Sales Foundations FAQs
Here are the most common questions we receive around the sales process.
- What does managing scope creep and variation management mean and why is it important?
- What does sales effectiveness mean and how do you measure it?
- What does sales capability mean and how does it relate to negotiation skills?
- What does sales capacity mean and what is the link with improved negotiation skills?
- What is sales efficiency and how can negotiation skills improve sales efficiency?
- What is sales velocity and why is it important?
- What is the link between sales velocity and improved negotiation skills and sales process improvement?
- What are portfolio management strategies and why are they important for account managers when negotiating?
- How does poor negotiation preparation leave money on the table?
- Why does improving negotiation skills and strategies improve profitability?
- Why improved negotiation strategies can improve your sales growth rate.
- Why do better negotiation strategies reduce price discounts?
- Why are advanced negotiation skills relevant to sales processes and reporting?
- What does a typical sales process and sales pipeline look like?
- Why are sales gates so important?
- What does sales qualification mean in relation to RFPs?
- Why are sales dashboards so important?
- What’s the difference between lead indicators and lag indicators?
- What are the key performance indicators (KPIs) for sales reporting and sales dashboards?
- How can you measure negotiation success using sales reporting tools?
What does managing scope creep and variation management mean and why is it important?
Scope creep is when the “dripping tap of change” is left unmanaged, usually leading to client dissatisfaction and significant cost overruns. Variation management is a discipline used to manage changes in scope.
Variation management is one of the core disciplines of project management to ensure projects are kept on track and deliver against expectations within a given budget and timescale.
Scope negotiation and variation control have a material impact on profitability, client satisfaction and retention. We’d argue that you should spend as much time training your account managers negotiation skills as you do your salespeople.
What does sales effectiveness mean and how do you measure it?
There is no consistent definition of sales effectiveness. We like this one from Hubspot:
“The concept of ‘sales effectiveness’ is fluid, but it typically refers to how well an organization’s sales reps can successfully convert prospects and guide them through its sales funnel. Sales effectiveness is evaluated via a variety of metrics, like conversion rate, close rate, and quota attainment.”
Sales effectiveness is about doing the right things to deliver the sales target. Sales efficiency is linked to this and is about minimising the costs of doing the right things in order to deliver the sales target.
What does sales capability mean and how does it relate to negotiation skills?
Capability, according to the dictionary, means “the power or ability to do something”. In this case, the ability to sell and hit your targets. There are many dimensions to sales capability (we’ve seen as many as 27 characteristics defined).
Negotiation skills can be considered as one macro sales capability, or, broken down, e.g. ability to use a negotiation process consistently, understanding of the principles and application of negotiation foundations, behavioural traits, etc.
What does sales capacity mean and what is the link with improved negotiation skills?
There are two ways of looking at sales capacity in our view:
- Your empirical evidence will tell you how much a salesperson should be closing in a year. For example, in a consulting firm, you may expect a Partner to close $1.5m pa of new business.
- Or you can calculate sales capacity based on a formula.
Whichever approach you take, you’re basically looking for salespeople to sell more, and get a bigger bang for your buck. We’ve seen improved negotiation skills increase revenue by up to 25% pa – that’s the power of negotiation skills training.
What is sales efficiency and how can negotiation skills improve sales efficiency?
Efficiency, in its basic form, is how well inputs are turned into outputs. So, sales efficiency (%) is often calculated as (gross sales revenue in quarter)/(fully absorbed costs of sales and lead gen in the quarter)*100. Typically, you’re looking for 100%-300% for a strong viable business.
The part that negotiation skills play in improving sales efficiency is by driving the top line by minimising discounts and selling value-adding services.
For a deeper dive into sales efficiency, check out our full post: 7 Proven Ways to Improve Sales Efficiency and Drive Rapid Growth for Your Business.
What is sales velocity and why is it important?
Sales velocity is an often overlooked/misunderstood sales metric that is becoming increasingly valuable to Sales Directors and CEOs.
