Time To Swap Rituals
–noun – prescribed, established, or ceremonial acts or features collectively, as in religious services.
There is a ritual that can be observed in sales, it unfolds at the end of each month, and that much more so at the end of each quarter; much like "triple witching" on Wall St., when multiple contracts expire on the same Friday.
In sales it is the end of month or quarter corral, the "driving of the deals" to close the quarter strong. You hear managers across the land encouraging their teams to close what they can before the end of the quarter. Now I know there is sandbagging taking place, but with roughly only 50% reps making their quota last year, do they really need to be told to close it now? Maybe, and maybe that is why managers seem to tolerate discounts during these times, in fact some organizations create programs specifically to discount, especially during the year-end "witching hour".
I think we can all understand why it happens, companies public or otherwise, want to close the quarter strong and therefore drive those deals that much harder as the end of the month or quarter approaches. The question is whether it is a necessary ritual, or a financially sound ritual.
Right off the top I will tell you that it is not financially sound for two reasons. First, you never recover the discount offered to win the deal, and it increases your cost of sale, and reduces profits in the process. There is no two ways about it, it will increase the payback period on the deal, and establish an environment where the client will always expect a discount, especially at the end of the quarter or year, we have all been held hostage by clients who know the game. Why not, is that not what you are training them to do? Second, it creates a distraction of resources leading to inefficient use of those resources, human or otherwise, and inefficiency is not financially sound.
Let me answer the other question, whether it is necessary or not, and the answers is clearly not necessary; further I will argue that the same factors and actions that led sales organization to adopt and accept this ritual, can help you swap it out for another ritual. A ritual that is productive and profitable all at the same time.
I write about this now as a result of last week being end of Q1 2011, the first "triple witch" of the year of the "recovery". You heard sales types all over chanting the same incantation: "I can't meet this week man, I am busy closing", or some variation depending on the sect they belong to. Not to be provocative, but I always have to ask, "cool, what do you do the rest of the quarter?"
Don't get me wrong, I get the idea, the reason for the status quo, but what if you swapped out the end of quarter "deal drive" for another ritual, say the "Work Your Sales Every Day" ritual. This is not to say that you do the something every day, but that you do each day those things that move the sale forward in a logical, predictable and measurable way.
To do this you need to at least have a handle on two things, your conversion rates, or at least one key one, number of people you need to engage (by appointment or phone), to deliver the number of deals you need in a given month or quarter to achieve quota. Second, the length of time it takes you from initial encounter to close, that is, the length of an active sales cycle (not client acquisition cycle).
For the sake of example, let's assume the following facts:
"Average Sales Cycle": 8 Weeks
Average conversion rate from initial engagement to close: 1 of every 5
Monthly Quota: 4 sales
First fact, if nothing changes, I will need to engage with 20 potential buyers every month (4 X 5). Spread over the course of a month, it means I need to engage with one new potential buyer every day (4 weeks in a month, 5 days a week). Next fact, if I do not engage with someone today, the chance of me closing something 8 weeks from today have been tangibly diminished, in the neighbourhood of 20%. On the other hand, if nothing changes, and I do engage with a potential buyer today, the likelihood of me closing something in 8 weeks remains probable. Now some of you are thinking that since I only close 1 of 5, it may not be a close 8 weeks forward. But the reality is that if I engage someone every day, I will by those same odds close one of those five 8 weeks out, and if I did that every day, I will close one each week, and by extension 4 every month.
Now here is the rub, it really doesn't matter if 8 weeks out is the first day of the quarter, the 42nd day of the quarter, or the last. As long as I manage the inputs, execute my sale, based on the averages calculated based on my results to date, I will hit quota, regardless of which day of the quarter or month it is.
For me, I would much rather partake in the ritual of engaging with sufficient numbers of potential buyers on a consistent basis throughout the month or quarter, than to panic to close the quarter in the last week. First, if all I do the last week of the quarter is close, I am going to be behind, having dug my own hole by not prospecting that week. The other, is most commonly the only way to get a buyer to buy before their time is to offer a discount of one sort or another, which as stated above is not good long-term business.
It also leads to less frayed nerves, not having to go into a sprint at the end of the quarter, only to be knackered out and needing a rest at the start of the next; just look at the lull you witness in many instances after the end of quarter drive.
Join me now in adopting and embracing a proactive ritual that puts you in control of your success, rather than a reactive ritual based on catching up rather than moving forward.
What's in Your Pipeline?