Selling is changing, but broad generalizations and false dichotomies about ecommerce, big data, and other trends—hallmarks of current sales advice—are keeping business leaders from making sound decisions, says Frank Cespedes, author of a new book that aims to separate signal from noise.
In Sales Management That Works: How to Sell in a World That Never Stops Changing, Cespedes, a senior lecturer at Harvard Business School, offers research-based insight and context, and presents sales productivity not only as a core way to increase profit and value, but also as a social imperative.
As an example of sales-related hyperbole, Cespedes points to the dire predictions that online buying will eventually cause the real-life “death of a salesman.” While online information sources affect selling, retail sales through ecommerce increased only 5 percentage points from 11 percent in 2019 to 16 percent last spring, at the height of pandemic lockdowns. And before the pandemic, social media use had been flat for four years as these advertising channels became more cluttered and distrusted, offering marketers diminishing returns.
“Managers must move beyond platitudes and develop an accurate view of their current situation and how it might evolve,” Cespedes writes in the book’s introduction. If not, he says, they will make decisions based on bad assumptions and fall victim to those who do understand cause-and-effect links between buying and selling.
We talked to Cespedes about the challenges of modern-day sales management. The conversation has been edited for length and clarity:
Kristen Senz: What shifts in sales should managers and executives be aware of right now?
Frank Cespedes: Prospects are now online and offline throughout the buying journey, collecting information from user reviews and other sources. But most sales models are based on a linear “pipeline” view of buying and need updating. However, while it’s an omnichannel buying world, it’s not a digital-eats-physical world, and that has implications. Sales competencies are changing. Hiring in sales, even before the pandemic, was becoming increasingly tough and more expensive.
While it’s an omnichannel buying world, it’s not a digital-eats-physical world, and that has implications.
Another element is training and development. Companies, on average, spend about 20 percent more per capita on sales training than any other business function. But the ROI is disappointing because much of the training misunderstands how salespeople learn, is classroom-centric, and fails to take advantage of new tools that stimulate peer learning and enable the use of information when reps need it, not months earlier in a training seminar.
The other implication is sales models, most of which are the ad hoc accumulation of decisions that different managers made pursuing different objectives, usually quarter by quarter. Changes in buying have exposed the loose screws in those models.
A coherent sales model has three fundamental components: actionable customer selection criteria (because resources spent on accounts A and B are not available for accounts C, D, and so on); clarity about the buying process for target customers as it works today, not yesterday; and the go-to-market economics, including the cost-to-serve different segments and relevant metrics and incentives.
Additionally, when market lifecycles are shorter, you must reconstruct sales models more often, and this must be done while the ship is under full sail in an ocean where you don't control the weather. That's not easy, but it's not the responsibility of the market to adapt to your company; it’s your responsibility to adapt to the market.
Senz: What lessons should sales managers learn from changes in buying behavior during the pandemic?
Cespedes: First, beware of the many predictions you hear about the “new normal.” Most are simplistic straight-line extrapolations of buying behavior in socially distanced contagion conditions. Second, the pandemic has accelerated trends that were in progress before, like omnichannel buying and multichannel selling. Third, the need to ramp-up virtual sales models during the pandemic demonstrated that many companies were overpaying for some tasks, especially lead generation, demos, and certain types of meetings—many of which can be accomplished with either less expensive people or, sometimes, algorithms.
Senz: What's the most important piece of advice about pricing you can offer?
Cespedes: Can I give two? First, pricing and value are inherently intertwined. Yet, most companies use cost-plus pricing. That's dangerous in an information-rich world. Amazon, for instance, takes thousands of SKUs for consumer goods and distills this into price-per-ounce comparisons. So, if you don't manage this proactively, others will, and they don't have your best interests at heart. Contrary to conventional wisdom, moreover, value-pricing approaches are more available in many categories, as the examples in my book show. The issue is understanding the relevant unit of customer value and having a sales channel that can frame and articulate that value.
Second, price-testing is increasingly important. In his autobiography written in 1963, ad man David Ogilvy noted that, “Most people assume companies use scientific methods in pricing, but throughout my career, I have found that it is usually guesswork.” That's been my experience as well. Price-testing via A/B tests, different online and offline proposals, and other means is more easily done, but many firms remain unnecessarily passive in this area.
Senz: Why is sales hiring so difficult and expensive?
Cespedes: There are inherent challenges in sales hiring. If you want an engineer, accountant, finance person, or programmer, you can find people who majored in those subjects, but few schools have sales programs or even a sales course. Also, research consistently shows that managers overestimate their ability to predict job performance on the basis of interviews. The correlation between a manager's assessment of people in interviews and their actual on-the-job performance is less than 50 percent. In other words, less than flipping a coin, and usually much less in service jobs, like sales. You should not eliminate job interviews, but you should augment them, do them differently, and supplement them with other activities that I discuss in the book.
