Jonathan Farrington

CEO, Editor, Author, Keynote Speaker, Customer Experience Evangelist, Sales Futurist

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Using Pareto’s Principle to Highlight the Current Malaise Within the Sales Space

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I have to confess that I was 25 years old before I discovered Vilfredo Pareto and whilst I cannot claim that I experienced an epiphany of “Damascus Highway” proportions, it did cause me to make fundamental changes to the way I organized myself. I think even at that young age, I knew precisely what I wanted to achieve both in my commercial life and, indeed, my personal life – it was simply a question of re-adjusting my 80/20 balance.

Vilfredo who?

In 1906, Italian economist Vilfredo Pareto created a mathematical formula to describe the unequal distribution of wealth in his country, observing that 20% of the people owned 80% of the wealth.

Where It Came From

After Pareto made his discovery and created his formula, many others observed similar phenomena in their own areas of expertise. Quality Management pioneer, Dr. Joseph Juran, working in the US in the 1930s and 40s, recognized a universal principle he called the “vital few and trivial many” and put it down in writing.

As a result, Dr Juran’s observation of the “vital few and trivial many”, the principle that 20% of something always are responsible for 80% of the results, became known as Pareto’s Principle or the 80/20 Rule.

What It Means

At a very basic level, you know that 80% of sales will come from 20% of the sales team. 20% of staff will cause 80% of the problems, but another 20% of staff will provide 80% of the production – it works both ways.

How It Can Help Us?

The value of the Pareto Principle for all of us is that it reminds us to focus on the 20 % that matters. Of the things we do during our day, only 20% really matter. Those 20% produce 80% of our results and we should identify and focus on those things.  If something in the schedule has to slip, if something isn’t going to get done – we should make sure it’s not part of that 20%.

Digging a Little Deeper

When thinking about the overall annual performance of a sales team, the harsh reality is that only 20% typically smash their targets – these are the “sales superstars”. Of the remaining 80%, 30% just scrape through – rather like a high jumper just grazes the bar but gets over. That leaves a significant 50% who fail, often quite miserably, year after year. The reasons are numerous but right now, much of my work is focusing on sales leadership because, not only are these people critical to the overall success of the company’s engine room – the sales team – most are in a very precarious position. They are relying on their “super achievers” to over-perform in order to make up the deficit of the rest of the team. But what if a few of the best left? Total vulnerability!

In fact, there is a management theory floating around at the moment that proposes to interpret Pareto’s Principle in such a way as to produce what is called ‘Superstar Management’. The theory’s supporters claim that, since 20% of your people produce 80% of your results, you should focus your limited time on managing only that 20% – the ‘superstars’.

The theory is flawed because it overlooks the fact that 80% of your time should be spent doing what is really important. Helping the good become better has to be more effective – in the medium and long-term – than helping the great become terrific.

Thinking About the Wider Sales Space

You will know that 80% of what you read, hear or witness is dedicated to lead generation, winning new business, prospect attraction, etc. It is all about cold calling, social selling, email marketing, inbound, outbound – in other words, hunting. It has become an obsession.

That logically means only 20% of a company’s efforts (here 20% is probably very generous) is dedicated to managing, developing, consolidating existing customers. And yet we know that 80% of a typical commercial organization’s revenue, every year, will arrive from those same existing customers. Total madness!

Unfortunately, there is no consolation for any sales leader reading this – 80% of your sales teams are incapable of sustaining long-term relationships because they are commercially promiscuous. They would much prefer to close the deal and then move on to the next shiny, bright new opportunity, leaving that newly acquired customer to fend for themselves – after all, they will call us if they need to buy anything else, won’t they?

Actually, no! At any given time, almost 80% of buyers would be receptive to changing suppliers. They don’t necessarily want a better deal, more discount, greater value – although all of that helps. They want to feel valued, respected and loved. They want to do business with a company that is prepared to work hard to earn the right to their custom.

