There’s a reason companies fear experimenting with the sales force: it is the engine that drives revenue. No matter how patched up or spluttering that engine may be, the thought of overhauling it fills senior executives with dread. To keep sales flowing, companies will make piecemeal ongoing repairs as long as they can.
Yet extraordinary economic times force companies to take every opportunity to cut costs and arrest declining revenues and margins. Unfortunately, fear and the belief that it isn’t possible to be both fast and precise often result in two common mistakes: trimming only back-office staff and functions or instituting across-the-board cost cuts that include frontline sales reps. While both mistakes are understandable, they’re likely to yield disappointing results.
Reducing back-office sales staff and functions in the belief that this will hurt revenues less than reducing the number of frontline sales reps may have worked in the past, but greater complexity has made support functions essential to effectiveness. Also, not all sales efforts are equal, especially in a downturn. It’s crucial to determine where cuts will hurt customer perceptions and adversely affect their buying behavior; otherwise, important investments will be eliminated while low-value ones survive.
To avoid these mistakes, companies should consider a fundamentally different approach. First, examine the customer portfolio. How much effort really goes into each customer and transaction? Which services does each of them need? What are their real profit margins? Which customers and markets are growing and which are shrinking? Understanding customers allows companies to focus sales resources where they are needed and to cut waste, not value. In fact, the sales force can become better and less expensive if organizations reject some traditional practices, such as assuming that big customers need or want big sales coverage, and embrace opportunities to become more efficient by sharing knowledge and resources.
This approach presents a change-management challenge, but economic times make it essential. In our experience, it helps companies to address most sales-related costs quickly and carefully, to cut them sustainably by 10 to 30 percent, and to minimize the risk of jeopardizing future growth.
Common pitfalls
A major telecom company wanted both to reduce sales force costs and to maintain its revenue. It decided to cut back-office support and protect the frontline sales staff—after all, executives reasoned, salespeople make sales. Unfortunately, while costs did fall, frontline sales reps began undertaking support tasks, such as creating reports, tracking orders, and developing sales materials. These additional duties, which reduced the amount of time that reps could spend with customers, weakened revenues. When managers realized what was happening, they began to circumvent the back-office hiring freeze by employing junior frontline sales staff to do back-office work.
Since even junior sales reps are on average more expensive than support staff, the result was the worst of both worlds: a less efficient yet more expensive support organization. What’s more, embedding support roles within each region’s frontline sales force meant that economies of scale were lost and best practices weren’t shared. A few years later, the telco rethought its cost position and support infrastructure, essentially abandoning its sales force strategy. This was a tough lesson—and one that many companies should learn, for the telco was far from alone in thinking that it makes sense to insulate the frontline sales force from cost cuts.
The other common mistake is to cut sales force costs across the board, on the theory that if frontline and back-office resources decline equally, the result will simply be to increase the work burden on the remaining employees. But that isn’t the only result. Cost cutting without regard to the profiles, importance, or potential of customers risks losing not only low-margin ones (which may be dispensable from an economic standpoint) but also their high-value counterparts. Meanwhile, the sales force may be left without the resources needed to capitalize on opportunities once the economy recovers.
- To read the full article on The McKinsey Quarterly, click here »
