Rethink Sales Podcast: Return on Sales Investment

Return on Sales Investment

Mark Donnolo
Welcome to The Rethink Sales Podcast. I’m Mark Donnolo.

Michelle Seger
And I’m Michelle Seger. 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.

Mark Donnolo
Mm hmm. That’s right.

Michelle Seger
And that is Return on Sales Investment.

Mark Donnolo
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 doesn’t mean don’t do cost cutting or layoffs, but it means be smart and make sure your you’re getting more out of what you’re doing.

Michelle Seger
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 SalesGlobe lingo.

Mark Donnolo
ROSI. Yeah, it’s a whole lot of ROSI reminds me of this old AC/DC song, if you remember that far back.

Michelle Seger
Okay, finally, we’re going to wrap up this session with one of the biggest impacts to ROSI, which is sales capacity. Right. So join us here. It’s going to be a great one, part one of a two part series.

Mark Donnolo
Yeah.

Michelle Seger
Okay. So, Mark, we’re going to talk about return on sales investment and one of the things that you and I have been discussing. Oh, my gosh, it feels like four months, but it feels like a decade. But four months is, you know, what’s happening in the macro environment that continues to impact return on sales investment. And in some of the things that we believe are impacting this hyper focus that we’re seeing from the C-suite today.

Michelle Seger
Mm hmm. 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. Yeah, but really, the impact of that, what happened and why that’s now, you know, creating some issues.

Mark Donnolo
Yeah. And we’ve had no shortage of discussions in 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 a 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.

Michelle Seger
Yep.

Mark Donnolo
And 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’re making long term decisions on cost for a short term problem.

Mark Donnolo
And now the short term problem has shown itself, which means, you know, companies have been overpaying for labor.

Michelle Seger
And so what we’re seeing as a result of that is the reaction, which is the layoffs. Yeah, 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 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.

Michelle Seger
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? Right. 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.

Mark Donnolo
Yeah. So so in short, if you look at the different levers around that cost equation, so you’re raising your labor costs, you’ve got to do one of a few different things. You’ve either got to increase productivity, which companies have not necessarily done, you’ve got to increase price or you got to find cost savings in other places or your margins are going to go down.

Mark Donnolo
Or you can cut back on what you did before and say, Well, guess what, we’re 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 it is kind of whipsawing here.

Mark Donnolo
So we’ve we’ve seen a coming for a long time, so now we’re here. So we’ve got to do something about that war for talent and kind of work through all those higher costs.

Michelle Seger
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 of comments on that. One.

Michelle Seger
A government regulations, few comments we could make on that one. And then this hybrid in 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?

Mark Donnolo
Absolutely. Yeah.

Michelle Seger
And we have concrete information, data and conversations that substantiate each one of these.

Mark Donnolo
Mm hmm. Yep.

Michelle Seger
So let’s talk a little bit about those. When we discuss these ongoing let’s talk about ongoing supply chain issues. Yeah.

Mark Donnolo
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.

Mark Donnolo
We can’t get the revenue out of it. And so those supply chain issues are still persistent. We’re seeing you know, you talk about government regulation not to go too far to that yet, but with with China’s zero-covid policies, that’s caused a massive issue of supply chain. Now companies are looking at alternative sources. They’re saying we just can’t sole source out of China anymore.

Mark Donnolo
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.

Michelle Seger
Yup, 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. Mm hmm. Gosh. From mom and pops to the enterprise company, we’re hearing the impact of that. Right. Production as well as, you know, what?

Michelle Seger
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.

Mark Donnolo
And there’s been an interesting connection between the war in 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.

Mark Donnolo
So when you look at, you know, the real increase in pay, when you net out inflation, it’s not as much as you might think.

Michelle Seger
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. Mm hmm. 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 our staff.

Michelle Seger
We do most of the staff to move.

Mark Donnolo
Around the different desks.

Michelle Seger
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.

Michelle Seger
They’re not all back yet. Right. Right. And that is definitely impacting the return on investment because we’re we’re finding out that salespeople are swirling a little bit and it’s taking them longer to make that connection and to make that sale.

Mark Donnolo
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.