In summary, I would say this: You can apply the Pareto Principle to all that you do, but my advice is to use it wisely. It should serve as a daily reminder to focus 80% of your time and energy on the 20% of your work that is really important. Don’t just “work smart” – work smart on the right things.

 

The FIVE Critical Sales Challenges Facing Every Company, Everywhere ….

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I have been contemplating what I believe are the most significant challenges most companies are currently facing, and I have managed to reduce my list to just five.

Challenge One: Finding Opportunities

I am continually surprised to discover just how few companies have a formal business development strategy. The norm appears to be “If we throw enough mud at the wall, some of it is bound to stick … eventually” For “mud” you should read “resources” This “Quixotic” mantra is costly, unproductive and naive.

There are so many solutions available today, which assist front-line sales professionals to accurately target potential clients/customers – not to mention resources like LinkedIn etc. – it is incomprehensible to me that the majority of organizations are still flailing in the dark.

For example, how many companies do you know that can tell you exactly what each lead is costing them?

Challenge Two: Sales Enablement

It is estimated that between 56% and 58% of front-line salesmen and women will fail to hit quota this year. Why? Targets set too high? Maybe in some cases, it could be suggested that in a continuing flat-line economy, expectations were unrealistic. But my personal opinion is that we are now witnessing the inevitable results of all those training budget cuts, which were implemented three or four years ago when the recession began to bite.

The reality is that you cannot expect an under-equipped and an inadequately armed army to win battles, let alone the war.

There is ample and reliable evidence to suggest that for every $ spent on appropriate and relevant sales team development a return of $100 should be anticipated in incremental revenue gained – it isn’t rocket science.

But do note the highlighted words – appropriate and relevant

Challenge Three: Customer Retention

For more years than I can remember, I have been “crusading” for greater customer focus, and for organizations to work to prevent the constant drip, drip, drip of departing clients out of the back-end – almost as fast as new ones are coming on board at the front-end. How many times do we commentators have to point out that it costs at least 15 times more to first attract, then qualify, and then sell to a new customer as it does an existing one? How many times do we have to highlight surveys that shout at us that the most common reason companies change suppliers is because of a perceived lack of interest? 71% was the number I heard last.

How many vendors do you know who have, amongst all the data they examine every year, accurately calculated the true cost of all the customers they lost in any given period? And if you do know any, I am prepared to wager that not one of them included the total costs of winning that customer in the first place!

The reality is that standards of customer care have never been so bad – it is a self-perpetuating downward spiral. We actually no longer remember poor service, we expect it; but we are surprised when we receive good service. How sad is that?

The good news is that any company, who is prepared to raise their game by just a few percentage points, will stand out from the mediocre rest!

Challenge Four: Controlling Costs

Nobody should ever doubt that the successful formula for any company looking the survive today – let alone thrive – is to constantly look at ways to reduce costs, whilst increasing profits. Note my emphasis on profit, rather than revenue. A very wise old mentor of mine – a keen golfer – once said to me “Jonathan, we always drive for revenue, but we putt for profit” and how right he was/is.

It is a fallacy to believe the responsibility for ensuring an organization’s financial health and stability lies solely with the grey men in accounts. Every individual has a part to play, and especially the sales team – the engine room of any firm because although it has become a well-worn cliché, nothing really does happen until we sell something.

Our role is to maximise the profitability of every single deal: That means examining the true costs.

Net margin is NOT simply selling price less buy-in price. True profitability takes into account all of the costs associated with creating the lead in the first place; it allows for all of the pre-sales meetings, including qualification, face-face presentations and negotiation – these are all time consuming and cost bearing activities. Then there is the value we must place on after-sale support or technical input. Only when we truly understand the real cost of each sale, can we begin to understand how we are able to improve our profitability.

Much of this is down to control, and that leads me onto …

Challenge Five: Leading from the Front

The average tenure of a sales manager today is less than two years – actually, if the manager was promoted from within because they were the most successful salesperson on the team, the average duration comes down to eighteen months. These statistics are quite shocking, but not surprising. This role has become the least secure in most organizations today.

