In the first part of this series, we argued that the pains most sales teams are facing from going remote isn’t because of “the challenges of remote work”; rather, it’s a reflection of how inefficient management practices have remained in an increasingly competitive world.
In this second part, we’ll talk about the evolution of sales productivity and why the existing model has left teams so vulnerable to the shocks of COVID-19 and remote work. Only by understanding this can we talk about fixing the model.
The Math of Sales Performance Management
For the sake of our argument, we’ll start off with a story that’s representative of what 90% of companies faced in their sales organizations pre-COVID-19.
Lucy is a sales manager at SaaS Inc. Her company provides a valuable service of helping businesses move their work from paper forms to digital workflows in the cloud. It’s a crowded category but the market is so big, that they’re still able to do well, achieving near top-of-the-line SaaS metrics:
- 60 day sales cycle
- $15k Annual Contract Value
- $500k quotas
- 90 day ramp
- 20% win rate
- Standard performance distribution (10% of reps hitting or exceeding quota, 70% near quota and 20% underperforming)
- rep:manager ratio of 10:1
Lucy was a top performer herself and knows exactly what it takes to close deals. She knows that if she could join every call, she could lead her reps to success, but this is physically impossible (otherwise, she’d just close all the deals herself!)
Because she’s outnumbered 10:1, what she needs is leverage – a way to scale her “managerial bandwidth” to ensure she can have the biggest possible impact on rep performance.
In order to raise performance, Lucy needs to understand each rep’s activity and understand how that drives the different outcomes for each person.
She can get this information in only three ways:
- CRM Data (low bandwidth, low-high loss): looking at dashboards/reports and being able to see exactly what reps are doing.
- Anecdotes (high bandwidth, medium loss: asking the reps for information on what is happening in their day and deals.
- Shadowing (highest bandwidth, low loss): following a rep throughout the day on their calls/meetings
Each of these strategies requires different levels of “bandwidth” to function. Just as a video, audio and text files trade off download time for information richness, these three strategies do the same. Lucy can get an update of CRM data in seconds just by hitting “refresh” on her dashboard, whereas anecdotes may take 3-15mins each time.
It’s also worth noting that low bandwidth isn’t necessarily better; the lower the bandwidth, the more the information has to be “compressed” and the higher the potential “loss” of information. If Lucy shadows someone, she has unfiltered access to the truth of what happened. If she reads the meeting summary notes, she’s relying on the accuracy of the note taker to get the story.
Note: this is why CRM Data frustrates people so much – when the highlights are right, it provides *incredible* leverage, but when done wrong, people have to revert to the other tools.
Now that Lucy has her managerial toolkit, she has to decide how to apply it to raise rep performance. She has only two strategies available to her:
- Micromanagement (low leverage, higher win rates) – supervising/auditing the reps’ work multiple times a day, joining sales calls to push deals over the line and writing emails for reps to send. This strategy is low leverage because the manager can only be in one place at one time, and the tools applied to it are Shadowing and Anecdotes.
- Enablement (high leverage, lower win rates) – this is the ideal state because the reps are learning to fish themselves. This is high leverage because the manager can spend 10% of her time with each rep coaching them, and have the rep do the execution themselves. The tools applied to this strategy are usually Data and Anecdotes.
It may seem obvious which one of these strategies is “better”, but it turns out Lucy has limited say over which one to choose. The entire company/team is depending on her to hit her number this quarter, and the Enablement strategy requires time and investment (two things that SaaS Inc. doesn’t have). So Lucy is now forced to go with a Micromanagement-heavy strategy, and now MUST find leverage to have any chance of success.
The Sales Poverty Cycle
In economics, the poverty cycle describes the trap that low income people fall into, where they don’t have the resources to invest in productivity growth (eg: going to school). These people are forced to take on debt to make ends meet in the short term, and then forced to take low-paying jobs to service that debt, which prevents them from going to school, which forces them to take on more debt, etc.
High leverage management strategies are a form of investment, and if executed correctly, create higher win rates, which in turn creates more room for error, which allows the company to invest more in enablement, which create higher win rates, etc.
Low leverage strategies are form of debt, and if executed correctly, can buy just enough time/momentum to switch to a High Leverage model. If executed incorrectly, it can set off a negative spiral, which we’ll explore in the next section.
