CRM and the golden sales sausage machine...

I’ve heard the concept of the golden sales sausage machine articulated many times in my career. In essence it goes like this: our sales people currently average say four appointments a week and they close one in four. Therefore if we crank up the lead generation to eight appointments a week instead of four, our sales will double.

On the surface the logic looks undeniable, and so the company cranks up the lead generation. The new appointment target is achieved, and everyone sits back and awaits the rewards. Which never come because the sausage machine theory has two key flaws:

Firstly, it assumes that all leads/appointments are uniformly close-able; in this case one in four. In reality the conversion rate of lead/appointment varies significantly with lead type. So, a customer lead, or a warm lead where a prospect initiates the contact with us, or perhaps a referral, will tend to have a significantly better close rate than a colder lead such as a cold call. The problem with the sausage machine approach is that it’s difficult to easily increase the number of warm leads, so the balance tends to be made up with colder leads that don’t convert so well. The conversion differential can also be very significant with a very wide range of closure rates across the warm to cold lead spectrum.

The second issue is that conversion efficiency decreases with work-load. Let’s say you were a salesperson and you only got one lead a month. You have a target to hit and commissions to earn, so you do everything you can to close that lead. You pull out all the stops and lavish such attention and service that you win the business. However as you get more leads you’re less able to provide that level of attention and your close rate is less successful.

There’s a crowding out effect as lead volumes increase, and this happens earlier than many people realise. There’s a tendency to focus on time in front of the customer as the measure of salesperson workload, but there are a lot of other key activities required to close sales, including preparation, follow up actions, and quotations. Attempts to maximise the number of appointments a salesperson attends often back-fire as key non-client facing activities are dropped in order to accommodate the increased work-load, and close rates can often significantly deteriorate across the range of leads, good and bad. It’s not uncommon as a result to see overall sales decline as salespeople struggle to cope with the influx, and start to drop the ball on what previously would have been considered their prime opportunities.

The benefit of having a CRM system which tracks leads and monitors sales activity levels is that the two effects described above should be very apparent through reporting. The difference in close rates between lead types may prove to be particularly insightful for many organisations as they increasingly struggle to get traction with traditional cold calling approaches. I’ve seen a number of businesses realise that what were previously considered successful lead generation activities in terms of the volumes of leads generated, were actually losing the business money when the dimensions of costs and resulting sales were considered. At the end of the day the golden sales sausage machine may prove to be unrealisable, but effective use of CRM can go a long way to helping organisations fine-tune lead generation and activity levels to increase sales.

CRM is complex, and that may be good...

The phrase ‘CRM is complex, not because people want it to be’ which appeared in a tweet from Mitch Lieberman last week caught my eye, and, though I suspect I am using the quote outside of its original context, I wanted to write a piece about CRM complexity at least as I experience it – as an independent CRM consultant trying to maximise the pay-back from CRM technology.

Complexity is important because if you believe implementing a system to be a trivial task and it proves to be otherwise, the chances are you won’t be resourced for a successful outcome; rather like fuelling the aircraft for Paris, when the destination is Sydney.

In my experience there is often a yawning gap between perceived and actual complexity which means that many CRM initiatives are inadequately planned and resourced. I will expand on these complexities in a moment, but it’s also worth saying that CRM can be virtually complexity-free.

It’s not too challenging to get a CRM system up and running in a matter of hours. Out of the box software will provide capabilities such as contact and activity management which should allow users to perform their roles more effectively. Usage however is likely to be inconsistent and ad hoc, and though CRM technology in this form may provide some level of return on investment, it’s unlikely to have a materially beneficial impact.

The greatest value that CRM technology provides is to allow you to define, manage and improve your sales, marketing, and service processes in a way that better allows you to attract, increase revenues from, and retain customers. For many organisations these ‘front office’ processes have traditionally been poorly defined, badly supported by technology, and inconsistently executed. Using CRM systems to better control and automate these processes can add substantial operational value.

However using CRM technology in this way is the source of most of the complexities I referred to earlier, as the following challenges need to be met:

• You have to decide how you want the system to add value. Automating what you do already may create benefits, but greater value is generally generated from improving your current processes and using the CRM system to support the new practices. Determining what these new strategies and processes are going to be is a demanding aspect of any CRM project.

• Whether you change your business processes or not, a more process oriented approach to CRM will also tend to be more demanding from an implementation stand point. As you start to embed processes within the technology the more you tend to realise that the ‘out of the box’ capabilities need to be customised to meet your unique needs. Even the most basic of requirements need some level of system adaptation. In addition a process-led approach tends to flush out data migration and integration requirements that a more casual usage doesn’t require.

• Finally, a more process driven approach requires users to use technology in a consistent and systematic way otherwise it’s unlikely to generate any value. Put in an accounting context, the books are unlikely to balance if you are selective as to what transactions you choose to record. Consistent user adoption is significantly more difficult to achieve than most people realise, and has been the ruin of many otherwise successful CRM initiatives.

So, in summary where CRM technology has its greatest impact is where it is consistently used to support an improved set of business processes, but this is considerably more complex to achieve than many buyers of CRM technology allow for. The key is to understand this and act accordingly. It’s better to investment a small amount, recognising that a system will be an inconsistently used personal productivity tool with a limited pay-back, than invest heavily without getting to grips with the associated complexity involved in a more value enhancing system.

Of course it would be great if CRM was easy, but that it isn’t is a great opportunity for companies who wish to achieve sustainable competitive advantage. Markets are dotted with companies who have successfully systemised their ‘front-office’ processes and continue to reap the rewards of doing so because their accomplishment is hard for others to emulate. For these organisations at least complexity is a friend not an enemy.