cutting_costs

cutting_costs - Cutting sales costs, not revenues Marketing...

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Cutting sales costs, not revenues Courageous companies can use the downturn to make their sales operations not only less expensive but also more effective. Anupam Agarwal, Eric Harmon, and Michael Viertler There’s a reason companies fear experimenting with the sales force: it is the engine that drives revenue. No matter how patched up or spluttering that engine may be, the thought of overhauling it fills senior executives with dread. To keep sales flowing, companies will make piecemeal ongoing repairs as long as they can. Yet extraordinary economic times force companies to take every opportunity to cut costs and arrest declining revenues and margins. Unfortunately, fear and the belief that it isn’t possible to be both fast and precise often result in two common mistakes: trimming only back-office staff and functions or instituting across-the-board cost cuts that include frontline sales reps. While both mistakes are understandable, they’re likely to yield disap- pointing results. Reducing back-office sales staff and functions in the belief that this will hurt revenues less than reducing the number of frontline sales reps may have worked in the past, but greater complexity has made support functions essential to effectiveness. Also, not all sales efforts are equal, especially in a downturn. It’s crucial to determine where cuts will hurt customer per- ceptions and adversely affect their buying behavior; otherwise, important investments will be eliminated while low-value ones survive. To avoid these mistakes, companies should consider a fundamentally different approach. First, examine the customer portfolio. How much effort really Don Kilpatrick Marketing
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The McKinsey Quarterly 2009 Number 2 78 goes into each customer and transaction? Which services does each of them need? What are their real profit margins? Which customers and markets are growing and which are shrinking? Understanding customers allows companies to focus sales resources where they are needed and to cut waste, not value. In fact, the sales force can become better and less expensive if organizations reject some traditional practices, such as assuming that big customers need or want big sales coverage, and embrace opportunities to become more efficient by sharing knowledge and resources. This approach presents a change-management challenge, but economic times make it essential. In our experience, it helps companies to address most sales-related costs quickly and carefully, to cut them sustainably by 10 to 30 percent, and to minimize the risk of jeopardizing future growth. Common pitfalls A major telecom company wanted both to reduce sales force costs and to maintain its revenue. It decided to cut back-office support and protect the frontline sales staff—after all, executives reasoned, salespeople make sales. Unfortunately, while costs did fall, frontline sales reps began under- taking support tasks, such as creating reports, tracking orders, and developing sales materials. These additional duties, which reduced the
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cutting_costs - Cutting sales costs, not revenues Marketing...

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