As the economy starts to slow, companies focus on increasing sales. But most companies focus in the wrong place, according to the Customer Manufacturing Group.
The economy is starting to slow and it may not be too long until most companies actually have to start working at making sales again. Maybe your company's already in that mode. Whenever it comes time to focus on increasing sales, most companies focus in the wrong place.
How do we know that? Simple, there are more wrong places than right, and without an understanding of how to focus, the odds are you're going to get it wrong. So how do you get it ‘right?' The answer is to understand the theory of constraints.
In 1984 Eliyahu Goldratt wrote a groundbreaking book called 'The Goal'. While the book has become a cult classic in the manufacturing sector of business, it has valuable lessons for sales. 'The Goal' introduced thousands of people to the theory of constraints and how this simple (and counter-intuitive) idea can increase throughput.
What is throughput?
In sales, throughput is simply selling and delivering more products and services to your customers. Simple idea, not always remembered by those who attempt to manage sales efforts (either their own or a group's). How often have you seen a sales manager attempt to manage the sales process by measuring a single intermediate point... proposals delivered for example? Does this work to increase sales? When it does, is it a reliable management method? No.
So what should you be measuring? Enough intermediate points to determine the constraint to increased sales. In virtually every company we have worked with, when sales are too low, the usual demand is for "more leads." If you just had more leads, you could sell more.
Maybe, maybe not. It depends if leads are the constraint to throughput. Simplistically, if the sales force is not able to follow-up on the leads they have, how will generating "more leads" help? Maybe the new leads will be "better" and you can replace some of the existing leads with these "better leads." Oh, now it's not more leads you need, but better leads. Well what is the constraint anyway?
A constraint is defined as anything that limits a system from achieving higher performance. To increase throughput (sales) you need to follow a five-step process:
1. Identify all of the constraints in the sales system.
All systems have at least one constraint and most have several. Sales is no exception. What are your constraints? Too few leads, too few qualified leads, too few qualified sales people to follow-up on the leads, too few people to create useful proposals to qualified buyers, or... ?
2. Exploit the system's constraints.
Make sure you don't bother to increase output of things that are not constrained. If a constraint is too few people to qualify leads, then increasing raw leads beyond the level you can qualify is a waste of system resources. Maximise the input to the constraints just to the limit of the constraint's ability to handle the input. Any more is a waste of resources.
3. Subordinate everything else to the decisions made in step 2.
This will maximise system efficiency. That is, the cost of selling will be minimised for the level of sales being achieved, but it doesn't yet increase sales. The reason is that we have not yet relieved any constraints, we have simply acknowledged that they exist and that trying to "force feed" more through the constrained system is a waste.
4. So now we must elevate the constraints.
What is the one step in the process that if you expanded its capacity would increase sales? Make sure you understand what the constraint is and then expand its capacity until it is no longer the constraint.
5. Sales will increase and... there is now another constraint.
Go back to step 1 and repeat the process.
This process sounds simple. It seems obvious, and it's tough to force yourself to do it. We are too quick to want to jump on a "solution" without understanding if we are increasing throughput or activity. The purpose of your organisation is not to increase activity but throughput. It's not rocket science.