Also, required competencies are changing. Omnichannel buying makes the selling company more transparent to customers, who can “touch” that company at different places. The result is that salespeople not only have to use more data in their selling activities, but there's more cross-functional coordination required.
Improving sales productivity ... affects growth, civic discourse, and the lives of millions of people.
If a buyer has a problem, they typically call the person who made the sale, whether or not the problem is within that person’s purview. As a result, salespeople have to bring those other functions together. Similarly, multichannel selling changes competencies. For one thing, reps who were successful individual contributors now have managerial as well as selling tasks. Those are difficult transitions that affect sales training and hiring criteria.
Senz: You discuss sales productivity as a social responsibility for firms. Can you explain what you mean?
Cespedes: Especially in services-dominated economies like the United States and other nations, selling is a key part of productivity and growth. And as the Harvard economist Benjamin Friedman has shown, growth has moral consequences in terms of a society’s tolerance for diversity, social mobility, correcting inequalities, and democratic values. CEOs who opine about “stakeholders” should also look homeward. Improving sales productivity is not only about profit maximization and shareholder value—which, by the way, I don't think a CEO or Harvard Business School needs to apologize for—it also affects growth, civic discourse, and the lives of millions of people.
Bureau of Labor Statistics data indicate that about 12 percent of the US workforce works in sales (versus 6 percent in manufacturing), and this underestimates the number. Lots of people who do business development for a living are called “partners” or “associates,” not salespeople. Sales productivity is a core social responsibility of management, and I hope my book helps managers better understand that responsibility and how to fulfill it.
About the Author
Kristen Senz is the growth editor of Harvard Business School Working Knowledge.
[Image: Shutterstock/Josep Suria]
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Book Excerpt## Chasing Stars
By Frank V. Cespedes
There is no doubt that talent matters and that sales stars exist. But an overreliance on stars from outside organizations can 27 have unintended consequences.
28 Differences in individual sales performance are very wide in most firms. The top 20 percent of salespeople often account for 50–60 percent of their company’s revenues. As one study notes, if 20 percent of your salespeople are making 60 percent of revenue, that’s a 3X multiplier; and since the remaining 80 percent bring in only 40 percent of revenue, that is a .5X multiplier, meaning that the top sellers are 6X more productive than their peers.
Sales is like other creative occupations where the stardom phenomenon is well documented. In areas like software programming, the arts, sports, and others, the best are not just a bit better than the average. They are typically a lot better: the top 1 percent often outperform average performers in those fields by 125 percent or more. Performance profiles in those areas are (in statistics terminology) a “power distribution curve,” not a normal-distribution bell curve.
However, as my colleague Boris Groysberg has documented, stardom is not easily portable. Less than half of performance in the jobs he studied stemmed from individual capabilities, and the rest from firm-specific qualities and resources—for example, brand, technologies, training, team chemistry, and other factors. This is especially true in sales because sales tasks are determined by a firm’s business strategy and its choices about which customers to focus on. In turn, selling behaviors are affected by your control systems and culture as well as whom and how you hire. Those are all firm-specific factors.
Hence, when you hire a star from another firm, that salesperson leaves all of that behind. Talk to the corporation that hires the star sales VP from a competitor and finds that she doesn’t perform there the way she performed in the previous corporation. Or consider the many startups that bring in an experienced big-company rep and he flounders in the early-stage firm. Those people didn’t suddenly get stupid or lose individual capabilities. In business, there’s no such thing as performance in the abstract. There is only performance in a given context—here, not there—and much of selling depends upon the relationships, knowledge, and mutual trust that the rep establishes with others in the company.
Further, the effects of successful talent management seem to be cumulative: good people learn from each other. Again, this is especially true in sales, where modeling behavior is a key driver of how people develop. Average reps get better by watching how the best of their peers perform key tasks. They pick up important lessons about how to pitch, how to answer objections, how to deal with competitive comparisons, and other aspects of selling that product at that price in that market. This is one reason why ride-alongs, coaching, reviews and best-practice dissemination are so important.
Sales is a performance art, salespeople exhibit a wide variance in performance outcomes, and those outcomes depend upon innate talent as well as the context in which that talent is found, nurtured, and deployed.
Reprinted by permission of Harvard Business Review Press. Excerpted from Sales Management That Works by Frank Cespedes. Copyright 2021 Frank Cespedes. All rights reserved.
