Tomicide Solutions January 2009: Using Salesmanship In Print For Better Sales Force Management And Improved Sales Force Effectiveness

By Tom "Bald Dog" Varjan

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W hen we look back on history and see how high-tech companies have handled tight economies, we can see some commonalities: Eliminate expenses like skill development and marketing. Hire more salespeople but seriously trim their compensations and the tools they need to do their work. A few years ago I bumped into a local company that went as far as forbidding their salespeople to use the sales aids the company created and forced them to create their own individual handout materials in their spare time.

So, many companies eliminate base salaries, company cars and other tools salespeople need for their work. And at that moment the best salespeople pack up and leave with some of the best clients in tow.

Companies contrive various rules and regulations to make sure salespeople can't steal clients, but salespeople always do. And rightfully so. They have worked their arses off to build those relationships with clients, so it's normal that clients follow them wherever salespeople go. No one has to steal those clients. They automatically follow the existing relationship, that's all. Ah, and they talk too...

"Joe, my CRM guy has just left his company. He says management started skimping on certain ingredients that contribute to quality, so the value clients are getting is going to nosedive and the number of complaints have already started rising. I know you're looking for a CRM company, but I suggest you stay away from these morons."

Now if you know this, when you want to grow your business, what makes more sense: Hiring more salespeople and losing more clients when these salespeople quit your company or using what copywriting legend, John E. Kennedy called salesmanship- in print and turn the postal service into your sales force to deliver your message to thousands of prospects?

This is the question to which we're searching the answer in this article.

Let's start out with a...

Short Comparison Between Using A Copywriter Versus Using A Sales Force


Hiring A Copywriter Vs. Hiring A Salesperson
Copywriter Sales Force
Expensive to get started - Good copywriters require both fees and royalties Cheap to get started - Starving, low-end salespeople are willing to work for straight commission
Cost-effective and easy and to improve Expensive and cumbersome to improve
Written sales messages are consistent, so they build your brand Salespeople, being human beings, are inconsistent. A sales force of 100 people deliver 100 different messages, thus building 100 different brands
Prospects buy on their own volition whenever they're ready to change Sales folks constantly pester prospects trying to sell them something
Better quality clients acquired based on your Perfect Client Profile Any client is accepted on whom salespeople can make commission
Final purchases Lots of buyer's remorse and disagreements

Now many people may disagree with me and that's good. My opinion is based on the fact that solo professionals almost always have higher (often significantly higher) revenue per employee than companies with sizeable sales forces, so maybe we can learn from them.

For instance, solo entrepreneur and web traffic guru John Reese generated over $1 million in revenue within 24 hours of launching his Traffic Secrets information package.

And John had no sales force. He hired a kick arse copywriter, Michel Fortin, and Michel wrote a kick-arse sales letter. Then the letter was distributed by a volunteer sales force, that is, email and postal service.

No headache about managing a large sales force. No worries about "stolen" clients.

I know that in your business you need salespeople, and that's normal. Selling 6-7 figure technology is not the same as selling a $1,000 information package. Nevertheless, when an IT company wants to grow, simply adding headcount to the sales force is hardly ever the best solution with the highest expected ROI.

Basic Assumptions

So, let's start our comparison with an assumption[1].

You have a database of 10,000 prospects with a lifetime value of $500,000 each. That's a total lifetime opportunity of $5,000,000,000.

You want to create a campaign to meet these 10,000 decision makers to sell your services to. You can do it in one of two ways: You either build a sales force to start chasing after the market or hire a copywriter and have the market come to you.

So, let's start with the sale force...

Scenario A: Sales Force

Sales Revenue

Without going deep into the details and fiddling with various variables, let's say, your sales force of 10 brings in $550,000 of new sales per salesperson. So, for the 10-person sales force, this is $5,500,000.

Cost Of Sales

Let's say you have a sales representative[2] at a $55,000 annual base salary[3] plus 10% commission[4] plus bonuses. Including commissions and bonuses, let's round this number up to $130,000 ($ 55,000 in commissions and $20,000 in bonus on $550,000 annual sales).

On the top of this you have to add some other cost elements that make up the total cost of sales...

That's $228,100 of total cost of sales for every single salesperson. Of course this varies based on the salesperson's performance, thus the variable elements of his compensation. That's a return of 2.19 times on your investment.

