Why Most CRM Systems Don’t Work…


In both our pricing and our sales effectiveness work we find most clients we visit have invested in some sort of CRM system. There are lots of them about and in the main they are all pretty good products. However, time and time again we see them not fulfilling their potential to help salespeople grow the business.

The problem is always the same; the moment senior management decide to spend the money on the system they start salivating at an opportunity to see what the sales team is actually doing… and better still measure it. After all what gets measured gets done doesn’t it?

Everyone in the office always wonders what those flash gits swanning around the countryside in their expensive company cars actually do for their over-generous salaries… now is the chance to hold their feet to the fire!

The CFO is ecstatic… with the sales pipeline in a nice piece of interrogatable software, forecasting is going to be a breeze from now on.

…But somehow it doesn’t all work out as planned.

There is an underlying problem. The CRM system will deliver numbers for you… nice crisp numbers often to two decimal places… but this is not data. It is actually an amalgamation of a bunch of extroverts’ opinions, wishful thinking and exaggerations expressed in numerical form.

Assessing the Sales Pipeline from CRM

The most popular form of sales pipeline before the days of CRM was a spreadsheet hastily prepared the night before a sales meeting. If all you do when you set up CRM is to type this in then you will get what you deserve… a bunch of three year old ‘opportunities’ that are never going to land in a month of Sundays.

Forecasting from CRM

If your sales pipeline is made up of fairly hefty chunks of business… big contracts or new customers… then let’s consider just three of the inputs the salesperson is required to put into the system:

The Value of the Deal – Is the customer really going to tell you how much they spend already before they have seen your quote? If so, might they exaggerate how much they spend in order to make you price more keenly? Do they know how much of your product they are going to be able to sell on to their customers before they have tried it? We would suggest that until you are well into the sales process and have done some proper discovery, you can’t tell what it is worth…partly because you haven’t properly set the price.

The Likelihood of Winning – Sometimes the system applies this. Otherwise it is a measure of the caffeine intake of the salesperson in the 90 minutes prior updating the system.

The Expected Close Date – If you have a sales cycle that typically takes more than 30 days, this is a nonsense field unless it is filled in the day after the order is received. If it is a big opportunity and it slips over a month end… or worse still a year-end… there goes your phased forecast to hell in a hand-cart.

So what do you need to do to make it work properly?

Firstly.. stop the management looking at it…. at least for a while. So long as the sales team know they are being watched, they will tell you what they think you want to hear (remember: they are good at this… that’s why you hired them). We recommend when first implementing CRM, the CEO and CFO should not get a sign-on for at least six months.

Secondly… make it an indispensable tool for the sales person. A friend and great salesman Tony Dimech says CRM stands for ‘Can’t Remember Much’. A good salesperson might be juggling between 15 and 40 opportunities, they can’t possibly remember who said what to whom and when. CRM when used properly reminds the salesperson who to nag today to bring more business closer to landing in the order book.

It should be set up with the salesperson in mind and worry about the management information later:

Field of View – It should immediately present their pipeline and suggest what they can be doing next on its first screen

Available – If they are out in the field, it needs to be mobile. They should want to look at it several times a day. I update mine when I walk out of the client’s office after a meeting.

Synchronised – Pretty much all of a salesperson’s correspondence diary dates and contact details should live in CRM, or at least by synced with outlook/google.

A well designed CRM system puts pace into sales. It makes its users more successful. It stops opportunities slipping through the grating. When it is working well, it is a selling tool and not a tool for management.

IT SHOULD BE A SATNAV NOT A TACHOGRAPH

If the salespeople come to rely on it as their primary information source, then the information they put in will be accurate and the data coming out the back will be reliable. It doesn’t work the other way round.

Footnote: At Burgin Associates we use Pipedrive. Nobody looks over my shoulder at the data as I am the boss. But I wouldn’t be without it as I know it helps me bring in business. Clients will know that I refer to it as my ‘Nag List’ …once you get on my Nag List, you never get off until you place some work with us !!

We undertake quite a lot of sales effectiveness work for clients and are pretty good at getting CRM humming.

Objection Overload and the Downward Spiral


There is nothing more guaranteed to reduce your price than a demoralised sales team with discretion to discount… except perhaps a demoralised sales team behind budget who need their bonus to pay the mortgage.

Modern CRM systems are very good at measuring conversion rate and delivering it as a metric with which the management can beat the sales team. Consider a 20% win rate. It sounds bad doesn’t it. It feels bad for the salespeople…. four out of five people have told them to get lost. But what if there were eight similar competitors approaching all the available customers in the market. In this case 20% is above what we would call ‘natural share’ and actually demonstrates that your sales team (or the company’s product) must be doing something right.