Show me an under-performing sales team, and I will show you an incompetent, poorly trained and inadequate sales manager: This role has now become critical.

 

Taking the Journey to “Me Only Territory?”

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The very best consultative sales professionals operate exclusively in “me only territory” and that demands an explanation, so let’s begin by examining the traditional sales environment…

For the sake of this explanation, let’s use a baseball park (not that I know too much about baseball.) So traditional salesmen and women are operating left field, they are usually totally focused on a single sales event, and they sell products. If asked to describe the value they bring, they would simply offer you product options, and they are always willing to compete on price to get the order. They typically sell to “users”, which requires them to be consistently reactive and, of course, their achievement levels are as unpredictable as the British weather!

Finally, if asked to describe commercial politics, they would stare blankly at you… That isn’t their fault, it is simply that they have never been exposed to it – and the same goes for ROI.

These people are all operating exclusively in “me-too territory”. 

When we move into centre field, we find ourselves in “me-first territory”. These salespeople bring much more to the table and have a much wider commercial bandwidth.

They are pre-occupied with the business process. They focus both on the customer and their competitors. They don’t simply sell products, but rather “application solutions”. They are acutely aware of the need to make a profit and usually they deal with recommenders, so they have taken a giant stride up the food chain.

These salespeople understand that reliability is more important to customers than the speed of response (reactivity) and they are also politically agile. Naturally, they can sell using ROI arguments. Finally, their achievement levels are consistent.

You might be forgiven for thinking that must be as good as it gets – after all, the two scenarios that we have described account for around 95% of the global sales population… But actually, no, it gets even better!

Now we are entering “only-me” territory – the hallowed turf of the sales world. We are very much right field, and the population is made up of the biggest hitters whose primary pre-occupation is long-term outcomes. Their focus is entirely on the customer’s commercial objectives and how they can assist the customer in achieving them. The value they bring is strategic direction and they only see long-term ROI. Their dealings are exclusively with key decision makers and they penetrate the formal DMU as easily as a knife slicing through butter.

These salespeople are always on the front foot, deliberately pro-active. They identify the business they want and they go after it. They are not just politically agile – they are politically astute. They use politics to win whenever they need or have to. They always secure high ROI and they consistently exceed quotas. They have complete account control.

And you, where do you spend most of your selling time?

In the precarious left field, where you are totally at the mercy of your prospects and customers, hoping that they will call you?

Maybe you are centre field, which does indeed feel much more secure when compared to your colleagues to the left of you – even though you frequently cast envious glances to those colleagues on your right…

Or maybe, just maybe, you really are a top 5% achiever? If you are, congratulations, I know precisely what it took for you to get there!

One Size Will Never, Ever, Fit All

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If we start from a position of agreeing that as human beings we are all different, then we must also concur that all prospects/customers/clients are also different : In terms of their commercial requirements, they each have a unique set of values, their own way of doing business – and how they expect the buying cycle to be managed. With me so far?

So, with all of this in mind, why is it that some people – many people actually – believe that a “vanilla” or “generic” sales methodology will serve the needs of all? The reality is that there is no single one way to sell – different situations, industries, roles, cultures, etc. require a totally different approach.

Let’s begin by thinking about sales roles. There are effectively three “stages” of a sales cycle, which requires us to recognize that there are actually three identifiable sales functions – or as I prefer to refer to them, “Sales Phases” i.e. Phase One: lead generation/prospect attraction. Phase Two: prospect conversion/closing the deal, and finally, Phase Three: client/customer retention and development.

We then need to think about the skills needed in each of our phases, because they are completely disparate: For example, when you are working in Phase One, logically you need to be skilled at cold-calling, or email marketing, or referral selling. Most social media pro-activity is also focused on creating incremental opportunities.

