Rethink Sales Podcast Episode 60: Return on Sales Investment

Welcome to the Rethink Sales Podcast. I'm Mark Dinolo.

And I'm Michelle Seeger. And Mark, this podcast is going to be a really great one. We're going to talk about something that we have been talking about for months and now is top of mind for the C Suite.

That's right.

And that is return on sales investment.

Yeah. And I think this is super important because all we're hearing now is about cost cutting and layoffs and this is actually a more comprehensive way to look at it. So it doesn't mean don't do cost cutting or layoffs, but it means be smart and make sure you're, you're getting more out of what you're doing.

That's right. So in today's podcast we're going to talk about what it is, why it's so important and some of the drivers that are creating this hyper focus on return on sales investment or in sales globe lingo.

Rosie. Yeah, it's a whole lot of Rosie. Reminds me of this old ACDC song, if you remember that far back.

Okay, finally we're gonna wrap up this session with one of the biggest impacts to Rosie, which is sales capacity.

Right.

So join us here. It's gonna be a great one part one of a two part series.

Yeah, yeah.

Okay. So Mark, we're gonna talk about return on sales investment and one of the things that you and I have been discussing, oh my gosh, it feels like for months, but it feels like a decade but for months is, you know, what's happening in the macro environment that continues to impact return on sales investment. And, and some of the things that we believe are impacting this hyper focus that we're seeing from the C suite today. Yeah, so let's get into some of those things. I think one of the drivers is, let's talk about that whole thing that they called the war for talent. But really the impact of that, what happened and why that's now, you know, creating some issues.

Yeah. And we've had no shortage of discussions and content on this podcast and other places about war for talent and what's been happening there. But you know, in broad strokes, it's caused, you know, the tight supplies, caused an increase in price, basically tight supply and high demand, increase in price. So companies, the number was something like 52% of companies had been increasing base salaries just to get talent. And then it was, I think 30 something percent increasing incentive pay, 24%, doing both. But the whole thing is everybody's been driving their costs up and they're not necessarily getting better talent, they're not necessarily getting more productivity. They're just driving their costs up to get people. And we've been saying, you know, you know, you're making long term decisions on cost for a short term problem. Now the short term problem is showing itself, which means, you know, companies have been overpaying for labor.

And so what we're seeing as a result of that is the reaction, which is the layoffs. They're all over the paper. I mean, come on, it's thousands and then it's going into tens of thousands. Some of these larger companies, and those are the same companies that are paying more for the talent. So, so I was just talking to a global technology company yesterday and they were telling me they asked us to do some benchmarking with them because they said the problem that they have is that they really did need talent. And they paid 40 to 50% over base salary, what it was less than a year ago for new talent they brought in, but yet they're not able to even do the job right. So they're saying, okay, now what? And I think that that's one of the impacts and one of the reasons that companies are looking at the layoff, because they're not getting the return.

Yeah. So in short, if you look at the different levers around that cost equation, so you're raising your labor costs, you gotta do one of a few different things. You've either gotta increase productivity, which companies have not necessarily done, you've gotta increase price, or you gotta find cost savings in other places or your margins are gonna go down. Or you can come back on what you did before and say, well, guess what, now we're going to have to lay people off. And so I think, you know, it's kind of frustrating, but it's the reactive nature of companies and how they act and how they, how they react and respond that is kind of whipsawing here. So we've seen it coming for a long time. So now we're here. So got to do something about that war for talent and kind of work through all those higher costs.

That's right. So we're going to get in shortly. We're going to talk about the sales capacity, which we believe is one of those drivers of efficiency. But some of the other things that we've seen, we've got inflation, I mean, that continues to impact what's happening, ongoing supply chain issues. And I've got a couple comments on that one, government regulations, few comments we can make on that one. And then this hybrid and remote working environment. I want to touch on each one of these and then even the less in person contact opportunities. So all of these are actually impacting your return on sales investment.

Absolutely, yeah.

And we have concrete information, data and conversations that substantiate each one of these. So let's talk a little bit about those when we discuss these ongoing. Let's talk about ongoing supply chain issues.

