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Net New Sales: Sell More by Selling Less

“Selling more by selling less”, is a phrase that most salespeople write off.  They can’t believe that you can increase sales by focusing less on acquiring new clients, and more on your current customers.  This is a basic misunderstanding and over simplification of the sales equation.  Most salespeople focus only on new people. They fail to recognize the huge crowd of people that have already decided to become clients.  They forget about their current clients. They have already been sold, and are waiting to be called again.  But you have already sold them you say?  Sure, weeks, months, and sometimes years ago.  Don’t your think they are ready for something else?  They are.  Salespeople just don’t know how to resell to someone that already knows their game, and therein lines the trouble. Learn how we helped increase customer loyalty by reselling current clients. 

Sales is not about new sales, it is about net new sales.  To increase net new sales, salespeople have to also be concerned with reducing the number of their current clients that are lost each month to customer churn.

Current clients.  I find it fascinating that sales people never think of their current clients as leads for more sales. I think this stems from bad Customer Service Management systems that do not allow salespeople to keep track of when customers are ready to be sold another product, and management’s lack of understanding about how salespeople should be trained and compensated.  But why?  Why cant sales people just focus on new sales.  Because new sales are only half of the equation.

The Equation.  

First we need some context.

Lets think about sales as a faucet.  Most salespeople are paid to turn on the faucet.  While I would never diminish the idea that their needs to be a faucet and that it needs to flow, I think it is a huge injustice for salespeople not to be shown the whole picture.  They think business looks like this:

New Business=Company Profits=Salesperson Profits.  

While in some retail cases, this might be true, many companies like banks, magazines, and other companies based on the renewal model, this is completely and absolutely ridiculous.  These types of renewal companies only make money when customers stay for long periods of time.  Many times they don’t even make money for months.  This goes back to Customer Lifetime Value.  Sales is not a one time deal.  In these cases, business is not a spigot to be turned on and off, business is a bucket.

Business is a bucket because businesses only makes profit when it can hold customers while the sales force goes and gets more from the spigot. Any customers that “fall” out of the bucket are lost revenue and thus take away from the new customers coming into the bucket.  Customers leave (“fall out of the bucket”) for myriads of reasons.  Business is lost to moving, price, product change, diminished need, and a whole host of other reasons; but in any case, when customers leave, so does the income generating mechanism for businesses.  Companies actually count on a certain number of these “leavings” to happen each month.  This is called Customer Churn.

For these types of businesses, their model is this:

New Clients (sales)- Clients Lost (churn) = Net New Sales (profit).

Profit only exists if the Net New Sales is more than Zero.  Sales Managers:  Did you know that?  Do your salespeople?  Why are most salespeople compensated on new customers only?  Salespeople:  Do you know what your companies Customer Churn Rate is, and how it impacts customer lifetime value?  You should.  You may not be helping your company at all.

If I go out and sell 4 new clients for my company (Go me!) My company makes money right? Maybe.  If you also lose 4 clients this month, the answer is no. Your net new sales in this case is ZERO. All that work to sell 4 clients and you did absolutely nothing for the bottom line. NOTHING.

Net new Sales (4) – Clients Lost (4)= Zero New Clients. 

What if I could show you that Churn, or the hole in the bottom of the bucket, is just as important as the spigot and that you should be focusing some time each month to plugging that hole. The model really looks like this.

Your company budgets for the loss of 4 clients.  They spend, plan, and make sales goals based on the fact that their profits each month go down by a certain amount.

Planned:

Current Monthly Profit from client base  –  Projected Churn, i.e. “hole in the bottom of the bucket”  =  Monthly budget for rent and payroll $8,000 (40 clients spending $200/month)  –  10% Churn (4 clients)  =  $6400 in Monthly Revenue.  

Management sets sales goals based off models like this, its not just random.  In this case, at least 4 new clients are needed each month to keep the status quo or more than 4 to increase revenue.

Model 1:

$8,000 (40 clients spending $200/month)  +  New Sales of 4 clients ($200/month)  –  Churn of 4 clients ($200/month)  = $8000 in Monthly Revenue.  

Many managers think that the only way to have more than you had the previous month is by turning on the spigot more than falls out the hole.   While technically that is correct, what if instead we looked at the hole problem and fixed the hole inside the bottom of the bucket.  What if we spent a small amount of time on the Churn number.  What does that do for the budget?

Model 2:

$8,000 (40 clients spending $200/month)  +  New Sales of 3 clients ($200/month)  –  Churn of 1 clients ($200/month)  = $8400 Monthly Revenue.  

Interesting.  $8400.  $400 more in monthly profit.  You spent the same amount of time on sales.  You took the time it would have taken you to sell one new client and saved 3 current clients (it works this way because it is much easier to keep a current than to find a new one, convince them to come over, and set them up). But what does that mean in sales numbers?  How many sales using model 1 would you have had to sell to make the same amount of sales in Model 2?

Six New Sales!

$8,000 (40 clients spending $200/month)  +  New Sales of 6 clients ($200/month)  –  Churn of 4 clients ($200/month)  = $8400 Monthly Revenue. 

You have to do the work of finding and getting 6 new clients to keep up with the amount of time I spent selling 3.  Think about that for a second. By focusing a small amount of my time on the hole in the bottom of the bucket, selling one less new policy, I did the work of someone who has to sell 6.

Thats an enormous advantage when you think about it.

Lets look at it another way.  I choose the number 4 because it would average to one sale per week.  Using model 2, I spent the first 3 weeks selling, and one week on the hole in the bucket.  It would take a salesperson 6 full weeks of sales to do the same amount of work.  A savings of 2 weeks!

Here is where it gets fun.  Instead of saving them, what if I could predict what they wanted to buy.  You could actually reducing churn by cross selling your current client base.  This is where using Predictive Analytics for Loyalty and Profitability will completely blow your mind.  Remember those 3 clients you saved in Model 2?  Lets assume they were going to leave because a competitor was trying to sell them something they didn’t have.  (happens all the time, right?)  What if I told you that what happens all the time is they leave to buy a product you actually have but have never told them about.  Makes you think doesn’t it.  You are losing clients because you aren’t cross selling.  So what does that do to the model?

Trust me, you aren’t going to believe this: To the math!!

2 different models for customers to purchase:

Regular:  $200/month

Super Extra Deluxe:  $400/month

Original Model 2:

$8,000 (40 clients spending $200/month)  +  New Sales of 3 clients ($200/month)  –  Churn of 1 clients ($200/month)  = $8400 Monthly Revenue. 

Remember those 3?  We are going to upgrade them.  Instead of them not counting in this equation, we will add them back on as new clients spending more.

Monthly budget:  $8400 (from model 2)  +  3 saved clients upgraded to Super Extra Deluxe $600(counts as only $200/month/client because they were already $200/month clients) =  New Adjusted Monthly Revenue of $9000.  

Wait for it.  Using model 1, how many customers to make your company $9000 in profit?

9.

Nine.

Think about that.  You spent 4 weeks, 3 on new sales and 1 on upselling people leaving your company and accomplished what the normal salesperson selling using model one does in the course of  9 weeks.  It takes the average salesperson 2.25 months to do what you just did in 1 month.

and that my friends, is selling more by selling less.

If you want to know more about how to do this; how to find the clients who are getting ready to leave, and what to cross sell them, I would love to show you, contact me on LinkedIn.

 

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