Better Results = Focusing on a Few High Potential Accounts

Suppose you have $1,000,000 in potential in one high-potential account and the same potential equally spread in ten lower-potential accounts. How many hours will it take to make one call on each of those ten accounts?  Include drive time, and time spent making appointments, waiting time, preparation time and so on.  Now, how long will it take you to call on that high potential account?  Considerably less.  Even if you were to call on ten people in that one high potential account, your total investment in time will still be less.  So, just from an efficiency perspective, it makes good sense to focus on high-potential accounts.

Not only that but once you have established a presence in a high-potential account, it’s easier to sell. You can leverage your relationships more easily in larger, high-potential accounts. Get one person on your side, advocating for you, and he/she can spread the good word about you quickly to half a dozen people.  It is like the pebble dropped into the lake causing ripples to move outward from the center.  Your good contact is like the pebble, spreading every increasing ripple of good press about you. Get one good small account person on your side, and they don’t tell anyone, because there is no one to tell. A pebble dropped into a glass of water won’t make ripples for long because there isn’t enough water around it. You can’t leverage your relationship like you can in larger accounts.

Defining High-Potential

In order to implement this strategy, you need to have a workable definition of  “high potential.” Many salespeople labor under a big misconception when it comes to potential.  They define potential in terms of history.  In other words, if I asked you to show me your high potential accounts, you’d pull out a computer report showing sales history.  In reality, however, history has little to do with potential.  Just because an account has been a good customer in the past does not necessarily mean that it is a high potential customer for the future.  Potential describes what they could buy – the future –while sales reports record the past.

The second common misconception is thinking that potential is only measured in dollars of sales.  In other words, an account that could buy $500,000 from you is automatically thought of as having more potential than an account that could buy $250,000.  It isn’t necessarily so.  Stick with me a moment, and consider this.

The real potential is not measured by one number, it’s measured by a ratio of two. High potential is the ratio of the likelihood of dollars received compared to the amount of time invested in order to achieve those dollars.

Let’s look at two accounts.  Smith Brothers theoretically could buy $500,000 from you next year, while Ajax Manufacturing could buy half as much — $250,000.  If we only look at total dollars, Smith has more potential.  But that view is too simplistic and doesn’t reflect the reality of the situation.  Suppose the real situation is this: Smith Brothers has a long-standing contract with one of your competitors.  That sole-source contract is not due to expire for three more years.   Not only that, but your competitor and Smith Brothers are extremely close in other ways, as the CEOs of Smith Brothers and your competitor are brothers-in-law.  You can spend hundreds of hours calling on Smith Brothers and chances are you are not going to see a penny in additional sales.

Ajax, on the other hand, has no such affinity for your competitors. In fact, the personal relationships between you and the key players there are very good.  Their business philosophy is very close to yours, and you have a good history of relationships between your company and theirs.  You know several people in key roles inside the organization, and you’ve even had lunch with the CEO.

Now, considering the reality of the situation between the two accounts, where is the most promising investment in your time?  Is it Smith, with its larger dollar potential?  Or is it Ajax, with its smaller potential volume?  It would take me about two seconds to select Ajax.  Why?  Because potential is not one number, it’s the ratio of two.

WHY?

• Potential is defined by the likelihood of dollars returned for your investment of time
• 10 hours selling time invested in Ajax will bring you far more dollars returned than the same investment in Smith
• It’s not how much they can buy, it’s how much they are likely to buy in return for your investment of selling time in them

Determining Potential

Potential, as we define it above, is comprised of two components; quantified purchasing capability (QPC), and partnerability.

Quantified purchasing capability (QPC) is the objective measurement of how much of your product the account could buy if they bought everything they could from you. It’s usually calculated in annual terms.  Obviously each account has different capability to purchase your product or service.  Let’s work with this to completely understand it.

One component of this has to do with how much they could buy from you.  It has to do with their capability to purchase the products or services that you sell.  For example, you may be selling radio advertising. Jones Manufacturers has an advertising budget of $20,000 for the next year, and XYZ Consulting group has a budget of $40,000.  However, you don’t sell all types of advertising, you sell only radio advertising.  And Jones has decided to put 100% of their budget, or $20,000 into radio advertising, while XYZ has decided on 5% of their budget, or $2,000, for radio.  Jones Manufacturing, while smaller and having a smaller advertising budget, actually has a QPC that is ten times larger than the bigger and more prestigious XYZ Consulting group.  So, in terms of QPC, Jones far outranks XYZ. The first rule for calculating QPC, then, is understanding that it only measures the account’s ability to purchase YOUR products and services.