Yeah. And so I think one of the things we heard early on, gosh, back, you know. Right. I want to say after the pandemic, I think some people are still in the pandemic, but after the pandemic we're hearing, you know, it's not about selling more. It's like we have supply chain issues. We, we are booking stuff but then we can't fulfill on it, we can't get the revenue out of it. And so those supply chain issues are still persistent. We're seeing you talk about government regulation, not to go too far into that yet, but with, with China's zero COVID policies, that's caused a massive issue with supply chain. Now companies are looking at alternative sources. They're saying we just can't sole source out of China anymore. But, but that's still impacting our return because we can't follow through and get, get that return. And we also have higher costs for our cost of goods.

Yep, that's right. So the supply chain issues are continuing and we are hearing that it's impacting delivery, it's impacting price and then, and then, you know, if we bring it home a little bit to inflation, gosh, from mom and pops to the enterprise company, we're hearing the impact of that on production as well as what can they actually pass on to their own customer. So it's been a problem. Inflation is impacting pay. Right. Demands for more pay. It's also impacting the costs of goods and services that are going out there. So it's been an ongoing challenge.

Yeah. And there's been an interesting connection between the war for talent and inflation as well. Because we know with the war for talent, a lot of it was driven early on by job switching because people saw opportunities in other places with the shortage in supply. But a lot of that pay increase that people are getting has not really benefited them because inflation has been eating into that a lot. So when you look at the real increase in pay when you net out inflation, it's not as much as you might think.

Right. So all of these things that we're talking about. Oh wait, before we move on, let's Talk about this because I was talking to a CEO yesterday just about this very issue, two of them, hybrid and remote working environment. And what that means, I mean, everybody loves a hybrid work environment. I do. I mean, well, we don't exactly have one, but I'll pretend that we do. But for our staff, we do, most of the staff. And it's.

We can move around at different desks.

That's right, we do, we do. And my business hours may have changed a little bit, as everyone knows. But anyway, in the hybrid working environment, what it means is that how you, the opportunities that you have to connect with your buyer is a little bit different than it was before. That also gets into the less in person contact opportunities. So that comes from. I used to meet them in an office to. There was this conference that we went to. They're not all back yet. And that is definitely impacting return on investment because we're, we're finding out that salespeople, they're swirling a little bit and it's taking them longer to make that connection and to make that sale.

Yeah, and it's a real mixed bag here. It's, I mean, you have situations where you have true hybrid, true remote salespeople. And then we know a lot of salespeople that are out on the road again. I mean, they're in front of customers. So it's not a whole monolithic issue with that. It's really mixed. I think there have been questions as we get into our equation here in a minute or two, there have been questions about productivity. And all the fanfare in the beginning was about, oh, we're all more productive working at home. And it's like, no, you're not. And now we realize companies have not seen the productivity across the board increases that were touted. And to be fair, companies haven't had the leverage with the whole war for talent to be able to, hey, no, you need to be back in the office or we need you back in front of customers. They haven't had that leverage. But as we see the supply and demand equation shift a little bit toward employers, employers will have that leverage. So I think, you know, we're going to. It'd be interesting to see what happens with the hybrid environment and remote. Right.

Yeah. I hope the hybrid environment is here to stay, really. And I think that it is.

Yeah, a lot of benefits, obviously, because.

Yeah, I think we can work it out. And the challenge, I think that a lot of people have too. We won't get on a debate on the work from home thing, but I was just talking to someone today and people will tend to work longer even. Cause they're down at their desk and they don't get up at their desk till 7pm but then I'm also hearing at the same time they're getting a lot done. They are getting a lot done, but maybe not more meetings. They're having more zoom meetings perhaps. And so it's kind of a mixed bag. I don't know. I still think it's a good idea, particularly, you know, for big cities, remote all the time. I think it's a challenge for big cities and I think we need the impact, you know, we need the contact.

But yeah, and you know, I think, I think you're right to, you know, call out the debate portion. It's like no matter how we feel about remote work or hybrid work, we've got to factor that into our return on sales investment equation. Okay, so what does that mean and what levers can we pull there?

