Over the past few weeks, I’ve published a number of posts on pricing, value creation, walking away. They’ve stimulated some interesting comments and discussion. As I’ve read many of the comments, it struck me that we need to talk about whether we really want to chase after every opportunity.
Too often, we’re driven to win business–at any cost! We chase deals, get emotionally attached to them, are desperate to close them because we need them badly. We end up discounting, to painfully thin margins, sometimes entering into unprofitable deals. We do everything we can do get business–any business–even bad business.
Too often we celebrate winning the business, only later to find it’s a bad deal. The customer has unrealistic expectations, we’ll never be able to make them happy. We can’t make money off the deal. We can’t deliver to commitments. Whatever the reason, the good news, we won the business, the bad—we won the business business.
As sales professionals, we are taught to qualify customers—do they have a real need that we can satisfy, do they have a sense of urgency around doing something, will they seriously consider our solution, do they have a realistic budget or funding? If we get resounding “Yes’s” to all these we chase after them to win.
But it seems there is one other element we miss—Is this good business for us? If we win–can we service the customer, support the customer, keep the customer delighted, and make money? Is this the right kind of business, or does it cause us to divert critical resources and attention?
An important part of qualification but something I don’t see in qualification criteria is: Is this business we want to win and deliver on? We need to make a critical assessment of this as early in the sales process as possible. We need to look at, all aspects of the deal, what it takes to win, the likely profitability, our ability to deliver a business, and so on. We need to make those tough decisions, to we really want to go after the business. If we choose not to, we need to disqualify as soon as possible.
Are you qualifying opportunities based on the quality of the business? Or are you chasing everything?
Great points. I have a similar model that I label “Good vs. Bad Money” – which can apply to most companies going through the sales learning curve, but especially to tech startups.
Here in the Valley, startups tend to take “any” money from any customer – using won business to validate their product/service/model etc. Even if servicing the deal losses money – it is in a sense part of the marketing and legitimization process. So, at times “Bad Money” is a business necessity if not an ideal “win.”
As companies mature, they should as you note better qualify prospects and ask the right questions to create “God Money” deals. ones that crate profit, and/or build up the brand even more (huge marquee wins at break-even revenue/cost for example).
The problem – many startups and small business get addicted to Bad Money. it’s easier to sell on volume, and close the deal “at any costs” as you suggest. Often Bad Money deals are sold as revenue generators to “keep the lights on” – but have a harmful long-term effect. In time, Bad Money deals can choke a small business.
Using simple marketing automation tools, a good Q&A qualification strategy, and being honest about walking away from Bad Money deals can lead to less noise in the pipeline, higher profits with less customers, and an overall sustainable business model.
The trick, of course, is sticking to the Good Money guidelines…
I wrote about this same concept a couple of years ago:
http://partnersinexcellenceblog.com/good-revenue-and-bad-revenue/
Your comments are spot on–unfortunately, too many don’t pay attention. Regards, Dave
Dave: I have experienced the same ‘good news/ bad news’ result that you described, and wrote about it a while back in The Winner’s Curse: Sometimes It’s Better to Lose a Sale.
Many times – maybe most of the time – I have seen ego play into the reasons why bad business is captured. The thrill of the hunt overrides common sense. “Just win the deal!” I can’t tell you how many times I’ve heard that. But that begins a chain of events to set up failure. Huge discount concessions are made. Service and support are over-promised. Blinders are put on all over the selling organization.
When the opportunity is won, there’s momentary celebration. Then everything hits the fan. Because margins were cut to the bone, the vendor can’t profitably support the customer. Other departments, with their own separate P&L’s, resent Sales for “giving away” so much. Infighting is rampant.
The reality is, the customer doesn’t want that outcome either, but they often add fuel to the fire, playing vendors off one another for pricing concessions. In the end, when all the dust settles, they find that they get what they pay for. And they don’t like it.
Much of what you describe is preventable by using risk analysis and a bit of common sense in early lead qualification. Going beyond B-A-N-T (or similar), questions to ask:
1) how successful has this prospect been with similar implementations in the past?
2) does the prospect have adequate internal resources to implement our product in the way our successful customers have?
3) does the prospect have a excessive history of litigation against vendor partners?
4) are we at risk of being below our target profit margin at any point during this project?
A little up-front discovery will save much pain down the road. That, and management that’s open-minded to considering the upside of walking away.
The problem is there is rarely a “good business” element to sales compensation plan.
All of the emphasis is on getting the deal, good or bad, and the rep gets paid on revenue not profit. And rarely has any downside if the deal goes sour.
If companies want reps to think more holistically about what’s good for the company (beyond just getting the deal done) it needs to be integrated into the compensation approach.
In an ideal world the culture would support “doing the right thing” for company and customer, but let’s be realistic. It won’t happen in most companies without unless rep takes some meaningful “hit” if the business sold can’t be successfully fulfilled or the customer satisfied.
Of course, reps can argue that they can’t be accountable for what everyone else does. But that’s the way it goes.
Andy: I’ve seen so much of the same thing. The thrill of the hunt gets in the way of clear business thinking. A number of years ago, I worked with a client that was having major challenges in this area. We redesigned their sales process adding a step in qualification.
Any deal that got beyond some standard criteria (turned out to be about 45% of their deals) was required to go through a special business review board. They set the review board up to meet weekly, with very fast turnaround on decisions.
Deals that weren’t approved were immediately abandoned.
Within a very short period of time, they eliminated their problem.
Bob, you are right on with this comment. We need to measure both sales and management on the quality of the business, not just the quantity of the business
Too often, the sales manager is the root of the problem. They pound the sales person for business, sales people respond by chasing anything, even bad business.