The Eighth Commandment:
Control the Cost of Sale

Grow your bottom line
by James “Alex” Alexander, Ed.D.

Here is a discouraging fact: My research shows that the average cost of professional services sales for those organizations that actually know this metric is a whopping 36 percent.¹ For example, if the sale is $100,000, then organizations spend $36,000 on getting the business!

Of course, the biggest cost by far of any services sale is the time involvement of those doing the selling (often a team approach). So everything a company can do to target selling efforts and compress the sales cycle time will lower the cost of sales.

Selling sin: Not knowing or managing your cost of sale.

Here is a profound idea — controlling the cost of sale requires knowing your cost of sale. Most organizations can readily determine the actual dollars/euros/yen/pesos they expend, but many don’t have accurate time expenditures for everyone involved in the selling process.

To make this work, those involved in selling must accurately track and record their time spent on each opportunity with every account. Yes, this can be painful for folks who aren’t used to tracking time, but it’s necessary.

If you think the cost and time for training is expensive, try ignorance!

Eight ways to improve effectiveness

Here are eight proven actions that will significantly lower your cost of sale.

1. Implement a qualifying system and require its use.² Getting everyone to understand what good business looks like is vital to selling effectiveness.
2. Adopt the usage of key events.² Focus selling on getting the prospect to take action on events that lead toward the sale. This greatly improves success.
3. Invest a little now — save a bunch later. Put all your services sellers through 10 days of quality sales training per year. Your payback will be extreme.
4. Add support personnel. All right, Alexander, I thought we were talking about lowering the cost of sale, not adding expense! Think about this: Asking your most expensive resources (your sellers) to do $15-an-hour administrative work is plain stupid. Take away the menial labor and let them focus on selling.
5. Emphasize your existing accounts. Sure you want new customers, but the cost of sale for existing customers should be a fraction of what it takes for new ones.
6. Leverage your services providers. Building on No. 5, use your consultants, service account managers and technical personnel to qualify and sell new business. This is easy revenue.
7. Stratify your accounts. Often, it only takes a little more effort to land a big account than to acquire a small one.
8. Rethink your services marketing. Quit cranking out fact sheets and concentrate on testimonials that drive credibility and events that bring prospective executives together to start building relationships.

Selling Sin: Having a six-figure resource doing five-figure work.

What not to do to improve efficiency

Although important, trying to maintain an ongoing focus on reducing the cost of sales is not always easy, as the excitement and perceived urgency of getting in front of any and all prospects often conflicts with cost control.

Sometimes the most effective way to think about controlling the cost of sales is to look at what not to do:

• Don’t ever call on unqualified accounts!

• Don’t make a face-to-face visit if a phone call will do.

• Don’t make a phone call if an email suffices.

• Don’t send an email if the prospect, customer or client can get necessary information or take the desired action on the Internet.

• Don’t ask any of your people to do tasks that you can automate or make into customer self-service tools on the Internet.

Eight best practices to control the cost of sale

1. Track, monitor and publish the cost of sale.
2. Institutionalize a qualifying system.
3. Understand that sellers think and act around key events.
4. Deploy ample marketing budgets to support the development of case studies, thought-leadership publications and executive events.
5. Train every person who touches the customer about appropriate selling tools and techniques, and expect him or her to actively support selling efforts.
6. Let sales personnel sell, and don’t bog them down in administrative duties.
7. Use selling support systems (knowledge management, promotional materials, etc.) throughout the organization.
8. Reward the sales team on profitability.

Don’t let your cost of sale spiral out of control. Follow these guidelines to add more to your bottom line. There is nothing more wasteful and expensive than doing something extremely well that staff never should do in the first place.

Good selling!

This is the eighth article in a 10-part series on the 10 commandments of selling services. Visit the link to read previous articles.

Notes

¹Alexander, James A. 2004. The state of professional services II: An industry comes of age. Alexander Consulting, LLP, and AFSM International. Approximately 77 percent of study respondents were not sure of their average cost of sale. Discouragingly, this has gone up considerably. Alexander’s study, The State of High-Tech Professional Services: An Industry in Transition, published in 2000, showed that the average cost of sales at the time was 20 percent.

²Both of these help the services seller focus efforts on select prospects and select opportunities that will yield returns quickly, thus minimizing the cost of sale. For more detail, check out “The Sixth Commandment: Compress the Cycle Time of Selling.”

About James “Alex” Alexander

Alexander is founder of Alexander Consulting, a management consultancy that helps companies create and implement professional services strategies for product companies. Contact him at 239-671-0740, alex@alexanderstrategists.com, or visit www.alexanderstrategists.com.

© Alexander Consulting