All right, so let's get into what is Rosie return on sales investment. And as we talked about it, you know, we think about it almost as an equation and it has a couple parts.

Yeah, I mean, as we, as we've been thinking about return on sales investment, it's a lot like you would look at a return on, on equity or return on stock or return on any type of investment. And so, you know, for the, for the math wonks, it's, you know, basically companies look at cost of sales, you hear about cost of sales all the time, which is basically, you know, your labor cost of some sort, you know, cash could be other, you know, other components could be your base salary, incentive, all that divided by revenue or sales. That's your simple cost of sales.

Constantly we're being asked to benchmark companies against each other. Right.

The problem with cost of sales is it's kind of one dimensional. It looks at. Okay, well what do we do? Well, we look lower costs. Okay, well, yeah, we can increase sales, but return on sales investment is really just the inverse of that. It's flipping it upside down and it's saying, okay, we're looking at our return, what revenue we're getting, what gross profit we're getting, maybe what bookings we're getting divided by the cost of that. And so within each of those, within that return and within that cost, there are a number of levers that we can pull. And so the thing that we're working with clients on, the thing that we're seeing really make a difference is not just cutting costs, but actually improving Your return on sales investment or increasing your Rosie, as we call it.

So we're going to get into, let's talk about sales capacity, but that's one of the big areas on return. So on the part two of our series, we're going to really get into all of the different factors of Rosie. So I wanna talk about sales time, you know, time today, capacity. But let's, before we do that, we define it here at Sales Globe, there's really like four buckets of return that we look at, you know, different areas. So we talk about opportunity, right?

So what's your addressable or available market? Opportunity.

Right, the addressable market, your sales time.

Right.

And that's, you know, and we map that really. We look at sales time in the context of the sales process. So from all the way through delivery and where your salesperson is spending their time, his or her time. And then we look at the sales cycle time, right?

How long does it take to get through that whole cycle, like, or the velocity of the sale?

That's right. And finally we look at win rate, right. And that is what we win anyway. So you can pull these different levers, you can look at these different areas, right? You can do things that will impact each one of these. But when you increase win rate, for example, you have a better return. When you decrease your or increase your sales time, you have a better return. So we kind of bucketed it like that, a few things, and I wanted to just lay that context. And today what you and I were gonna discuss was sales time and sales capacity. And what are some of the things that, you know, first of all, like what is it and, and what our approach is to it and what companies can think about.

Right?

Right.

So sales time is probably the biggest untapped or biggest wasted asset for companies. And I think anybody listening to this would agree, right? You ask the question. And we have this one podcast about sales time. It's 10am do you know your sales organization kind of harkening back to that old TV ad? But the sales organization, Michelle, only spends about 52%, 53% of its time actually in sales activities and the rest doing other things. So there's a huge opportunity there.

Yep, there sure is. So sales capacity, then, as we define it, is the time that a rep would spend on what we call value added sales activity.

Yeah, well, I mean, that's their sales time and their total capacity is gonna be made up of, you know, that sales time divided by those other things that you talked about, which is your sales cycle time, your Win rates, your workload, all those things that's being done with that sales time. And those all have little levers on them that you can pull. But sales time actually a huge lever in its own.

So sales capacity then is the time that salespeople have to actually sell. Right. This is an administravia. It could be even doing a demo. Right? Conducting a demo, however you define that. Okay. So it's within the context of the sales process, right? From lead gen all the way through to delivery. And then I think we should make a note on that. Not all non sales time is actually bad time.

Right? Yeah.

So you got to remember that too. It could be value added, non sales time.

Yeah, I mean it's like, it's like a, it's like a machine. I mean you can't run a machine at 100% or even 90% capacity.

I mean it's gotta have downtime 110%.

