposal, i.e., being short-listed

• winning bids/presentation measures how many of the sales presentations are converted to winning bids or actual orders

In sales, results and effectiveness are not enough to guarantee sustained success and leadership. Managing the efficient conversion of inputs, resources, and opportunities by tracking sales productivity is equally important. High effectiveness will be short-lived unless accompanied or supported by high efficiency or productivity. Whether you are improving output/resource or output/opportunity, increase the efficiency of the conversion process by acquiring profound knowledge of the processes and applying the principles of continuous improvement. Finally, it is perhaps the time to consider giving incentives (similar to commissions) for high sales productivity.

Rene T. Domingo is a professor and management consultant. Please send comments to rtd@aim.edu.

Source: www.rtdonline.com