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The Science of Sales Growth in a Recession

By: Nicholas Read
Last updated 8/5/2010

As the global economy continues to tighten, most businesses realize that they won’t get different results by continuing to do things the same way. But much of the science for growing in a recessionary market is counter-intuitive, and managers whose hands were on the rudder in previous downturns are no longer in the workplace. Few of today’s executives have ever faced this kind of storm in their career.

It’s a situation primed for old mistakes to be made all over again. Don’t make them! The following signs that it’s time to rethink how your company sells come from former executives who steered the ship through the ‘70s stock market crash and the ‘90s dot-com bubble:
  • Key customers slash budgets or rationalize their number of suppliers.
  • Deals you thought were “hot” go “off the boil.”
  • Your pipeline becomes bloated with opportunities stuck in a holding pattern, with the seller not achieving any forward progress for several months.
  • Decisions become more complex, involve more people and take longer to get across the line.
  • Price and risk mitigation become main topics for discussion in the negotiation phase.
  • Sales amounts are far less than forecast.
  • Salespeople spend time on low-yield activities like prospecting because the quality and quantity of marketing leads is too low or dries up.
  • Your forecast is murky beyond the next six months.
  • You win deals but can’t repeat success across the sales force.
  • You lose deals and don't know why.
  • Good salespeople bail out into management roles in other departments or leave the company altogether.

When organizations face these challenges, their typical reflex is to:

  • Spend more on advertising.
  • Cut back on salespeople.
  • Cut back on training and coaching.
  • Cut back on pricing.
  • Tell salespeople to “work harder and smarter.”

So what happens next?

  • A downward spiral commences.
  • Managers focus on activity metrics and demand more calls, more leads, more proposals.
  • Salespeople chase anything that moves, filling their funnel with unqualified, low potential deals to meet the activity targets.
  • Forecasts fill with fiction.
  • Managers start weighting the forecast report, sending the message that they don't trust their teams.
  • Salespeople invite managers to help close their big deals, knowing that if the manager can’t win, the salesperson is off the hook.
  • Customers invite managers to attend the final pitch, knowing they can approve larger discounts.
  • Coaching stops as managers don the cape of “SuperRep.”
  • Non-standard promises made in the heat of battle are off-menu for what the delivery team actually does, establishing a gap between the customer’s expectations and their actual experience.
  • Repeat business drops, as promises are not met.
  • Margin erosion begins.
  • Managers focus on even more activity metrics, more calls, more leads, and more proposals.
  • The downward spiral gets deeper and deeper.

If any of these danger signs are familiar, you’re in good company. Most executives who turned their companies around in former recessions fell into the same traps at first, because they represent a natural response in times of uncertainty.

But those same executives now advise that the secret to pulling out of the nosedive is to act contrary to the natural impulse, keep your head, and take a contrarian path. Those that did so achieved stability and even growth while their competitors fell by the wayside.

They cite the five most dangerous mistakes a company can make:

1. Ignoring the problem
Fear and panic can cause indecision. When they do, business leaders can fail to evaluate options rigorously and so make inappropriate decisions to maintain the status quo. Poor choices—or safe choices made too late—cause a company to go backwards. When the warning signs appear, take swift action.

2. Increasing advertising
For fast-moving consumer goods, brand advertising can sway preference and so take market share away from competitors in the short-term. But in complex B2B sales, advertising does not lift short-term revenue because institutional buying decisions require a protracted period of assessment that outlasts most advertising campaigns. So don't advertise and expect an impact on B2B sales this year. However, consulting firm PIMS Associates reports that companies that advertise more end up growing faster over the long-term than firms that drop off the customer’s radar, seemingly swallowed by the downturn.

3. Cutting prices
Buyers in a tight market will naturally gravitate to low prices, but this simply reduces your margins, which must be paid for by cutbacks to operating expense elsewhere. It leads to short-term gain but long-term pain—the loss of sustainability. Conversely, in the B2B space, higher prices positioned as necessary to reduce the customer’s risk, actually plays better to executive perception than “getting a cheap deal.” Sometimes increasing your price is the best way to grow your market.

4. Freezing sales expenses
Putting a hold on sales costs such as travel, entertainment, and training are typical areas targeted by nervous CFOs. But a study reports: only 27% of companies that indulged in intensive cost cutting were growing as a result.

5. Pushing more calls
Pressuring salespeople into making more intrusions on the same number of prospects actually reduces sales. Neil Rackham (author of SPIN Selling and Rethinking the Sales Force) explains: “The least successful people are the ones making the most calls. Increasing the call rate results in fewer orders, not more.”

Learning from executives who weathered past recessions is a sound approach to reducing risk and helps you avoid reinventing the wheel. Within your own organization, your alumni or your online social network there may reside active or emeritus officers with valuable experience to share. Talk to them. Pick their brains. Learn from them.

One thing is certain when an ailing economy mimics a black hole—piecemeal remedies fail to achieve escape velocity. Cutting back on costs, though logical, is the opposite of what has pulled businesses through recessions in the past. Increased investment in the sales process, along with greater discipline is a more reliable approach for achieving sustainable revenue growth, even in difficult times.

About the Author(s)

Nicholas Read Nicholas Read is president of consulting firm SalesLabs (www.saleslabs.com) and coauthor of Selling to the C-Suite (McGraw Hill, 2010). For more information, visit www.cxo-selling.com