The best definition and explanation of sales velocity, in our view, is on HubSpot:
Sales Velocity is a compound measure made up of the following variables:
- The number of sales opportunities
- The average deal value
- The average win rates (%)
- Average length of the sales cycle
Because it’s a compound measure of 4 variables that all impact each other, increased sales velocity quarter-on-quarter is a clear indicator of a sustainable high-growth business. The numbers speak for themselves. Here’s an example:
|The number of sales opportunities||50||55||60||65|
|Average deal value||$6,000||$6,500||$7,000||$7,500|
|Average win rates||20%||22%||25%||28%|
|Average length of the sales cycle (days)||90||85||80||75|
|Sales Velocity ($Revenue per day)||$666 pd||$925 pd||$1,312 pd||$1,820|
What is the link between sales velocity and improved negotiation skills and sales process improvement?
Improving the negotiation skills of your sales teams has a direct impact on all 4 of these KPIs. When we run negotiation skills training and coaching programmes, we baseline this metric and continuously measure to see improvements/impact.
What are portfolio management strategies and why are they important for account managers when negotiating?
Account managers with a portfolio of clients need to map out their negotiation strategies prior to any discussions about renewals/variations. They need to distinguish between attractive/big accounts vs unattractive/small ones so that they can adapt their negotiation strategies accordingly.
For example, at one end of the spectrum, large/valuable clients need to be managed for long term growth/profitability. At the other end of the spectrum, small, difficult, low GP clients may need to be exited over 18 months.
How does poor negotiation preparation leave money on the table?
When I was a buyer, I’d been trained to claim as much value as possible during a negotiation, without destroying the deal or the supplier. To do this, preparation is critical.
When sellers turn up to a negotiation who haven’t done their homework/preparation, they’ll always end up on the wrong side of the deal.
One particular tactic used by trained buyers is “the last minute chip”. They drag the salesperson into a position whereby doing the deal becomes more important than maintaining their price point, so they discount by 10% to close the deal and move on. Review your commission structures to ensure that sales bonuses are also pegged to discount levels.
Another way that money is left on the table is where the negotiation is all about slicing up a fixed pie rather than creating a bigger pie that everyone can share.
Why does improving negotiation skills and strategies improve profitability?
Let’s look at Gross Profit (GP); in most businesses, GP = Sales – Direct Costs.
- Firstly, the easiest way to improve GP is to increase sales through consistently negotiating up-sells and/or reducing price chipping/discounts.
- Secondly, a lot of firms get squeezed on margins during service delivery. That’s because either the scope/KPIs were poorly defined during the back-end of the sales cycle and/or, variation control is poor.
Training your salespeople and account managers to be excellent negotiators will prevent both these problems and drive incremental profitability – sometimes by up to 25%.
Why improved negotiation strategies can improve your sales growth rate.
Let’s start by looking at some of the primary factors/metrics that affect sales growth rate in any company:
- Sales capacity and number of opportunities in the pipeline, i.e. do you have enough of the right kind of sales people to drive growth?
- Average time to close pre-qualified deals, i.e. the longer it takes to close deals, the more clogged-up the pipeline gets.
- Average close conversion ratio, i.e. what percentage of deals that you work end up in closed new business.
- Average deal value, i.e. if you can increase the average deal size vs baseline, and all other variables stay the same, revenue will grow.
So, how does improving the negotiation skills of your salespeople affect these metrics?
- A core skill of a great negotiator is driving the pace/time-scales of a deal. Therefore, if you can shorten the deal cycle-time, you can get more deals through the pipeline in any 12 month period, which increases sales.
- Great negotiators know how to keep the ball-in-play (for deals that you want to win) and close a profitable deal for both parties. Therefore, if your close conversion % rate increases, you’ll generate more sales.
- Great negotiators know the art of holding their deal values/prices and up-selling to create integrative deals where the pie gets bigger for all parties – which leads to increased sales.