Mark Donnolo
There have been questions about productivity. You know, 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 and now we realize we’re not. The companies have not seen the productivity across the board increases that were touted. And, you know, to be fair, companies haven’t had the leverage with the whole war for talent to be able to say, hey, no, you need to be back in the office and we need or we need you back in front of customers.

Mark Donnolo
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’ll be interesting to see what happens with with the hybrid environment and remote.

Michelle Seger
All right. Yeah, I hope the hybrid environment is here to stay. Really. And I think that it is.

Mark Donnolo
Yeah. A lot of benefits obviously.

Michelle Seger
Because yeah, I think we can work it out. And the challenge I think that a lot of people have to we won’t get on to bid on the work from home thing. But I was just talking to someone today and people will tend to work longer even because they’re down at their desk, you know, get up at their desk till 7 p.m..

Michelle Seger
Right. 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. Hmm.

Michelle Seger
I think it’s a challenge for big cities. And I think we need the you know, we need the contact. But.

Mark Donnolo
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 and the equation. Okay. So what does that mean and what levers can we pull there?

Michelle Seger
All right. So let’s get into what is rosy return on sales investment. And as we talked about it, you know, we think about it almost as an equation. It has a couple parts. Yeah.

Mark Donnolo
I mean, is we as we’ve been thinking about return on sales and investment, it’s a lot like you would look at a return on on equity or a 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.

Mark Donnolo
Instead of all that divided by revenue or sales as your simple cost to sales.

Michelle Seger
Constantly we’re being asked to benchmark companies against.

Mark Donnolo
The problem with cost of sales is it’s kind of one dimensional. It looks at, okay, well what do we do? Well, we 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 the cost of that.

Mark Donnolo
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 your ROSI, as we call it.

Michelle Seger
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 ROSI, right? So on talk about sales, you know, time today, capacity. But let’s before we do that, we define it here at Sales Club.

Michelle Seger
There’s really like four buckets of return that we look at, you know, different areas. So we talk about opportunity.

Mark Donnolo
Mm hmm. Yeah. So what’s what’s your addressable or available market opportunity, right?

Michelle Seger
Addressable market, your sales time. Right. And that’s, you know, and we and we map that really we look at sales time in the context of the sales process. So from lead gen 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?

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

Michelle Seger
That’s right. And finally, we look at win rate, right? And that is what we win. Yup. 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.

Michelle Seger
So we kind of bucketed it like that, a few things. And I want to just lay that context. And today what you and I were going to 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 what our approach is to it and what companies can think about, right?

Michelle Seger
Right.

Mark Donnolo
So sales time is probably the biggest untapped or biggest wasted asset first for companies. And I think anybody listening to this would would agree. Right. You ask your question and we have this one podcast about, you know, sales time. It’s 10 a.m.. Do you know where your sales organization.

Michelle Seger
Yeah, that’s hearkening.

Mark Donnolo
Back to that old TV ad. But the sales organization, Michel, 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.

Michelle Seger
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?

Mark Donnolo
Yeah, well, I mean, that’s their sales time and their total capacity is going to be made up of, you know, that, that sales time divided by those other things that you’re talked about, which is you’re your sales cycle time, your win rates, your workload, all those things that’s being done with that sales time. But and those all have little levers on them that you can pull, but sales time actually, you know, a huge lever and it’s.

Michelle Seger
The sales capacity then is the time that salespeople have to actually sell, right. This is an administrative year. 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.

Michelle Seger
Not all non sales time is actually bad time, right? Right. Yeah. So you got to remember that too. It could be value added non sales time. Yeah.

Mark Donnolo
I mean it’s like, it’s like a uh, it’s like a machine. I mean you can’t run a machine at 100% or even 90% capacity. I mean it’s got to have.

Michelle Seger
Downtime and 10%.

Mark Donnolo
So you know when you when you look at that, that other, you know, 47% or so of time that salespeople are spending, it’s on things like operations, activity, ease, 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.

Mark Donnolo
And then you’ve got time fighting fires and doing and doing all sorts of other things that that the job shouldn’t do. So there 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 jobs. We realize that some of that non sales time is actually okay, but some of it should either be a eliminated or be done by somebody else.

Mark Donnolo
It’s maybe a lower cost resource or see 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 you’re going to be more time to sell.

Mark Donnolo
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.

Michelle Seger
Higher.