What about the account that is already buying everything they can from you?  Does it have any QPC?  Sure.  Remember, QPC is an annual measure of how much they can buy from you in the future.  So, for example, you may be selling cleaning supplies to Quik-Clean Janitorial Services.  Over the years, you’ve built a great relationship with them, and they buy everything from you.  Last year, they bought $75,000 worth of your stuff.  They expect to grow their business this year, and they’ll probably buy $80,000 of your supplies.  What’s the QPC?  $80,000.  QPC is a measurement of how much of your products or services the account could buy annually if they bought everything they could from you.  In focuses on the future, not the past.  So, when you calculate QPC, you don’t dwell on what they bought in the past, you calculate their capability to purchase in the future.

Notice the word “Quantified” in the title of this measurement.  The word is there for a purpose.  It means that you have some logical, defendable way of determining how much they could buy from you.  Too many salespeople rely on intuition and gut reactions, and are often misguided.  In this economy, you must be better than that. “It looks pretty big” is not a logical, defendable measure of purchasing capability.

How do you measure QPC? 

The easiest way is to ask the account and have them give you an honest and accurate answer.  In some industries and with some accounts this is the norm.  You may be selling production machinery, for example.  When you ask the purchasing agent what their budget is for capital expenditures on production equipment next year, they may just tell you.  Or, you may sell, as I did, hospital supplies. When you ask the materials manager how much they spent for surgical gloves last year, he could probably tell you, down to the penny.  Then, you could ask him if he expects that to increase, decrease or remain flat, and by what percentage.  Then do the math, and bingo, you’d have a very good measurement of QPC for surgical gloves.

While asking is always the easiest way to get this number, it doesn’t always work.  Some accounts don’t know, and others know but they won’t tell you. In those cases, you have to use other means.

One way is to mathematically calculate the QPC based on some formula driven by a measurement that you do know. In my days of selling hospital supplies, for example, we knew that, on the average, an occupied acute care bed in a hospital used a certain amount, say $20.00, of needles and syringes per day.  So, if you were calling on a 300-bed hospital, and you knew they averaged a 90% occupancy, then you could calculate how much they would spend on needles and syringes each year.  Let’s do it.  Three hundred beds, times 90% = 270 beds occupied on an average day.  Multiply that by 365 days a year, and that equals 98,550 occupied bed-days.  Multiply that by the $20.00 per day, and the QPC for needles and syringes in that hospital is $1,971,000.

Where did we get those numbers?  Trade journals and industry surveys yielded the $20.00 per day number.  The annual report or hospital web site may tell you how many beds the hospital has and as well as its average occupancy rate.  So, in this case, a few minutes of research unearthed a calculated QPC number. We calculated the QPC mathematically, based on some numbers we did know.  We could do that for every category of product we sold without ever having said hello to the first person in the hospital itself.

One of my clients, whose company sells industrial supplies, calculates the QPC based on the number of cars in the employee parking lot, and the type of business.  For example, he knows that in a tool and die shop, each car in the employee parking lot means a certain number, let’s say $1,000, of annual cutting tools usage.  So, a tool and die shop with 15 cars in the employee parking lot will typically buy $15,000 worth of cutting tools.

That’s another example of the technique of calculating the QPC mathematically, based on some numbers that you do know about the account.

As a variation on this, you can infer the QPC deductively, based on some numbers that you know about a larger group.  My company sells sales training.  Let’s say we’re trying to calculate the QPC for sales training for a medium-sized distributor of fasteners.  We know from industry surveys, for example, that most companies spend between 1.5 % and 3.5% of their payroll on training.  We also know that the average fastener distributor salesperson makes about $50,000 per year.  We know from D&B reports that this particular company has sales of about $30,000,000.  Finally, we know, again from industry surveys, that the average salesperson in this industry manages a territory of about $1.75 million.  OK, let’s do the math.  $30,000,000 divided by $1.75 yields a likely number of salespeople of 17 salespeople.  Multiply the 17 times $50,000 yields a likely sales payroll of $850,000.  Let’s use a 2% estimate of how much they are likely to spend on training.  That’s the midpoint in the 1.5% to 3.5% spectrum.  So, $850,000 times 2% yields a QPC of $17,000.  What’s the QPC for sales training in this account?  $17,000.