Why do better negotiation strategies reduce price discounts?
A common problem faced by salespeople towards the end of a sales process is that it becomes more important to them to close the deal than it does to maintain the price points. Trained buyers know this, hence “the last minute chipper” strategy is often used to squeeze the supplier.
When you prepare thoroughly, you understand there is more than price to negotiate over, e.g. payment terms, contract duration, termination rights, etc. And for each negotiation variable, there are ranges of acceptability from most desirable to least acceptable.
Then, when you negotiate, you can resist price discounts in exchange for concessions on other variables.
Why are advanced negotiation skills relevant to sales processes and reporting?
What does a typical sales process and sales pipeline look like?
A common misunderstanding is that the sales process is the same as a sales pipeline. For clarification, in our experience:
- A sales process covers the entire customer journey from awareness to interest to desire and finally action (AIDA). Some companies also include the cadence and process for reviewing sales opportunities.
- A sales pipeline is a series of linked-stages that sales qualified leads pass through to help sales manage the flow of opportunities
Let’s dig a bit deeper into the sales pipeline. Everyone has their own version of a sales pipeline and preferred names for the different stages. The important thing is to start with a set of design principles before getting stuck into how many stages and names.
Some good design principles for a sales pipeline include:
- It should be short and easy to understand, e.g. 5 stages clearly named
- It should distinguish between suspects and prospects
- There should be rigorous criteria set to move opportunities between stages
If you’re wondering what we mean by suspects and prospects:
- A suspect is a company/individual you’d like to work with but haven’t had a meaningful engagement with to date. Some people call these Marketing Qualified Leads, i.e. they’ve engaged with some of your marketing content but haven’t been qualified by sales yet.
- A prospect is a sales qualified lead, i.e. there has been some kind of interaction with a sales person that makes them believe they are worth adding to the pipeline
An example sales process could be:
- Contact made
- Meeting confirmed
- Needs defined
- Proposal made
- Negotiations started
Why are sales gates so important?
Sales gates are the criteria that you have to meet before moving on to the next stage in the sales process. For example, stage-gate criteria may include:
- Has the client articulated a problem they are trying to solve?
- Is the problem urgent to solve?
- Have we met the budget holder/ultimate decision maker
Without sales gates, it’s too easy to move sales opportunities along the pipeline only to find you get ghosted towards the end.
Tightening up your stage gates (criteria) will improve your confidence in sales opportunities as they pass through the pipeline and focus salespeople on real deals.
What does sales qualification mean in relation to RFPs?
A common problem we hear is:
“I can’t stand these RFPs, we spend all this energy writing our responses and then we either hear nothing or that we’ve failed to be shortlisted, it’s really frustrating”.
Your RFP response sequence should look something like this:
- Should you bid or no-bid? You need an RFP Qualification Scoresheet.
- If you do decide to bid, engage someone independent to review the RFP requirements and scoring mechanism with you. Piscari offers this RFP Qualification service.
- Write your draft response and get your independent reviewer to “mark your homework” using the RFP scoring criteria/weightings. Piscari offers this RFP Qualification and Tender Review service.
- Then, submit with confidence.
Your conversion rates should look something like this:
- RFP qualified-out: 30% of those received (initially)
- RPF win-rate from those qualified-in: 30%-50%
Why are sales dashboards so important?
Any sales function as it scales lives and dies off its ability to understand what’s working and provide confidence to executives that it will hit its sales targets.
On any one-day, individual salespeople will either be knocking it out of the park or having hot prospects simply vanish from their pipeline. A sales director or commercial leader can’t fly blind in the hope that their sales team will perform as budgeted – that’s where sales dashboards come in.
A well-constructed sales dashboard will:
- Have the right mix of lead and lag indicators.
- Be matched to the needs of the specific audience looking at the dashboards.
- Enable the sales leadership team to make decisions and take action ahead of when problems are likely to occur.
- Provide the executive team with confidence that sales budgets will/should be delivered.