During Phase Two, if we follow the “traditional” sales/buying cycle path, we need to qualify the opportunity, create a solution that precisely fits our prospect’s requirements, present that solution, negotiate, and close. That all sounds rather simplistic, and we all understand that complex sales can be far more … well complex. Here most sales methodologies come into their own.

Finally, Phase Three. This is the phase where most companies are weakest, preferring to concentrate the majority of their resources on Phase One – the ability to first build and then develop a strong customer base, which promotes strong two-way loyalty and is founded on a totally symbiotic philosophy. This is what differentiates highly successful companies from the also-rans – and for also-rans, read much less profitable. Again, you will not gain anything from a sales methodology program if you wish to take these skills on board.

So far, I have merely illustrated how out-of-the-box sales team development can never provide a precise solution in terms of skills development.  We then need to look at industry/sector specialization. And what about culture? Do we all sell the same wherever we are located in the world? Of course, we don’t.

Be assured, one size will never fit all – in fact, it won’t fit many…

 

What Defines a “Sales Winner”?

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This is a question that I am asked so often, and my response is always the same… I describe the “Running Away” personality and the “Running Towards” personality.

The running away person is awoken by their alarm clock and they immediately hit the snooze button. Ten minutes later, the buzzer goes off again. “Just ten more minutes” they say to themselves, “I won’t exercise this morning”… and they again activate their friend, Mr Snooze. This happens three more times and each time they determine that they will skip a vital activity in order to enjoy a few more minutes slumber. They have already decided to skip breakfast and they will shave/put on make-up in the car on the way to the office. Finally, a full hour after their first alarm call, they leap out of bed, the image of their boss standing outside the office door, purple with rage at their continual poor time keeping is just too horrible to contemplate and it acts as their spur.

As someone famously once said: “Some people make things happen whilst others just stand and watch what happens” My take on that is: “A few people make things happen, others just watch what happens, but the vast majority wonder what the heck happened”!!  The running away mind-set falls into the last category.

Let’s look at the other side of the coin, let’s see how a running towards personality handles their relationship with their alarm clock…

To begin with, our running towards person has invested some of their time the previous evening preparing for the next day – the suit has been pressed, shoes cleaned, notes prepared for those important meetings, etc. In fact, all of the next day’s objectives have been thoroughly rehearsed mentally and planned for.

When the alarm clock goes off, our running towards person typically awakes refreshed and completes final preparations for the day. They have plenty of time for exercising, for bathing, and to eat a proper breakfast with their family – they are in control. They arrive at the office before most of their colleagues (80% of whom arrive at 8.55 am, just in time, only because they fear the consequences of being late!) so that they can respond to e-mails and attend to essential administrative tasks, which would otherwise take up valuable business time. Life for these people appears effortless, relatively stress free, because they have made it that way!

These people are “Winners” – are you?

Why Selling is Both an Art & a Science

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The dichotomy facing sales leaders today, is how they reconcile the fact that most corporations provide less upfront training for their sales staff than in years past, yet attach increasing importance to staff development.

This should not come as a surprise, because current stock market thinking provides a powerful disincentive for firms to invest in their people on an on-going basis. You see, an organization’s investment in their human capital, in the form of training and other forms of education, is not separable from general expenditure: It therefore appears as a cost on the corporate balance sheet.

Unfortunately, as a consequence, most sales leaders have concluded that their only realistic option is to cut back on training and instead look to recruit sales professionals who, in theory anyway, already possess the necessary skills needed to do the job. They then send them out to win business armed with what they know. However, most of those same sales leaders are discovering just how difficult it is to find skilled salespeople who have all of the essential skills and personal traits. And anyway, it is not possible to equate experience or seniority with success. As I have said on numerous occasions: “Some front-line sales professionals do have ten year’s experience but most have one year’s experience ten times.”

In skills development there are many similarities to sport i.e. does an athletic champion stop training as soon as they win their first medal? In music, does a concert pianist stop rehearsing as soon as they have given their first recital? In art, does the artist stop improving after they have enjoyed the first exhibition of their work? The answer in all cases is obvious and we should apply the same common sense principals to the on-going development of our sales teams.

