Discovering New Points of Differentiation, Avoid Incentivising Salespeople for Discounting & Jim Collins’ 6 Characteristics of the ‘Right’ People
16 April 2023 Newsletter
“Leaders are made, they are not born. They are made by hard effort; ..which is the price all of us must pay to achieve any goal that is worthwhile.”
– Vince Lombardi
Hope you’re Thriving!
It’s been a good week, with a couple of days off and some interesting meetings.
What was I doing on my day off? Spending hours on the phone, on hold to my bank. So I found it interesting to see that the IRS (the US tax department) has cut telephone wait times to an average of four minutes, whereas they were 27 minutes in the fiscal year 2022. Similarly, they are answering 80% to 90% of calls, compared with only 17% at the same point last year.
According to IRS Commissioner Danny Werfel “This additional staffing made an immediate difference”. Obviously, it’s unacceptable for any organisation to drop more than 80% of calls; measuring the right KPIs that help managers make the right decisions matters.
In another conversation with a CEO this week, I was asked, “What should I do when people have too many KPIs and too many priorities?”
Simply rate all the KPIs and priorities from most to least important.
Then trim them to around 2 KPIs and 3-5 SMART priorities. Either drop the rest or delegate to other people. Oh, and ensure accountability and ownership. The finance department doesn’t produce KPIs; people within the department should own KPIs. Create ownership for working in the business (KPIs) and working on the business (priorities).
KPI Cheat Sheet
This week I came across this excellent cheat sheet for KPIs from The KPI Institute.
There’s a lot going on here, but I love how they built a flow chart from metrics to KPIs, KRIs and Analytics.
Why to Avoid Incentivising Salespeople for Discounting
Last week I spent time with a CEO who remunerated his team with a revenue-based commission.
Unfortunately, he was breaking the number one rule of sales compensation, that salespeople must be compensated on Gross Profit, not Sales Revenue. Even worse is when salespeople are paid on revenue and can discount to “get the deal”.
I recently found some statistics on salespeople in software businesses from ProfitWell.
• 77% of salespeople think discounts are crucial to close
• Most salespeople want to give 25%+ discounts
• 32% give discounts on 1st calls
Here’s the scary graph. 50% of salespeople think a discount of 25% to 50% is needed to get a customer to convert, and 27% believe that a discount of greater than 51% is required for a customer to convert.
The problem is that discounting is lazy. It’s the path of least resistance.
When comparing conversion rates between deals that were discounted and those that weren’t, discounted deals converted less than 5% more. So there’s basically no difference, except you get 10% to 30% less revenue.
Oh, and one other thing, those customers who receive a discount greater than 20% are more likely to churn. They are terrible customers!
So what can you do?
• Look at your sales team’s remuneration. How can you align it with the overall business’s profit goals instead of revenue to avoid incentivising discounting?
• Document your discounting policy. List the amount that a salesperson can discount to get a deal (e.g. 5%), when they need the sales manager’s approval (e.g. 10%), and when they need the CEO’s approval (e.g. >15%).
• Document the amount of money your firm and each salesperson discounts per year. If you had a scoreboard on the wall saying you’ve discounted $1.3m in the past nine months, which is essentially gifting profit, people’s mindset would change.
• List a time constraint for a discount. E.g. 10% off for seven days only.
The job of the salesperson is to retain the profit. Selling at full price is the profession.
If discounting is the norm at your firm, you don’t have a sales team; you have an order-taking team.
Listen to our podcast about Gross Margin- Understanding the most important number in your business.
Discovering New Points of Differentiation
For most organisations having their customers consistently waiting on hold for 70 minutes before talking with them for 5 minutes would be outrageous. Banks and phone companies spend a lot of time and money on advertising and marketing, trying to appear different from their competitors, yet fail miserably in delivery and customer satisfaction. The problem is that the consumption chain is not geared to produce customer satisfaction.
The key to strategy is to create a unique and valuable position in the market that is different from competitors. Yet this doesn’t necessarily need to be in major ways like you might consider between Apple and Samsung. Executing well within the customer journey can produce differentiation.
And so, reflecting on your business, ask yourself, are all points of the consumption chain geared toward customer satisfaction?
In the article below, Rita McGrath discusses the 15 questions you need to ask to consider this:
1. How do people become aware of their need for your product or service?
2. How do consumers find your offering?
3. How do consumers make their final selections?
4. Can you make the buying process more convenient and less irritating?
5. How do customers order and purchase your product or service?
6. How is your product or service delivered?
7. What happens when your product or service is delivered?
8. How is your product installed?
9. How is your product or service paid for?
10. How is your product stored?
11. How is your product moved around?
12. What is the customer really using your product for?
13. What do customers need help with when they use your product?
14. How is your product repaired or serviced?
15. What happens when your product is disposed of or no longer used?
Read the article here: Discovering New Points of Differentiation
If Banks Were Flowers
This Week on The Growth Whisperers Podcast
Jim Collins’ 6 characteristics of right people in the right seats
We’ve all heard of the phrase ‘get the right people in the right seats on the bus’. It talks about ensuring that team members are aligned and committed to success.
However, Jim Collins has a very specific definition of the ‘right people’, and when you’re considering if you have the right people in the right seats, and this includes six key characteristics that might help to understand what ‘right’ actually means.
This week we’re going through Jim Collins definition of the right people in the right seats.
Listen to The Growth Whisperers
Or watch it on YouTube
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