Lucy Finds Leverage: Call Recordings
Since Lucy is outnumbered 10:1 and prospects only take calls 9am-5pm, she doesn’t have enough hours to join every call, so she need a way to “create time”.
She finds her first form of leverage with Call Recording.
Whereas before she could only join 4 calls a day with her crazy schedule, she can now replay events at any free time she has on her calendar, growing her coverage to 8 calls a day. By working a little overtime, she can even get her call coverage up to 12 calls a day.
With this increase in leverage, Lucy is able to make the Micromanagement strategy work for some time, and is able to hit numbers.
The mistake most people make at this point is to assume that call recording made Lucy 3x more productive, but that’s actually not the case. Instead what happened is:
- She tripled her output, which means she achieved more over the same time period (one day) but she did it at the expense of something else (her free hours of the day- a limited resource). This is an INCREASE IN CAPACITY.
- On a per-hour basis, she didn’t see any productivity gains; she still needs to listen to each call in order to yield the same number of deals closed, and she can’t listen to calls much faster. In this sense, this is “DEBT” and “NOT AN INCREASE IN PRODUCTIVITY”
As time goes by, Lucy starts to notice win rates and ACVs decline as competition in her market starts to increase, which means she needs to cover more deals to hit the same sales number. Once again, she needs to find leverage.
She’s already maxed out on capacity – she can’t work more than 12 hours a day! So we’re back to the same old problem; how do we create leverage for Lucy using our managerial toolkit (data, shadowing, anecdotes)?
Lucy Increases Productivity: Listening To Call Recordings at 2X
Lucy responds by loading up her calls into iTunes and listening at 2X the speed. With this innovation, she can now cover double the distance in the same period of time, which means she’s increased productivity and once again, the Micromanagement strategy works and drives quota attainment.
But as competition continues to increase, differentiation erodes ACV and win rates again, leaving Lucy is right back to where she started. She once again needs to find leverage.
So what options does Lucy have? She’s already working overtime, and unless there’s a new technology disruption that’s going to allow her to be in more places at once (eg: a time machine) – she needs to figure something else out.
Lucy Increases Rep Capacity: Outreach Automation
Just like call recording enhanced her capacity, Lucy realizes there’s another lever she can pull: rep capacity. If we can’t solve the problem at the bottom of the funnel, we might be able to solve it at the top, and this is where the age of automation comes in.
Lucy arms her reps with outreach automation software that aims to get her more ‘at bats’ or ‘meetings’. More meetings at the same win rate can boost revenue for the 2/3 of meetings that she can’t cover with Micromanagement, so without improving her managerial capacity or productivity, she can rely on her team’s lower close rate without her to be acceptable. So she convinces her VP to buy one or more of these tools:
- Powerdialers drive volume = capacity
- Email automation drives volume = capacity
- Cadencing drives volume = capacity
- Linkedin automation drives volume = capacity
With the boost in meetings, Lucy’s once again in an okay place and able to hit revenue targets for some time.
Productivity and Capacity Reach Their Limit
As SaaS markets continue to mature, we start to see the first signs of major headwinds building up for sales teams at once:
- VP Sales tenure decreasing from 48 months to 18 months
- Falling quota attainment
- Lowering ACVs
- 3x increase in competition
- 10 point declines in NPS
- industry consolidation through M&A,
These headwinds emerged in SaaS back in 2019 – a full year before COVID-19 – and the press started covering a lot of these challenges at public technology companies, who were the most heavy adopters of sales tools:
COVID-19 Comes, Lucy Gets Stuck
Due to the outbreak of COVID-19, Lucy is now forced to go remote at once. Her situation now looks like the following:
- She is fully loaded on capacity and productivity.
- Her reps are fully loaded on capacity.
- Her managerial “bandwidth” has collapsed because of the remote work situation, making the Micromanagement and Anecdotes impossible options.
- Her win rate has collapsed because of the recession, and is unlikely to change.
What is Lucy supposed to do? How can she keep hitting numbers in this situation? Once again, she needs to create leverage.
The only tool we haven’t used thus far, and also the only one that will work in a “low bandwidth” environment is CRM Data.
And so we find ourselves back at the exact point that we started – with all of our short-term strategy options exhausted, we need to figure out how to get the highest leverage tool and strategy (Data + Enablement) working together.
In the next article, we’ll SHOW you how Lucy can use CRM Data to replicate/exceed the visibility and bandwidth that she had in an office scenario, all while working completely remote.
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