The reality is that selling in today’s climate is both an art and a science. Selling is a profession that demands a far wider range of skills than ever before, skills that require continual fine-tuning and constant practice.

On-going reinforcement and development is essential: Even if salespeople have undergone progressive sales training, there’s no guarantee that they will be successful. It is common knowledge that skills grow rusty over time and salespeople are prone to pick-up bad habits along the way or to simply skip steps and take shortcuts that can lead to long-term trouble.

Perhaps even more important these days, is the fact that markets, competition, technologies, and customer preferences are all in a constant and accelerating state of change. This fact requires that sales people are able and willing to rethink their sales strategy and approach frequently and receive a regular top-up of skills and motivational coaching.

Our people are the most expensive asset we have so doesn’t it make sense to invest in that asset and increase its value?

Are You Up to the Challenge of Change?

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Becoming a strategic and consultative Sales Superstar requires significant changes in your “world view” – how you think about yourself, and how you think about your relationships with key stakeholders: These new ways of thinking probably directly challenge what you have been taught and believe.

When faced with significant innovations in thinking, we tend initially to find ourselves in one of the following three characterizations:

  • The Authoritative Critic
  • The Authoritative Expert
  • The Enthusiastic Apprentice

We can think about these three characters as being on a spectrum that runs from outright rejection to eager acceptance. As we take a brief look at each of these, allow yourself to wonder where on the spectrum you fall in your process of becoming a Sales Superstar.

The Authoritative Critic

This individual quickly dismisses new ways of thinking outright, rejecting them as ridiculous, foolish and unwise.

What is this individual’s motivation? Fear of change, or loss.

The Authoritative Expert

This individual is one who typically responds to the introduction of innovative ideas by rejecting the reality that the ideas are indeed innovative. This individual is typically thinking, “What’s the big deal? I’ve always done it this way.”

What is this individual’s motivation? Fear of losing face, of appearing inadequate.

The Enthusiastic Apprentice

This individual is excited by innovative thinking and is eager to learn. He/she may not understand or totally embrace the innovative concepts, but they are excited about the possibilities that well-informed change may bring about.

What is this individual’s motivation? It is hunger for knowledge and excitement about the possibilities that may come with new knowledge.

The nature of change is dynamic. As much as we might like to believe that change is linear, the truth is that deep transformative change develops in a spiral pattern. As you reviewed the above characteristics, you may have seen parts of yourself in each description.

Knowledge is the power. The more aware you can become of your own process of spiralling through the process of change, the more conscious and intentional you can be about choosing change, choosing growth, and choosing to become a Sales Superstar.

Lead Generation and the Use of “Pareto Thinking”

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Use of “Pareto Thinking” is highly relevant and important when applied to sales people. For example, 20% of a sales person’s activities will create 80% of sales achieved, which has enormous consequences on how to optimize and manage lead generation activities.

Generating leads is of course, an important sales activity that plants the seeds of growth for sustainable business development. A lead is purely a name that you could refer to as a SUSPECT because their potential to buy is unknown.

Before you can qualify leads to determine whether they have the money, authority and desire to buy your products/services you need to generate them!

When deciding upon which lead generation methods work best for you and your organization, it helps to have clarity on the type of customers that you’d like to attract. This means creating an “Ideal Customer Profile” that can begin to provide direction to your lead generation activities.

The following questions will stimulate your thinking when it comes to developing an Ideal Customer Profile:

  • What size of organization would you prefer to deal with?
  • Typically, how many people will they employ?
  • What market sector(s) do these organizations operate within?
  • Who specifically will be buying your products/services and what are their titles?
  • Where geographically would you like these organizations to be located?
  • What does your organization offer that is unique?
  • What types of organizations will be attracted by this uniqueness?
  • What do your best customers possess that you would like to replicate in others?
  • Which of your existing customers were the easiest and quickest to convert?
  • What similarities do these customers possess?
  • Are there any specific criteria that prospective organizations should have in place, so that your products/services can be optimized?

