Tuesday, November 16, 2010

Mr. MSP, COS, what it is, why you should care and 5 steps to fix it.

COS, COS, COS (Cost of Sales)…..if I had a dime for every time I’ve heard COS in board meetings over the years. With that said, it’s 2010, soon to be 2011, and COS is where’s it’s at. I won’t get into my rant that the recession is not a recession, but a correction, and the 90’s sales world is never coming back. What I will stress is “He who manages a low COS wins the game” So what is COS? Ask 10 CEO’s (God forbid 10 VC’s) and I bet you get 10 different, but similar answers. Net-net: It’s your total cost of your sales and marketing efforts to bring in revenue.
So why should you care? No-brainer: If it’s too high you have a non-scalable business?
What can you do about it?
1. Hone the hell out of your value prop.
I’ll say this again “Your value prop is like an arrow. The sharper (eg more compelling) your vale prop is, the further it will go and the deeper it will penetrate into your customers”. Your value prop must = business value! The more compelling your value prop is, the shorter your sales cycle, the higher your sales process conversion rates and the lower your COS. If you don’t have a compelling business-value, value prop, go no further.
2. Focus on CTM (Customers-that-Matter).
CTM are your target markets. Focus on three target markets and dominate. I don’t care who they are just draw a direct line between your value prop and the needs of your CTM. Driving in a straight line is much more efficient. Your CTM all think they all have vastly different requirements. Tell them you agree and you can meet those requirements, but at the end of the day, they’re not all that different, so you have economies of scale on your side.
3. Create a smooth sales process.
You’re driving from Boston to San Francisco and you want to get there as quickly, as predictably, and as efficiently as possible. You’re probably going to drive a high MPG car, one that’s dependable, one with a GPS and don’t stop at tourist traps. Your sales process is the same. Use efficient and dependable resources (properly compensated and motivated people) take it step by step, measure the success of each step, don’t let the customer veer you off in the wrong direction (you should lead the sales process), don’t you go astray and always add value along the way.
4. Smart comp plans.
Comp plans must be designed to drive behavior and reward for success. Comp plans also, obviously, must match your business model. First, never, ever let a slick sales guy talk you into a. high base salary b. a draw on commission.  These will kill your COS. Comp plans should be 50/50 (base salary/commission), tiered quotas and percentages (make smaller percentages lower in the quota and higher percentages higher up the quota scale), pay overachievement bonuses (preferably quarterly) and pay out commission as revenue comes in the door.
5. Measure everything (like science).
Sales is not an art! Get that out of your head! Executed properly you’ll realize that sales is as much as a science as writing code.  Measure the quantity and quality (yes quality can be measured) of every aspect of your sales and marketing: lead gen program success, leads converting to appointments, appointments, appointments converted to the opportunity pipeline, pipeline, opportunities maturing through the pipeline, pipeline conversion rates, POC conversion rates, ASPs, close rates etc……………… The more efficient you get (yes you can do this) the lower your COS (and higher your profitability).  No, you do not need an elaborate CRM yet, get this done first then worry about automation.

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