Now, granted that number isn’t as accurate as going into the account and them telling us what their budget is (if they have one).  However, it’s significantly better than shooting from the hip and saying, ”They’re a pretty good size.” It meets our criteria: it’s logical, defendable and quantifiable.

Precision

We can be even more precise than that, taking our understanding of the customer’s QPC to another, deeper level.  Let’s try to calculate the customer’s QPC per category of product or service that we sell.

There’s a powerful reason for this.  The more precisely you can measure the prospect or customer’s QPC, the more sharply you can define your strategy, and the more effective you will be.  Remember, one of the rallying cries of good sales time management is FOCUS, FOCUS, FOCUS.  You can’t focus well if you don’t know what the target is.  Once you have a precise view of the target, you can more easily focus on it.

Let’s assume that you sell computer equipment.  Your product offerings include these categories:  PCs, printers and peripherals, and maintenance services. You’ve called on Able Consulting Group and discovered that they just invested in new PCs throughout the office.  QPC in the PC category is $0.  However, they held off on adding new printers, and are planning to upgrade 20 printers in the next six months.  You calculate 20 times an average of $250.00 each, and that equals a QPC for printers and peripherals of $5,000.  You also know that the company has 50 PCs and that the average annual Preventative Maintenance fee per PC is $50.00.  So, 50 PCs times $50.00 equals a QPC of $2,500.00 for services.

Your analysis of this account’s QPC looks like this:

Understanding how much QPC there is, and in which categories helps you to do two things:  Make cold-blooded business decisions about how much time you should invest here, and develop a strategy for getting that business. Knowing that the business is in printers and service will generate one strategy, while if the business were in PCs, you’d formulate a different strategy.

Calculating Partnerability

Understanding QPC is essential. But that’s only half of the issue.  Remember our previous discussion of Smith Brothers and Ajax Manufacturing.  Smith had twice the QPC of Ajax, but there was virtually no chance of getting that business.  That was because of factors other than QPC.  In the case of Smith Brothers, the account had a long term sole-source contract with your competitor, and the CEOs of Smith and your competitor were brothers-in-law.  So, it wasn’t the QPC that influenced our decision about that account, it was a combination of other, softer issues that lead us to the conclusion that we should not invest major selling time in Smith Brothers.

We can lump all of those other, softer, more subjective factors into a measurement I call partnerability.  The practical potential of an account is part QPC and part partnerability. Partnerability is based on subjective analysis about the likelihood of the account eventually becoming a partner. The issues that comprise patentability are things like:

• How is the chemistry between the two companies, and between yourself and your contact people?
• Is the account just a price buyer, or is it open to creative proposals from you?
• Is it a progressive, growing organization?

Notice that these are subjective, softer issues than the hard numbers of QPC.  However, they are just as important to you in determining the account’s practical potential.

You may have one account that has huge quantifiable potential, like Smith Brothers, but because of the philosophy or personalities of the decision-makers, no foreseeable partnerability.  That account would not be a high-potential account.

Let’s say you have a very large account that offers tremendous potential. At the same time, you know the business is very competitive, that every other competitor is working for that account. The account has long used one of your competitors and he appears to be very solid in the account. The account ranks low in potential partnerability. A sober assessment means that you’ll have to invest countless hours, maybe years before you can have any realistic opportunity to sell anything.

On the other hand, what if you have a much smaller account that you have a realistic possibility of closing some business after just a couple calls?  Which one would rank higher on the “potential dollars returned for time invested” scale?  Obviously, the second does.

That’s the kind of cold-blooded analysis that helps you to organize your time in a very effective way.

One key is to have some way to calculate partnerability that is more defendable and quantifiable than just a sales person’s intuitive hunch.

Measuring Partnerability

It’s been my experience that a salesperson can visit an account once or twice, and make some valuable observations about the partnerability of that account – the likelihood of that account developing into a partner one day. In my seminars, I’ll often ask the group to develop a list of plusses and minuses.  Plusses are characteristics or behaviors of the account which increase the likelihood of the account developing into a partner.  Minuses are the opposite – characteristics or behaviors of the account that decrease the likelihood that it will one day develop into a partner.

1. Good Product/Service Fit

Let’s say you offer ten products.  Brill Brothers Manufacturing company can use all ten, and all of them are important to their business.  Jones Industries can use two of your ten, and neither of the two is really central to their business.  Who is the better product/service fit?  Clearly, it’s Brill Brothers.  Notice the two issues for product/service fit:

• the degree to which an account can use your product or service offerings
• the degree to which those products/services are important to them