So yeah, when you look at that other 47% or so of time that salespeople are spending, it's on things like operations, activities, customer service. And some of that you can argue, well, that's really important for them to do. So some of it's kind of a little bit of a gray area. But then you have administration, you've got a lot of other things like travel time, which we've cut down on that dramatically. And then you've got time fighting fires and doing all sorts of other things that the job shouldn't do. So there is a big priority for a lot of companies and the clients we work with certainly to do what we call decontaminate the sales job, which is basically take the contaminants out of the job. So we realize that some of that non sales time is actually okay, but some of it should either be A eliminated or B done by somebody else. It's maybe a lower cost resource or C, it could be automated, it could be moved to a system that can actually do those things. And I think one of the big challenges with, with sales time is a lot of, it's, it's all behavioral. So when you say, okay, well we need you spending more time doing X and we're going to give you more time to sell. A lot of times people are like, well yeah, but I really need to do this service stuff or you know, they don't call it service stuff, but I really need to work with the customer on this because that's part of my job. And so people are so tied to that comfort level of what they do.

So I Want to back up a little bit and talk about how someone can understand within your company, how you can understand what your sales capacity looks like? So you threw out the number 50%, which we've seen companies as low as 30% that they're actually spending on sales activities and as high as 60. You might have someone come back and say, oh, it's 90, and then we find out it's 50.

I think that's. That's the funny thing about sales time is whenever you talk about it, you go, well, you know, it would help to understand how much time people are spending on sales. The first reaction you get is, oh, man, they don't spend enough time on sales. And then they go, well, you go, well, let's take a look at that. Let's examine that. Right. So we use a tool called sales Time optimizer that actually analytically measures that on the phone through an app. But everybody seems to have an answer to it right away. It's like, oh, yeah, we did a time study, and it showed that our sales organization only spent 40% or 60%, whatever that number is. So it becomes this anecdotal thing, but it doesn't become a living thing. Right. So it's important that it becomes a living thing that you measure and you continue to measure on a periodic or regular basis because you're changing it. Right. It's like getting on the scale one time and going, oh, you know, I'm really heavy. And then you do a bunch of things, but you never get on the scale again to see if your weight changed at all. Right. So you have to have a moving picture of what's going on. So I think too many companies approach sales time when they look at it. It's kind of like an oil painting. It's like, yeah, it was 60%, you know, last year. And so it's. The oil painting never moves versus we need a motion picture. We need to actually see it in movement, and we need to see the results.

So what we do when we. The approach that we talk to our clients about and what people can do is conduct that time study. And really, that's by understanding, though. You can't just say, okay, guys, where do you spend your time? But kind of understand your sales process, the big buckets of where, you know, that time is spent. That way you can get a good baseline across a representative part of your organization. Right. That's how we typically do it and understand where they really are spending their time and why.

Right, Right. So first thing to do as you're describing this is understand what your, your major areas are, could be, you know, based on the sales process. But what are the major things that the organization does? And sometimes different parts of the organization do different things. So your time sampling might be based on different activities for different teams. And then you don't want to, like you said, you don't want to just ask and say, well, how did you spend your time last week? Because people don't know. It's like asking me, how did I spend my time this week? Well, I happen to write it down, so I know, but most people, you just wouldn't know that. Right. So you don't want.

You spend half your time drinking coffee, let's admit.

No, but see, that's a good activity. That, that's a non consulting, non sales activity. But the best way to do it is through live sampling. And it's not having somebody follow the rep around. I know they do that in consumer products a lot. They'll follow them around in the stores. But it's through a tool like we talked about, like sales time optimizer. It's like, okay, we're gonna take some sample days and we're gonna take tomorrow, or we're gonna take this week and just enter in your time as you go and just pop it in. And then we're categorizing it by. And the rep doesn't have to do this, but we can do this on the back end by sales or non sales. And we can categorize it by product, categorize it by customer, categorize it by sales motion. What part of the sales process is it? And then that becomes really valuable information. And then we can use that to understand or plug into our return on sales investment equation.