For a 10-person sales force with the above average performance, the numbers are $2,281,000 total cost of sales to produce $5,500,000 of annual revenue.

And Now The Invisible Kicker

Salespeople's annual turnover is 43%, and the cost of replacement is about twice of their total annual gross compensation.

Let's be conservative here and let's say this company loses three salespeople every year (a mere 30% attrition). Three salespeople's total compensation is $228,100 * 3 = $684,300

Multiply this number by the replacement cost of 2 = $1,368,600. This is the annual cost of attrition.

And since attrition is a recurring issue, this is a recurring annual loss which adds to the total sales cost of the 10 sales folks, which has by now risen to $2,281,000 + $1,368,600 = $3,649,600. Of course, these "kicker" costs are not noticed thanks to antiquated accounting practices.

Itemised Cost Factors To Acquire New Salespeople

This list is based on the assumption that you want to hire real professional salespeople, not merely glib, smooth-talking hucksters that are shown in movies like "GlenGarry Glen Ross", "Tin Man" and "Used Cars".

Good salespeople don't come cheap, and when they leave their companies (usually chased away by idiotic sales managers), they leave significant financial devastation behind.

Costs Of The Departing Salesperson

  1. Cost of a temporary person who fills the position. If the position is not filled, then the cost lost sales opportunities. The cost of lost productivity is a minimum 50% of the departing person's annual compensation

  2. Cost of doing exit interviews with the departing person. Cost of the interviewing managers plus admin costs plus cost of notifying the appropriate government departments and associations

  3. Cost of the person who picks up the slack before new person is hired

  4. Cost of all the professional development that has been invested in the departing person. Add the cost of licenses or certifications the company has enabled this person to acquire

  5. Cost of impact on overall company performance

  6. The cost of the moral impact on the people the departing person has a good relationship with. Cost of reduced performance due to lower morale

  7. Cost of severance and other benefit packages

  8. Cost of lost expertise. Cost of adding this expertise to the competition. As a rule of thumb, you can use 50% of the departing person's annual compensation for one year of service, and then add 10% for every year of service

  9. Cost of unemployment insurance claims and cost of the unemployment process

  10. Cost of lost department-wide performance due to the lost wisdom and guidance of the departed salesperson

  11. Cost of clients the departing person takes with him (Just accept this baby. It's the fact of life)

Costs Of Recruiting The New Salesperson

  1. Cost of advertising in reputable sources

  2. Cost of developing a specification for the new person, cost of preparing for the interviews, education and reference checks, credit and criminal checks. You can use between 30 and 100 hours here

  3. Cost of creating a new task for HR, so HR folks have to drop something to deal with this issue. About 100 hours per position

  4. Cost of managerial time to participate in interviews, so manager(s) have to drop other important issue(s) to deal with recruitment

  5. Cost of handling and processing resumes at about $1.50 per resume

  6. Cost of interviewing new candidates while interviewers are pulled away from their normal work.
  7. Cost of drug and psychological screening procedures

  8. Cost of equipping the new salesperson with all the technology she needs to do her job well (Car[5], laptop, mobile phone, desk in office, Internet and email connections, etc.). Cost of professionals who set this all up

  9. Cost of pre-employment tests to check candidate's ability and skill level

  10. Cost of a manager's time to build a trusting relationship with this new person

Cost Of Skill Development

  1. Cost of the initial orientation and the cost of the person who does the orientation process

  2. Cost of training the new salesperson (product and service knowledge), understanding the company at a deep level. You can estimate 4-6 weeks of training

  3. Cost of the training person (External and internal)

  4. Cost of training materials, computers, printed stuff, etc.

  5. Cost of supervision after training. About seven hours a week for 8-12 weeks.

Cost Of Lost Performance

  1. After training, the new salesperson contributes at 25% of full performance for 2-4 weeks. Hence the cost is 75% of the new salesperson's full compensation for this time frame

  2. Between week 5 and 12 performance goes up to 50%, so the cost is 50% of full compensation

  3. Between week 13 and 20 performance goes up to 75%, so the cost is 25% of full compensation

  4. Cost of colleagues and managers to bring the new person up to snuff

  5. Cost of initial mistakes and lost opportunities during the first 6-9 months

  6. Cost of impact on deals the departed salesperson walked out on and left behind

As you can see, by the time we calculate all the hidden costs, above and beyond the obvious, the damage of losing only one salesperson can be significant

Scenario B: Copywriter

You hire one copywriter who suggests that you create a direct response marketing campaign in the form of a sales letter to offer a free white paper on some of the industry's biggest problems, plus five follow-up letters.

