Retention Vs Acquisition?

Increase sales by 24% by re allocating salesperson time between retention and acquisition!

Research and experience have both shown that strategies aiming to populate an account portfolio with only the highest worth relationships will eventually limit firm wide value by restricting customer base size, failing to sustain an evolving portfolio over time and increasing exposure to risk. In short, current key accounts have a diminishing growth potential over time leading to the ever present need to acquire new accounts.  Supporting this thought is a recent survey that found that 73% of sales and marketing managers  said that customer acquisition and lead generation are their primary goal.

So acquiring new accounts is a must.    But how much time should your sales reps spend on acquisition versus retention?

Research Summary

In a March 2014 study published in the Journal of Personal Selling and Sales Management titled “ Effect of Sales Peoples’s Acquisition-Retention Trade off on Performance”,  four academics share the results of their research to try to answer this question.

The authors suggest an inverted U shaped curve to describe their findings on time allocation, that there is a diminishing return to sales people in spending too much time on either retention or acquisition.  They suggest a solution to this dilemma and identify the key factors in determining the optimal mix.

The Problem Defined

Current thinking proposed by a number of sales consultants recommends a firm wide optimal allocation between retention and acquisition, requiring sales reps to spend a specific amount of their time on acquisition activities. They do this to combat salespeople’s preference to discuss future business with existing clients rather than to venture out into a new territory to face rejection.  Other companies are satisfied with a supervisor setting these time allocations.

But are either of these optimal?  The authors of this research study say no.  Instead they recommend that the decision on time allocation be made at the sales rep level. Why? Because in their study,  it increased sales results by 24%!!

The research showed that 67% of the salespeople are misallocating their time by more than 10% with 49% over allocating their time and 18% under allocating their time to acquisition activities.

Results

They compared 4 separate alternatives to this problem of time allocation which produced the following results:

  1. Base case: No strategy, existing acquisition allocation. The average was 54% allocation to acquisition and this resulted in the baseline sales results.
  2. Firm wide allocation target of 45.2%.  Sales increased 10.6% from the base.
  3. Sales managers set the allocations for their own teams.  Targets ranged from 25% to 75% with the average set at 45.1%.  Sales rose 18.2% from the base line.
  4. Salespeople have unique allocations set jointly with their manager which again ranged from 25% to 75% with an average of 45.4%.  Sales rose 24%…more than 2x the gain of a firm wide target.

Why? Though the average target varied only slightly, from 45.1% to 45.4% the sales results are driven by allocating the right resources to the right task with the right customers, something that can be best done at the sales rep level with a disciplined review of the portfolio and taking into account the skills and experience of the sales person as well as the manager.

Success factors

The authors identified 3 success factors, the Supervisor, the Sales person and the Prospect Portfolio.  Seven moderators further define the success factors.

Supervisor:  Experience, Job Commitment

Sales person:  Experience, Training, Knowledge Breadth

Prospect Portfolio:  Quality, Quantity

Sales person acquisition ability refers to the knowledge and skills that allow them to convert prospects into new customers.  These include the expertise needed to  accurately qualify prospects, target the best opportunities, gather and integrate the most market information, develop a value proposition, manage the members of the internal team, and deliver and adapt the value proposition to satisfy the prospects needs.

With greater knowledge breadth, extensive awareness , and understanding of a diverse array of products and matching solutions experienced  sales people are better suited to analyze each prospects unique situation and deliver a customized solution.

These factors increase their aptitude and help them to build confidence that perseverance and experimentation in acquisition attempts will pay off in the long run despite short term risks and some f allures.

A supervisor’s guidance and wisdom can ether enhance or diminish a salespersons performance.  Experienced managers draw from proof in practice and are more willing to teach and mentor the salespeople explorative and acquisition efforts .

Acquisition requires persistence as well and this relates to job commitment. The study shows that the higher the job commitment of both sales person and supervisor the higher likelihood of an optimally balanced time allocation.

Finally, as you might imagine, the quality and quantity of opportunities within a portfolio are also strongly biased factors in allocation success.

How to Apply

 

  1. Plan:
    1. How do you currently allocate time between retention and allocation?  Is there opportunity for improvement?
    2. Shine a light on the opportunity.  This is brand new research and is probably not well understood by your teams.  Inform them of the opportunity to improve results
    3. Develop a disciplined process for territory and account assignments.
    4. Set a timetable and allocate proper resources to ensure the program’s success.
    5. Execute:
      1.  Perform a disciplined review of the portfolio, taking into account the skills and experience of the sales person as well as the manager.
      2. Provide facilitators and a template to assist sales managers and reps  in developing  an optimal allocation.
      3. Pair your best  sales reps with your best  sales managers in a given market . Assign the best prospects to your best  teams.
      4. Run a pilot program with some of the best and most innovative sales teams.
      5. Give them the freedom to determine their own time allocation based on joint planning between individual sales managers and reps.
      6. Evaluate
        1. Measure the acquisition and retention results as well as overall sales versus the baseline.  What was the average allocation? What were the ranges?  What processes worked best?  Why?
        2. Tweak your program based on the results of the pilot.
        3.  Roll out to the next level of sales teams.

Remember that not all sales teams are created equal.  Take this plan to your best first and then roll it on to the next best.  You will gain diminishing results the lower you go in your organization. Focus on the top opportunities and the top sales people and managers.

Good luck!

Steve

 

If you would like a copy of the research article please let me know and I will send it to you. Unfortunately, due to copyright laws, I cannot  post the article on line.

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