It is difficult for both companies and sales people to take this positive view. A sales person’s perspective is governed, not by statistics, but by the last two or three people they spoke to. If one those is negative about quality, service or product features, the average person will struggle to re-set the dials before their next call. Even the best salespeople cannot avoid storing these negative comments somewhere deep in their subconscious.

It is not too bad if you are the market leader with a fabulous product that everybody wants, but if you are trying to sell for an also-ran player in a busy market, these objections corner you into turning to discounting to try to win business.

Given enough rope to discount, a sales person will keep on trying to win on price when perhaps price is not the issue. Compound this with an incentive scheme that rewards winning deals never mind the price, then the only way is down.

Eventually your business winds up at a price level that feels too cheap for customers and you still don’t win any business.

How do you get out of this downward spiral?…. four steps:

  1. Find something that truly differentiates your product and make sure your salespeople understand it.
  2. Identify those customers who will value whatever it is.
  3. Fix the price based on value and allow no discounting.
  4. Make sure the sales team only go after these customers. This means improving their discovery skills to enable them to identify suitable customers.

Magically the conversion rate will go up… once it hits 40-50% your salespeople will think they are the bees’-knees.

 

Should Salespeople Set Prices? …The Eternal Debate


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We often get stuck in the middle of a heated discussion across the boardroom table about whether salespeople should be allowed to either set prices or offer discounts. I find myself sitting there, sage-like, until the fury has died down and both sides turn to me for the ‘expert’s view’. I thought I would save you the angst and give it to you up front.

There have been quite a few studies (mainly in the USA) that indicate that companies in the same sector that do not allow salespeople discretion to discount make more money. However it is not quite as black and white as that…it sort of depends on the nature of the business, the mindset of the sales team and how you manage them.

A good starting point is to distinguish between two rejections on price which are sometimes difficult to tell apart:

  1. “I have a price from your competitor that is lower than yours and I cannot see a reason to pay a premium to you.”
  2. “I like your product and am intending to buy from you, but I am going to have a crack at getting a discount because you look scared and I want some of your profit.”

It takes takes a deep understanding of the context of the purchase and the needs of the company behind the somewhat aggressive buyer, to call his or her bluff and stand your ground. There are many reasons why front-line salespeople won’t do this:

Deals are binary for them... In their world, sitting in front of a customer, they are faced with a choice: Give the customer the 5% discount that they are asking for or lose the deal (and the associated bonus).

At the centre of the organisation we aggregate the swings and roundabouts to get our market view. The salesperson’s market view is the customer across the table from them right now.

Nobody ever tells you that you are too cheap… This is an inherent cognitive bias that afflicts almost all companies. Unless properly measured, your view of your price position is almost always inflated.

Field Salespeople are unfamiliar with the maths… There is seldom anywhere in career path of the average salesperson where someone sits them down with a P&L and shows them the disastrous effect dropping price has on the bottom line.

There is an assumption that the competition will not react… They may not get a chance on this deal, but the next time they come up against you they will have learned their lesson and launch a pre-emptive strike…. (don’t get me started on the whole price war metaphor thing).

5% doesn’t sound like much… Who hasn’t heard salespeople round to the nearest 5%… after all it is only a 20th…. not if it is another 5% discount from list and the discount is already 65%… then it is a 14% drop in price. A 5% drop in price will put a 4.9% EBIT business into the red.

Negotiating is different from Selling…. a salesperson will go out of their way to delight a customer, after all that their job! Delighting the customer when negotiating price is not usually a good idea.

The ability to discount is a badge of rank… It is like the company car grade or the title on the business card (do you have anyone who is still a Sales Representative? …or are they all Area Managers now). The more senior you are the more of the company’s money you are allowed to give away. The discretion to set or discount prices will have to be wrestled from their cold, dead hands.

Having said all that…

If you cannot generalise at the centre about the price sensitivity of the market and you do not have the time feed the decision up the management chain, then perhaps the salesperson does need to make the judgement whilst sat in front of the customer. If this is the case this is what you have to do:

Train the hell out of them… teach them the maths until they can do it in their head without thinking (some won’t make it). Teach them to understand benchmarks, context and value so they can judge price sensitivity. Teach them to negotiate (needless to say we can help with this).

Measure them and reward them to drive good pricing behaviour… We still see some companies where salespeople are measured on volume or value yet allowed to discount. We tend to put the CEO straight fairly quickly (we find a baseball bat helps). Even bonus paid on profit or contribution doesn’t always crack it.

Give them permission to lose customers on price… this is an anathema to most companies, but if you always win you are not pushing the envelope on price.

HERE’S A WACKY IDEA… to start down this path, give them the discretion to increase prices but not discount. Measure and celebrate those that get the best price for the value your company offers.