- Enable sales people to keep track of how they’re performing and the quality of their forward sales pipeline
We’re huge advocates of you-get-what-you-measure, so spending time focused on building insightful and engaging sales dashboards is key to long term success.
What’s the difference between lead indicators and lag indicators?
A definition that we like is that lag indicators tell you what’s happened and lead indicators aim to predict what’s going to happen. For example:
- Reported sales revenue is a lag indicator.
- The number and value of sales opportunities at the proposal stage in the sales pipeline is a lead indicator.
When you’re defining your sales KPIs and dashboards, the key things to think through are:
- Do you have the correct balance between lead and lag indicators
- Do you have the right number of indicators; too many and people will dis-engage and you’ll fail to create meaningful insight that you can act-on
- Have you created a process and culture for driving change based on what the indicators are telling you?
The best piece of work we’ve found on implementing the lead/lag indicator model can be found here.
What are the key performance indicators (KPIs) for sales reporting and sales dashboards?
Every sales leader has their own experiences and views on what metrics should be tracked on sales dashboards. Remember, the reason we track KPIs and build dashboards is to:
- Provide confidence that you’re going to hit the targets through a combination of lead and lag indicators and be able to fix problems that will stop you hitting targets.
- Make better decisions through data-driven insights.
- Provide a consistent way of reporting performance.
Start this sales dashboard journey by focusing on audiences with different needs:
- Exec team: Focused on the long term future (primarily) so confidence in the sales forecast is critical. Also looking to constantly improve organisational efficiency and effectiveness.
- Sales leadership team: Focused on the here-and-now and quarterly sales targets. Laser focused on sales performance and efficiency.
- Sales people: Focused on their pipeline to ensure they meet quota and hit their bonus/comp plans.
Next, before you start to define your sales metrics for these audiences, think about the dimensions by which you’ll cut/report each metric. Here’s an example:
- Average sales value by pipeline stage
- Average sales value by month
- Average sales value by sales person
- Average sales value by geography
- Average sales value by customer segment
- Average sales value by product/service
- Average sales value budget vs actual vs revised-forecast
As you can see, once you include the audience, dimension and then start listing your sales metrics, you can end up with over 100 KPIs to report — and no one is going to read or be able to interpret this. So, start with your audiences and ask yourself the question “If I was in this audience, what are the 5-7 key metrics that we need to make better decisions and hit our objectives”? If you’ve been tasked with building all the sales dashboards, build/run a survey by audience (using something like Typeform) plus arrange interviews with them.
There is a great resource by Hubspot on this here.
If you’re looking for inspiration, here are example sales metrics that consistently appear on sales dashboards:
- Median and average sales opportunity value.
- Number of rejected Marketing Qualified Leads (MQLs).
- Number of Sales Qualified Leads.
- Sales win/loss rate.
- Customer renewal/retention percentage rates
- Sales velocity
- Forward sales forecast (weighted and unweighted)
- Sales MAT
- Average sales cycle length
- Gross Profit Margin (target)
How can you measure negotiation success using sales reporting tools?
As with anything in life, what gets measured gets improved. The challenge with measuring “negotiation success” is defining success. Negotiation success is typically a combination of:
- Increasing median (averages can be misleading!) value of sales deals
- Increasing number of pre-qualified deals in the pipeline
- Increasing sales conversion rates
- Budgeted Gross Margin (at the point the contract is signed)
- Percentage discount against list price at the point the contract is signed
- Customer renewal/retention rates
- Increased sales velocity (a key compound sales metric)
- Customer satisfaction
- Quality of the relationship with your counter-party at the point the contract is completed
- Customer feedback on ROI of the negotiated deal
The problem is, the last three on this list are qualitative and/or very difficult to measure. Therefore, most organisations baseline the first seven KPIs prior to running negotiation skills training and coaching programmes. Then, re-measure on a quarterly basis throughout the training and coaching with a continuous improvement plan.