The „lean sales“ organization

November 8, 2017 | Alexander Nowroth

Part 1: How to increase your bid proposal success rate by 100%

I want to challenge the status quo of your sales team:

What are the true costs of your sales squad?
Besides the salary, bonuses, goodies like company cars, cell phones, laptops? How does your sales squad affect other departments in terms of wasting resources?

While the word “lean” is commonly used in the context of “manufacturing” or “inventory” I apply it in various aspects of sales organizations with dramatic, positive impacts. Today, time from about everyone in the company is as precious as ever before, yet so much time is wasted on securing prospects which never will turn into a client relationship. I would like to apply “lean sales” into different parts of a business. Today, I feature the participation in large RFQ`s (request for quotations) which virtually every B2B business selling is confronted with regularly.

Studies show that an ordinary client visit costs USD 300-400. Let`s take an ordinary RFQ. The sales rep has already visited the client, in most cases several times, hence has accumulated considerable 4-digit acquisition costs. However, those costs increase exponentially when the RFQ is launched because several things happen (sometimes at the same time):

1.    Several other departments will be involved during quotation phase

In larger firms, the RFQ documents are shared with the tender management team, but also with direct manager and associated department managers. Logically, if 5 people study an RFQ, the costs per hour is five times higher compared to one sales rep. More time is spend on completing the RFQ, doing internal “alignment calls “ where all relevant stakeholders are included, final revision and then submitting the quote.

2.    Several people will visit the prospect during bid presentations

Usually, there will be a shortlist with invitations going out to the “lucky” companies. The sales rep may wish to include colleagues, usually her manager and a relevant department head. Again, acquisition costs times 3. Easily you have accrued 100 hours in total which is equal to 5 digit USD range. And to my experience this is conservative.

Improve your RFQ success rate
But yet, what is the true success rate of an RFQ participation? In the freight forwarding industry in which I have spent most of my career the chances of winning an RFQ are probably around 10-20% (in some cases it is less than 10%). That means that on average in 80-90% of the cases the invested time is waste (!) Now you might say that’s part of the deal since you need to invest such significant time in order to win an RFQ. In most companies that is in fact the case and the sales methodology of the previous years.

Why? Because most sales pipelines and commissions are designed in such a way that they promote volume “wins” and revenue figures. Clients are segmented in A, B and C. In other words, if I have 6-7 large RFQ`s I might win a seven-digit account. Yet, talking to sales manager and sales reps most of them will admit that it takes much more time to close a 7-digit account.

However, that’s like hunting and shooting on the occasion a deer appears without properly aiming at it and hoping to have a lucky shot! Imagine, you could cut negative responses in half, in other words you`d close 1 in 5 RFQ`s.

Imagine what happens to your bottom line. Consider the following business case:

Take 10 sales people and each on average secure an invitation of 10 RFQ`s p.a.; that is around 100 RFQ`s p.a.. If each RFQ costs your company around USD 10,000 to complete that is USD 1 Million acquisition costs ONLY related to RFQ`s per year. Taking a success rate of 10% overall and assuming that the average size of the RFQ is USD 1 Million you win USD 10 Million new business. If you cut the amount of RFQ`s in half, you save USD 500,000 per year as you participate in only 50 RFQ`s. Over 5 years this equals a sales cost saving of USD 2.5 Million. Given the fact that you are only participating in RFQ`s of prospects where you hold a strong relationship your odds to win realistically increase to 20 % (if not more).

Now, at the end you win USD 10 Million and the return on invest of everyone’s time has doubled or in other words: increased by 100%!

How do you do that?
Applying “Lean” means that you only participate in an RFQ where you truly feel that you have a realistic chance winning this account. Plus, you can prove it. Be honest to yourself, in how many instances of participating in an RFQ do you have a trusting relationship to the decision maker?

What`s wrong with sales pipelines
I am not talking about existing customers (yet the relationship is often neglected in a way that sales people only visit their contacts when an RFQ is launched…) but new ones. Yet, almost every sales pipeline I have seen does not ask you about the level of engagement you have with your customer. Even if it does, it is not the driving decision criterion of the sales manager reviewing the pipeline whether to participate in an RFQ or not. The pipeline has to be “full” so everyone else watching pipeline can see the sales squad is working on several, good opportunities.

The relationship building starts well in advance of an RFQ invite (see my other article https://www.linkedin.com/pulse/pricing-platforms-give-your-sales-team-hard-time-closing-nowroth/), in order that you understand pain points, driving deciding factors of the decision maker etc. Otherwise, you are just being used as a benchmark.

So, if a sales rep kills half of the accounts she is working on and focuses instead on the 50% where she truly has a relationship and her gut feel tells she has the biggest chance she will increase dramatically her chances being successful! There are other benefits too:

  • She allows here team mates from related departments to allocate a sharper focus when quoting and investing more time into an RFQ which really matters. Hence, details will not get overlooked and you can come up with a more customised solution

  • Even in some cases means where she might not save 50% time, each hour invested has a much higher chance of ROI than the former method!

The 1/3 rule
One fundamental rule best-selling author Stephan Schiffman created in the 80`s is the “1/3” rule:

  • One third of accounts you get no matter what you do (unless you are utterly incompetent)

  • One third you do not get no matter what you do (your competition might be married to the decision maker or the client just doesn’t fit your own organization)

  • One third is where it makes sense you invest more time and where you can make the difference.

The trick is to determine as early as possible in the sales process in which category your prospect falls (Ideally Point 1 and 3).

Besides rating the relationship you hold, use that method when you review your current RFQ list.

Before asking your colleagues or your manager next time in investing their time supporting you in the RFQ you owe them the surety that you do have such a strong relationship and hence a realistic chance winning the account. Their time is precious – and so is yours.