The Catch-22 of Recurring Revenue
One of the significant contributors to revenue plateauing in companies that deal with their customers in a recurring transaction mode is this catch-22. Specifically, once a salesperson has a portfolio or a book of customers that he/she is serving, they can frequently become so busy taking care of those existing customers that they don’t have enough time during the business day to reach out and contact prospective new customers.
This occurs even though many of these salespeople try to move faster and harder through the sales cycle. That desire to increase speed actually reduces efficiency and productivity because, in direct mathematic proportion, it increases the probability of errors being committed. And, as you probably well know, every mistake that’s made costs time, money and, sometimes, customer relationships. So, what’s the answer?
The only surefire strategy that I’ve implemented over the past 40 years is to take a hard look at the list of your existing accounts. And then, assign a value to each account based on the revenue per sales hour that they require. Sometimes, the customers that are your very best customers, in terms of total revenue as well as revenue per sales hour, require very little time on the part of your salespeople and/or your support team. Conversely, the customers from hell (you know the ones I’m talking about) will take up tons of time and, in terms of revenue per hour, produce comparatively little.
The accounts at the bottom of this list ranking, the ones that are producing low revenue per hour, should be examined in detail. Now, the catch-22 comes into play because salespeople and, frequently, their managers feel that “any revenue is better than no revenue”. And, to a degree, I agree with that concept. So, even though we all know that the customers from hell are unpleasant and cause problems for us internally and emotionally, we continue to serve them because of the “some revenue is better than no revenue” philosophy.
The key to breaking this conundrum is to create a prospecting capability that is separate from the salesperson. Let’s admit that a recurring revenue salesperson, who’s got a good book of business in terms of busy-ness, is not going to be able to break away and start making cold calls or prospecting calls. This situation clearly screams a need for separation of duties.
To grow the company where you have a recurring revenue business model, you must bring on board a Sales Development Representative whose only job is to put new opportunities into the funnel for the existing sales team. As new and hopefully better opportunities go into the funnel, separating yourself from those poor-performing accounts (in terms of revenue per sales hour) becomes far easier. At that juncture, the rule will be “better revenue is better than the revenue I’m getting”; and that is where we want to go.
Make sure your salespeople constantly list and rank all of their accounts. And then, you must examine the worst performers on a consistent basis. If an account has been at the bottom in terms of revenue per sales hour for quite a bit of time, and we don’t see a way to improve the revenue per sales hour, then you must consider ways to terminate that relationship. Again, terminating that relationship will become far easier when a salesperson is backed up by the knowledge that he/she will have new and additional accounts coming on board to replace those accounts that you’re terminating.
If you have any questions, feel free to call me and, as always, I wish you…
Good Luck and Good Selling!!!