CFO Insight LLC
Sometimes small/mid-sized companies concentrate on day-to-day activities so intently that they miss growth opportunities. At planning time, think about your customers, and how you approach the marketplace. These 'Sales 101" Cue Cards may help to frame the Company sales efforts. Cue Card 1 concentrates on a simple method to allocate resources across existing and potential customers. The "A-B-C" classification method uses Pareto's law - the 80/20 rule - to classify the customer population. Identify your largest customers as "A" by defining an arbitrary dollar sales cutoff that suits your business - e.g. $100,000. These few customers (generally less than 20% of the number of customers out of your total population) represent a major portion of your sales, and may effectively be your profit engine - without them you may lose money. Once the "A's" are identified, identify the lowest performing customers in your portfolio - again with a somewhat arbitrary annual dollar sales cutoff. In most populations, it is easy to determine those small customers.
Use the same dollar cutoffs to identify "A" potential customers. These are customers that could potentially meet your annual "A" sales volume. It is probably not worth the effort to identify specific "B", and "C" potential customers, but you will want to consider these classes as you allocate the sales resources.
Once customers have been segmented into the classifications, list the "Direct" and "Indirect" sales resources that you have available. Be creative when considering all the potential sales efforts available ... every outward facing activity is a potential sales opportunity... from a smile at the sales counter to a crisp white shirt and well-pressed suit that reinforces your brand. "Direct" sales resources are those that address specific customers with a sales goal. "Indirect" resources are those that broadly influence the sale environment ... the efforts will not necessarily result in an immediate sale.
Once the matrix axes have been completed, determine how much investment the company can make in each resource - for example, hire 5 sales representatives, at an all-in cost of $100,000 each for a total investment of $500,000. And once the total spending for each resource has been determined, allocate the investment to those areas that will provide the most benefit. Adjust the total spending each year if appropriate, since competitive conditions often change.
The Company may want 40% of the total sales representative time to be spent with the existing "A" customers, 20% with potential "A" customers, 20% with existing "B" customers, and the remaining 20% spread across all other customers. Also, understand that you simply can't ignore "C" customers, since they will likely contribute to your break even sales volume. In some cases, direct mail, or telemarketing may be an excellent method to keep the "B" and "C" customers.
Once the actual and potential "A's" have been identified, define a specific sales plan for each of the "A's". For example, with a sales representative, you may define a 10-week call cycle, complemented with a 4-week telemarketing call, and a website blog that specifically addresses those "A" customer needs. "B" & "C" customers may receive a monthly newsletter ... and potential "A's" may be addressed through the golf tournament invitation. If completed properly, the marketing mix will help you achieve your sales goals.
This process will help focus your creative approach to actual and potential customer base, considering the limited resources available.
Use the same method to allocate limited resources across sales channels.