Yeah. And the other part that we do is we use that to look at the coverage model and we actually look at the sales process and we identify areas for efficiencies. And the reason I mentioned coverage model is because I'll bring up an example of a healthcare company that saw amazing results. So here's a, here's a good one. We were consulting with a healthcare company and identified that the sales organization was spending the account managers an exorbitant amount of time going through very expensive purchase lead lists. Right. And trying to qualify those lead lists and even understand what was good on the lead list. Right. So we ended up, we found out that it was about 40% of their time. 40, like just it was 39. But that amount of time was spent just on that upfront activity. And what we were able to do through understanding the sales process, understanding what they were doing was we were able to set up a, we called it a little, just a small little velocity team of SDRs. And they would go through and qualify all of that and do all of that background work so that the salesperson could actually sell. We greatly decontaminated that role at a big savings for the organization, more revenue return and a smaller expense on this sales development rep role. That basically became a training ground to become an account manager. So it was a win win all the way around. Yeah, I recall that company like sold for a lot of money a year later. But anyway, you know, the point you.

Make too is that that activity, maybe it was a non sales activity, it was kind of that gray area in terms of the lead list things, but it was very valuable. So somebody else more efficient can do it better. You know, I can think of one we did not too long ago for a company and they found out that salespeople were spending a total of about four to five hours a week in front of the customer. Which is shocking, right?

Yeah.

And so they sat back and they're like, well, why is that? That's ridiculous. Right. And, and then as we dug into it, we saw that they spent a lot of time in meetings, especially internal meetings, not sales meetings, customer meetings. And then the answer we got back as we dug into it further and we started to do doing the, you know, the start stop exercise is, oh, well, you know, we have a really collaborative culture. And what collaborative culture translated into was we spent a lot of time in meetings working together. So very simple. The CEO saw this and she said, okay, that's the end of that. We're going to keep our collaborative culture. But all internal meetings are going to happen now on Fridays and everything else has to be the rest of the week has to be out in front of customers. And it dramatically shifted their sales time and their sales capacity.

Oh, I remember everyone was much happier with that result as well. Isn't that just interesting? So it was a culture, you know, a cultural decision that really drove their capacity.

Yeah. And then there was another one not too far back as well, where the reps were spending and this company was doing the time sampling on, I think it was like a monthly or quarterly basis. The reps were spending a lot of time doing quotes and pricing and they took all that time. This is a pretty large sales organization. They took all that time. They added it up and they said, well, with the amount of money that we're spending for all this time we could actually invest in this pricing and quote system and have this done in an automated fashion. So they justified their investment in this major software system and then freed the reps up from doing those things. But it helped them to actually quantify, to say, yes, we can save money actually by making this investment. So a lot of different applications, when you look at just understanding your time and being critical about it.

So understanding the time, that's one big driver of increasing sales capacity. And so to sum this up, what we're saying is conduct a time study and understand first, though not a random time, say just hey guys, what you doing? But look at your sales process. Big buckets of where people are spending their time, what roles are involved in that time? Yeah, dig down into that and it can serve as a couple things. The output, the output is a baseline of where you are spending your time. The output also is a list of activities of where people are spending their time. And then you said very quickly, and I want to bring this point up, we went through the start stop exercise, so what companies do with it. Right. I want to talk about that. So you can take all this activity and you go through an exercise with your sales representative, sales group, sales managers, leaders, you say, what can we stop? What will we start? What can we continue? Right. And then you look at that and you can do what we call job role decontamination. So you can decontaminate the role successfully. Then go back when you implement these things, three months, six months, take a measure.

Yep.

So that's it. On sales capacity, we wanted to kind of give an overview of that, of one of the big impacts and levers that you can pull when you look at return on sales investment. So I think this was a good talk, Mark.

Yep. And I think, you know, when you talk about this idea of a time study, everybody's like, well, the reps aren't going to want to be monitored. They're not going to want to have this happen. Well, what we have found is actually the salespeople like this because it's a communication tool, because they can say, hey, here's all the things I'm doing that I don't want to be doing and here's how you can help me with my job. So we've actually seen it work the opposite way that a lot of companies thought it was going to work. So super valuable exercise to go through. And again, not just a one time study, but to make it a motion picture. So you see this thing in a periodic basis. You can see the results of your improvements.

Yep. Okay. Well, I guess we will see you all the next time. Great conversation as always, Mark.

Thanks, everybody, for joining us.