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.