Cost Of Sales

White papers and case studies have the highest response and readership rate among top decision-makers. Most of your salespeople will be connecting with purchasing departments and end up in dreaded bidding wars. According to Marketing Sherpa, 78% of top decision-makers respond when they are offered industry-related free white papers.

Copywriter Costs
Item Cost
Copywriter's fee for a white paper $20,000
Copywriter's fee for a sequence of five follow-up letters $25,000
60,000 stamps 60,000 x 0.51 $30,600
60,000 envelopes $6,000
60,000 sheets of paper 120 x 500-ream box $1,000
Total $82,600

That's all. At this point you have two options.

If you agree to pay a percentage of sales as royalty to the copywriter, he will keep tweaking the letters for better response rate.

If you don't pay the royalty, then you get the letters and the rest is up to you.

But good copywriters worth their salt require the royalty stuff.

If you refuse to pay royalty, you end up with some third grade amateur copywriter and that will undermine the results you get. The improved response is the reason why smart clients opt for the royalty deal and receive ongoing support for improvement.

One more thing. Prospects who become buyers on their own volition, after some education, don't haggle on prices. They make better clients than clients created through cold-prospecting slavery.

Sales

Being conservative, let's say, out of the 10,000 prospects some 5,000 respond and download the white paper. With a conservative 10% closing rate, you create 500 new clients.

Since these clients are not cold-prospected clients but buyers who took action on their own volition, they are the highest calibre clients. They accept your prices and terms of doing business. For them you're a respected industrial expert not just another vendor and dreaded peddler.

Lifetime value of each client is $500,000. Self-qualified clients are loyal and accept prices.

Let's say about 20% (100) of these clients are likely to give you the lifetime opportunity. That's $50 million. From this take off 5% royalty to the copywriter, you still have $45 million left.

But let's be conservative and assume that the copywriting approach brings in the same $5.5 million as the sales force approach.

ROI Comparison
Sales Force Copywriter
Investment: $2,281,000 Investment: $82,600
Sales: $5.5 million Investment: $5.5 million
Productivity: $550,000 per salesperson Productivity: $5.5 million per copywriter
2.9 times ROI 67 times ROI

Again, while there may be errors in my calculations (I'm sure there are), the fact is that you can make more ROI with the help of a copywriter than with a legion of salespeople.

So, why do some many owners of high-tech businesses chose the army of salespeople? Simple! They love controlling people and show that they are the boss. And they are willing to forego their potentially hefty profits for the egotistical pleasure of beating their chests and bossing their people around and...

"I'm the boss here, and you do as I say!"

It also reminds me of a line from the movie Total Recall, when the bad guy Cohaagen reprimands his henchman, Richter...

"I don't give you enough information to think. I tell you what to do, how to do it, and you just do as I tell you. You're not here to think. You're here to follow my orders without thinking."

And people usually don't like working in these crappy environments.

These business owners also love to impress to their friends and peers...

"Man, I have a sales force of half a million salespeople working for me, and they live or die on my word."

But according to Pareto's 80/20 rule, 80% of the sales force is duds. They are just headcount but don't produce a sausage.

In any business, 20% of activities or people produce 80% of the results, and 80% of activities or people produce 20% of the results.

20%-er activities or people: 80% results / 20% efforts = 4 result units per resource unit or person. 80%-er activities or people: 20% results / 80% efforts = 0.25 result units per resource unit or person 4 / 0.25 = 16.

Thus, 20%-er resources or people outperform 80%-er resources or people 16 times. And here lies the difference between copywriting and traditional "chase => hunt => hound => pound" sales efforts.

If your copywriting approach outperforms your sales force by only 16 times, you're already winning.

As the saying goes...

"If the mountain doesn't go to Mohamed, then Mohamed goes to the mountain."

We just have to decide what we want to be. A mountain to be sought out by many Mohameds or a Mohamed frantically running around from mountain to mountain for the rest of his life?

On Summary

Using one more farming example, no doubt, even a blind hen can search for corn all day non-stop and find some once in a blue moon.

