article | November 16, 2016
Do I Have the Right Sales Coverage and Channels?
Today’s article is focused on sales coverage and sales channels as part of the corporate strategy.
SBI recently interviewed Drew Forret, the Chief Operating and Financial Officer at CARPROOF. The sister company of CARFAX, CARPROOF is the leading provider of vehicle history reports in Canada selling to auto dealers. Drew acts as the operating partner to the CEO and leads the functional areas of finance, HR, strategic planning, and internal operations.
We discuss how to determine sales coverage and sales channels from the perspective of a Chief Operating and Financial Officer.
The CARPROOF story is instructive to anyone working through the challenges of sales coverage and channels. The goal is to share Drew’s responses to coverage and channel questions help our audience think through this topic.
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How have you made sure that you have proper coverage across your addressable market?
We perform a time and motion study. We know our sales goals at the highest level. That could be the number of touches to an existing account to make sure things are going well or the number of calls or sales activities into a new or prospective account. We work from the top down starting with those sales goals. We ensure that we have the right resources in place to perform the number of touches or number of calls required to hit our goals.
An easy way to think about it would be a sales rep that needs to do five sales calls a day, five days a week. They can do a hundred calls a month. We gauge whether that is adequate for them to properly address their territory and positively affect the top line at that sort of activity rate. Then we look at what the existing resources were and whether they had the capacity to hit those high-level metrics. It becomes a math exercise that we start with assumptions. Then we test those assumptions and make sure that we were looking at the variables in the right way.
How do you test if an increase in coverage would result in a proportional increase in revenue growth?
We did a test with a focus area. We started with the premise that if we accelerated our sales activities, we’d be able to positively influence revenue. We took one territory and we divided it in half. At one point, the sales territories were carrying upwards to four hundred dealerships within the territory that one rep would be out and visiting and trying to grow.
The hypothesis was that this was too many accounts. We divided the territory into two. The rep then carried two hundred accounts. The original hypothesis that more sales activities would positively influence top line came to produce fruit. Then we started looking at it at the more macro level. We ended up re-organizing all our territories as a result. The net effect was we reduced the average accounts per territory from approximately four hundred accounts to closer to two hundred.
Next we will discuss balancing your growth in coverage with growth in revenue. If you increase the headcount of your sales force, how do you make sure you have a proportional amount of revenue growth? How do you find that equilibrium point?
We would start at a high level by looking at the percent of sales as a percent of revenue. That provides a 30-thousand-foot view. We then drilled down further. One of our big sales operations metrics is what we refer to as our Sales Compensation Index. This is how many cents on the dollar are we paying our guys to bring in a dollar of revenue. The index number needs to stay at an acceptable level since you’re on the hook for sales compensation. If you’re not growing your revenue, your comp index is obviously going to reflect that and go the wrong way.
The second metric we watch closely is revenue per employee. We do that within our sales group and then for the company. We pick up any sort of deteriorating operating leverage with that metric as well.
The third metric we monitor is ensuring that we’re getting organic growth rates. If we had a 10% year over year sales growth achievement but the industry grew at 9% and we just rode the tailwinds, in effect our organic growth rate was only 1%. That’s getting to the truth in terms of what’s going on.
How does your coverage model get directed at the portion of the market with the highest growth potential and the lowest penetration rate?
We’re fortunate to have a large amount of data to work with, so the penetration measurement is something we can do effectively. If you’re a car dealer, we you to have a Vehicle History Report (VHR) that is associated with every car on your lot. By the big listing websites like Auto Trader, there’s a way for us to validate what we call a VHR attachment rate. It’s not the only proxy we have on penetration, but it’s an important one.
We also have certain connections into a dealer’s DMS, which is essentially like their ERP system. This gives us the dealer’s inventory levels and we can check the VHR attachment rate against their inventory levels.
With all this great data, we simply sort it and prioritize it. What we love to find are those dealers that are running at 40 or 50% attachment rate because they’re making an investment in VHR. It’s always an interesting sales call to go out and propose; “You’re using us on 50% of our cars. What about the other 50%?” We’re trying to uncover those sweet spots. Those are the dealers that we like to find. Of course, we go after prospects as well and we make sure we’re retaining our dealers, but that 40 to 50% penetrated segment is one that the sales guys lick their chops over.
There’s a concept known as coverage leakage, which means you have sales resources covering accounts that are not in your sweet spot. Have you experienced that before in the past and, if so, what did you do to remove the coverage leakage?
Yes. We pride ourselves on having good relationships overall with our customers. We have high NPS ratings, which is great. We found that our sales reps served some accounts that they just liked and would like to hang out and deliver doughnuts. All good, but when capacity is finite and we’re looking for those sweet spot accounts, running doughnuts out to a guy that you don’t need to be running doughnuts out to, you must mitigate how much revenue is involved.
If I’m handing a sales rep a campaign list, but they are not hitting the target list that we prioritized. The CRM has all the activities tracked and the sales manager needs to be asking you what’s going on and redirect the sales rep.
How do you determine if the traditional routes to market are still the most effective?
We started out in a direct sales methodology. We thought our VHR product was a new one in the initial days of us taking it to market. We thought being out and face-to-face with the dealers and positioning our product was important. It played a large part in our rapid and significant growth we’ve experienced over the years.
However, we’re now at a point where we have good penetration rates with certain dealers and in certain geographies. We’re thinking that the outside sales methodology should be more focused and targeted on those accounts with remaining penetration. In other instances, we should be looking at utilizing our inside sales. We’ve been investing in inside sales over the last year to do a better job of segmenting how we approach the market.
Inside sales is an innovation in the sales channel in your industry. You went from the direct model, which is field based, to augmenting that with inside sales. Have you seen any revenue lifts from it so far?
We have and sometimes we’re seeing a preference expressed by dealers that they would rather schedule a call. We are having good results with the webinar aspect versus the face to face. Sometimes the webinar technology can show off a product like ours with more ease than trying to do so on a one-on-one basis. We’ve been looking at different tools to supplement the webinar experience. We’ve been looking at some technologies to measure inside sales effectiveness because I also believe it’s somewhat easier to measure because it’s call based and all of that can be automated.
How have you been able to lower the cost to acquire customers by routing your product through alternative sales channels?
Yes. One thing that’s become more prevalent is using the VHR by the dealer as a sales aid for their customers. Dealers have always used our product it to help them buy or appraise a car that they want to buy to resell. Now they’re starting to also use the VHR as a sales aid, to position a car digitally on a listing site and differentiate it. Examples includes showcasing an accident-free car or a single owner car. They can leverage that VHR to enhance the digital marketing of that vehicle on a listing site. We are seeing a bit of pull through revenue from the fact that the dealer is embracing these listing sites and the digital marketing of their vehicles. It’s positively influenced our revenue.
How does your ideal customer profile definition include the channel preferences of your buyers?
The buyer persona at a dealership is important because you have people that will use our report in different ways. For example, the used car manager may use a report in an appraisal setting. Another dealer staff member buying cars at an auction use the VHR at auction or even in a virtual auction. There’s different use cases for the VHR. We understand the user circumstances for different use cases.
How has your team leveraged the concept of the Propensity to Buy formula?
Yes, it’s something we started to look at. There’s a bias on the make/model of a car and the underlying value of the car, and the attachment rate of a VHR. If you have a late model luxury car worth $40,000+ then there is due diligence on that vehicle that is much higher than a $2 thousand trade in scenario. We look at dealers that are stocking certain types of cars. There’s also CPO programs that require a VHR to be attached to the car before it gets CPO certified, so we look for that. Those are just two examples of where we would factor in propensity to buy.
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