Mark Donnolo
Level of what they do.

Michelle Seger
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 of 50%. 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.

Michelle Seger
Yeah, yeah.

Mark Donnolo
I think so. 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 on 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.

Mark Donnolo
Let’s 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, you know, 40% or 60%, whatever that number is.

Mark Donnolo
So it becomes this anecdotal thing.

Michelle Seger
Yeah, but it.

Mark Donnolo
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.

Mark Donnolo
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 a movement and we need to see the results.

Michelle Seger
So what we we do when we the approach that we talk to our clients about 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.

Michelle Seger
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.

Mark Donnolo
Right, right. So first thing to do is, is you’re describing this as 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 your your time sampling might be based on different activities for four different teams.

Mark Donnolo
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, you know, how do they spend my time this week? Well, I happened to write it down, so I know. But, you know, most people, you just wouldn’t know that.

Mark Donnolo
Right? So you don’t want to.

Michelle Seger
Have your time drinking coffee. Let’s admit now.

Mark Donnolo
Let’s see that that’s a good activity. That that’s a non it’s a non consulting non sales activity. But, but the best way to do it is through live sampling and it’s not having somebody follow the wrap around. I know they do that in consumer products a lot. They’ll follow around in the stores, but it’s is through a tool like like we talked about like sales time optimizer it’s like, well, okay, we’re going to take some sample days and you’re going to we’re going to take tomorrow we’re going to take this week and just enter in your time as you go and just pop it in and then reconfigure, rising it by.

Mark Donnolo
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 categories, 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 in to our return on sales investment equation.

Michelle Seger
Yeah. And the other part that we do is we, 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 mention coverage model is because I’ll bring up an example of a health care company that saw amazing results. So here’s, here’s a good one.

Michelle Seger
We were consulting with a health care company and identified that the sales organization was spending the account managers exorbitant amount of time going through very expensive purchased lead lists. Right. And trying to qualify those lead less 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.

Michelle Seger
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 along just a small little velocity team of orders and they would go through and qualify all of that and do all of that background work so that the salesperson could actually sell.

Michelle Seger
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. Yeah, but anyway.

Mark Donnolo
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 list of things, but it was very valuable. So somebody else more efficient can do it better. You know, I can I can think of one we did not too long ago for a company.

Mark Donnolo
And they found out that salespeople were spending a total of about 4 to 5 hours a week in front of the customer.

Michelle Seger
Yes.

Mark Donnolo
Which is shocking, right? Yeah. And so they sat back and they’re like, well, why is that? That’s ridiculous, right. And then as we dug into it, we saw that they spent a lot of time in meetings, especially internal meetings, not sales meetings. So customer meetings. And then the answer we got back as we dug into it further and we started to do you doing the, you know, the start stop exercise is oh well, you know, we have a really collaborative culture.

Mark Donnolo
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.

Michelle Seger
Oh, I remember everyone was much happier with that result as well. Yeah. Isn’t that just interesting. So it was a culture, you know, a cultural decision, right. That really drove their capacity.

Mark Donnolo
Yeah. And then there was another one not too far back as well where the the reps were spending in this company, was doing the time sampling on their it was like a monthly or quarterly basis. The reps were spending a lot of time doing quotes and pricing. Yeah. And they, and they took all that time. This is a pretty large sales organization.

Mark Donnolo
It 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 justify their investment in this major software system and then freed the reps up from doing those things.

Mark Donnolo
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 when you look at just understanding your time and, you know, being critical about it.

Michelle Seger
So understanding the time, that’s a 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 do and multi-year sales process, big buckets of where people are spending their time. What roles are involved in that time.

Michelle Seger
Yeah, dig down into that and it can serve as a couple of things. The output, the output is a baseline of where you are spending your time. The output also is a list of 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.

Michelle Seger
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 representatives, sales group, sales managers, leaders. You say, what can we stop? What will we start? What can we continue? I And then you look at that and you can do what we call job role decontamination.

Michelle Seger
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. Yeah. So I think this was a good talk.

Mark Donnolo
Mark Yeah. And in and I think, you know, when you, 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 that I don’t want to be doing.

Mark Donnolo
And 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, 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.

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

Mark Donnolo
Thanks, everybody, for joining us.