But the same hen can send out 10,000 well-written letters to 10,000 truck drivers and make deals with them to deliver and unload copious amounts of corn on a regular basis right next to the henhouse.

Granted, looking for corn all day is cheaper, easier and more traditional. And if the hen is willing to work her arse off in search of corn, she can find some.

The latter takes a little upfront thinking and investment. But after that, this smart hen is on the gravy train forever, and enjoys a virtually unlimited supply of corn.

Which hen do you want to be? The hard working hen or the prosperous hen?

In his book in 1975, The Mythical Man-Month, Fred Brooks showed us that adding new people to a task actually leads to expansion of elapsed time and effort rather than shortening the elapsed time. This is often known as Brooks's Law, which states "Adding manpower to a late software project makes it later".

Interestingly, sales forces are the same. Something goes missing. In effect, adding people leads to lost effort through training, communication, administration, and other overhead. A rough rule is that for every person you add to a project team, you have to subtract 10% accumulative from that person's effort. Adding a new person thus results in 90% additional effort and adding a second person results in that person adding only 80% effort, and so on.

And the work of a sales force is definitely can be regarded as a project.

The same applies to your sales force. The larger is the sales force, the lower is its overall productivity (revenue per salesperson) not to mention the margin on each sale.

Many years ago we learnt from former AC-DC frontman, the late, well, very late Bon Scott, that...

"Dirty deeds and they're done dirt cheap..."

And yes, they are. And companies that are in the dirty business don't mind their salespeople (or any other people on their payrolls) come and go. When it comes to their sales forces, they operate on a "hire them => tire them => fire them" basis. And the sales community knows about these companies and good salespeople avoid these toxic joints.

The role of selling has drastically changed over the last few years. Sadly many sellers haven't realised this change. Or as an editorial in the 2006 August issue of The Harvard Business Review put it...

"Customers' buying processes have evolved in our world of ubiquitous, instant, global communication…but companies' selling processes have for the most part stayed the same."
No, I'm, not trying to convince you not to hire salespeople. Obviously you need some. All I'm saying is that adding more salespeople to your current sales force should be the very last step, only after you've optimised your current sales resources (both people and systems), and everyone and everything are operating at their full potential.

Look, if your horses are struggling to pull your cart, before you buy another horse or make sausage of your current horses and replace all of them, make sure that the axles of your cart are properly greased so the wheels can turn easily and your cart is not overloaded. A tub of grease is a lot cheaper than buying a new horse. This answer may not sound too MBAish, but as a former farmer, this is all I have. And it works.

One more thought about MBA. Have you considered that 99.99% of all MBA marketing programmes teach consumer marketing to sell commodities. Look at any MBA textbook and check the section on case studies. You'll see companies like Coke, Hershey or Nike. It's hard to sell million dollar IT systems with a commodity-based B2C approach.

Yes, I know the copywriter approach may seem to cost a lot more on the front end, but you gain that investment back fairly quickly.

[1] We make some assumptions along the way, and here and there I may get out of whack relative to your specific numbers. But this is just a general guideline, so stay with me. Continue where you've left off...

[2] Here is the description from Monster.ca: Junior Sales Representative: Develops new prospects and interacts with existing customers to increase sales of an organization's products and/or services. Requires a high school diploma or equivalent and 2-4 years of experience in the field or in a related area. Familiar with standard concepts, practices, and procedures within a particular field. Relies on limited experience and judgment to plan and accomplish goals. Performs a variety of tasks. Works under general supervision; typically reports to a supervisor or manager. A certain degree of creativity and latitude is required. Compensation: $55,000 median base salary plus 10% plus commission. Continue where you've left off...

[3] No salespeople worth their salt work for a straight commission, so let's forget about that nonsense. Continue where you've left off...

[4] No good salesperson would accept a mere 10% commission, but let's be conservative. Continue where you've left off...

[5] Let's assume this is a serious company in search of a good salesperson, so the company car is a must. It's better to have a small but well-equipped sales force than a large but poorly-equipped sales force. Continue where you've left off...

Attribution: "This article was written by Tom "Bald Dog" Varjan who helps privately held information technology companies to develop high leverage client acquisition systems and business development teams in order to sell their products and services to premium clients at premium fees and prices. Visit Tom's website at http://www.varjan.com.