Ask any organisation what’s happening in the sales department on the last few days of the month and the entire last week of any fiscal quarter. You’ll probably get an uncomfortable laugh and a shake of the head.
Sales teams are closing deals, at all costs
The market is pushing companies to hit incredibly high numbers, quarter-after-quarter and month-after-month. To comply, firms turn up the pressure tactics and close last-minute deals in unnatural ways. Data shows that sales reps give better terms to customers who wait until the last minute – with both sides knowing they can rely on dropped prices and a sure closing, thanks to the end-of-the-month company push.
It is a vicious cycle. And companies know it. Yet they continue the practice, month-after-month and year-after-year, perhaps unaware of how much it’s really costing them.
InsideSales Labs, a division of our company, InsideSales.com, recently conducted research analysis on 9,8 million sales transactions from the anonymous data of 151 US companies over nine consecutive quarters (Q1 2014 through Q1 2016).
Collectively, these companies annually sold a combined $54 billion, averaging $360 million each.
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We learned that at the end of the month reps often push deals that are not ready. Our data shows that sales people close three times as many deals at the end of the month as during the rest of the month — but lose 11 times as many (11,43 to be exact). Thus, while the end of the month shows an increase in a firm’s overall number of sales, the end-of-the-month push coincides with a 51% decrease in overall sales win rate. Reps are less effective at closing the right deals, with appropriate pricing, at the end of the month: Our study found that overall deal size declined by 34,5%.
These inappropriate end-of-month behaviours are costing companies millions. The decrease in deal size and win rate results in an estimated $98 million per year in lost revenue for the average company in our data set. Conversely, it represents a potential gain of over 27% in revenue per company if properly addressed.
How have companies let this happen, and who is to blame? Increasing market pressures, heightened competition, and fears for the future of national and global economies all come into play.
But sales managers also have to take some blame. Yes, the patterns established through decades of sales behaviours are difficult to break. And yes, some sales leaders may suggest the huge rise in losses at month’s end may be caused by the practice of cleaning out ‘bad’ opportunities – deadwood that will not, and should not, carry over to the next quarter. Even so, there is a dramatic shift in the rate and size of closings at the end of the month, which savvy organisations should address.
So, the $98 million question would be: How are organisations going to fix this pervasive problem?
The answer requires support from the highest levels of the organisation, but the biggest transition will be, of course, within sales. Teams must be educated on the full impact of their end-of-the-period behaviours. Sales leaders will need to create action plans and compensation schemes that reward appropriate, long-term behaviour. Here are some specific places to start:
Focus on weekly forecasting, not monthly quotas
When companies focus on sales data by the week instead of by the month, they get a much more interesting and useful picture. For example, what days and times of the week present the best opportunities to sell? On which weeks and days do the largest deals tend to land? Sales teams can use this information to shape their behaviour throughout the quarter, not just at its end.
Use smarter financial incentives
If their compensation structures change, sales reps will notice. Consider a compensation structure that rewards sales people for not procrastinating. For example, perhaps the organisation can offer a larger bonus for deals closing between the first and the 17th of the month, a medium bonus for sales between the 17th and the 24th, and remove the bonus for deals closed during the final seven days of the month.
Focus on the customer’s timeline, not yours
Every smart sales person knows they should focus on what’s in it for the customer. But that’s true of timing, too, not just features and services. Train sales representatives to enter every conversation from the standpoint of providing a solution that meets the customer’s agenda — and timeline — as opposed to their own.
Related: Sell Like A Human
Increase the skills of your sales force
To get away from the traditional end-of-quarter desperation tactics, improve your sales team’s skill sets. Encourage them to brainstorm new, more strategic ways of selling. Perhaps you could study the prospect’s literature or their CEO’s letter to shareholders to develop an ROI proposition that is uniquely of interest to them. Host an exclusive VIP dinner. Target your advertising on LinkedIn and Facebook with a greater degree of precision. Have your executive leadership send the prospect a thoughtful gift, along with a handwritten note.
Knowing how much money your organisation is likely to be losing to the traditional sales cycle should be a resounding wake-up call. Solving the problem will not only limit reps’ revenue-hurting behaviours but also improve cash flow, forecasting, and your company’s ability to onboard and implement the purchased solutions, since installation and delivery won’t all fall into the final days of the month. Now is the time to begin the path to a better, more profitable result. Don’t put it off until the end of the quarter.
© 2017 Harvard Business School Publishing Corp.