Having a well-defined profile of your “ideal customer” can prove to be invaluable when determining which methods to use for lead generation, and improves the effectiveness of marketing initiatives.

You may also discover that the process for asking for referrals becomes easier and generates a better response, because you are providing the person with a tighter specification of what you are looking for – this concentrates their thinking towards the direction you have defined.

Why So Many Salespeople Are Failing So Badly …

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Unlike most other professions, there are no qualifications required to become a professional salesman or woman: I find that very disappointing, and I am also deeply concerned that even the super-rich corporations who used to put their latest intakes on a solid two year program before letting them loose on an unsuspecting audience, now believe that around two weeks of product training is quite sufficient.

Why the change? In a word, “cost” Since the recent financial meltdown, investors have been crawling all over balance sheets, and any investment in staff development always appears as cost for which there is never any tangible evidence of a return.

Whereas replacing non-performing heads is always seen as an unavoidable investment. This in turn has led to a new “hire and fire” mentality, which actually, is incredibly short-sighted, and usually proves far more costly. It is a total cop-out, and simply highlights the fact that so many poor hiring decisions have been made in the first place.

Make no mistake, as a sales leader, when one of our team fails, we fail.

The real answer, as I alluded to yesterday, is the decline in the quality of sales leadership. This is a role, which is now pivotal in every organization, whatever the size: I liken their importance to that of the QB on a football team – yes, that important. Which is why it is alarming to note that the average tenure of a sales manager today is just eighteen months.

So are there any companies out there still willing to invest to accumulate?

Very much so. Those companies who have implemented their own “academies” – including most of my clients – are reaping rich rewards. Turnover has been reduced to virtually nil; teams are happy, and feel valued; staff typically work longer hours, but are also working smarter, and they are totally committed.

None of that should come as a surprise to any of us. When a company demonstrates its commitment to its employees by investing back into them, those employees are anxious to repay that faith – it is a no-brainer and definitely win-win.

How about you, are you really valued by your company? Or are you one of the at least 80% of sales professionals who remain unqualified to do your job properly?

You Are a “Generalist” – Unless of Course You Are a “Specialist?”

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I have been thinking a lot about this recently – the differences between so called “specialists” and the alternative, which must logically be “generalists”

It is easy to imagine what a specialist is; someone who is perceived to be if not an expert, then certainly someone who is focused; has chosen to focus on one specific area, thing, sector, topic, subject … you see what I mean. Whereas a generalist is described thus: “One who has broad general knowledge and skills in several areas”

Maybe generalists could also be labelled a “Jack (Jill) of all trades” which insinuates “master of none” but actually that is far from true. When I think about the sales space, and some of my acquaintances, colleagues and friends, it is very easy – well for me anyway – to categorize most of them.

So who is better, the generalist or the specialist?

In that environment there isn’t a better: Some have chosen to concentrate on a particular aspect or area; others cannot be confined to one “discipline”

What’s the correlation with front-line selling? Well it is simply this: Commentators like me evangelise about the need – as a professional salesman or woman – to become an industry expert; to know everything there is to know about what is happening in your sector and in your market, so that you can have meaningful dialogue with your clients and prospects. I highlighted this point in a recent post, when I suggested that buyers today are only interested in having interactions that are “wholly relevant” But here there is a dichotomy …

What if you are selling into a variety of industries? What if you cannot select your customers, and you have to rely on them selecting you? What if you have no control of your typical buying/selling cycle? Then of course you are having a much more difficult time – you have, by the very nature of your role, to become a “jack of all industries” and logically you will probably be “master of none”

I have said it so many times before, all customers/prospects/clients are unique, and so are salespeople – and their development needs.

Oh, and me? I am a specialist … and a generalist: I used to be indecisive, but now I am less certain.