Eighty three percent of proposals for new business are unsuccessful. In 2006 that figure was 79%. Which means not only that the conversion rate for proposals or offers to closed sales is pretty terrible - but it's getting worse! In spite of the hundreds of millions of dollars organisations spend every year trying to get better, they're actually getting worse. How can that be??
After 154 engagements all around the world, we've seen a lot of proposals. Most were making the same old mistakes over, and over, and over. Millions of dollars of revenue waiting to be won was being frittered away by a combination of poor design, preparation, writing and delivery of proposals.
From an average proposal conversion rate of just 8% when they came to us, our clients now boast proposal (or offer) to close ratio improvement of between 62% and 225%, which has translated into actual revenue improvement of between $916 million and $1.84 billion.
"RPMG doubled our proposal to close ratio in eight months, and delivered an additional $5.2m in revenue to our business."
Successful organisations have a strategy in place for virtually everything they do. They spend huge amounts of resources creating, developing, and fine-tuning marketing and sales strategies, product strategies, HR strategies, communication strategies. It's inconceivable that Apple or IBM would operate without defining their core strategies or setting clear objectives for what they were trying to achieve.
And yet, almost without exception when we've asked Sales Directors, “How many of your major deals have a negotiation strategy?”, the answer never changes: Almost no one bothers defining a negotiation and relational approach to even their most critical deals and customer relationships. Despite the fact that “every sale involves persuading at least one human being,” hardly anyone shows their organisation how to deal with their most critical strategic relationships. As a result, the relationships and connections that companies build are most ad-hoc, based around footy, golf and coffees and operate at incredibly sub-optimal levels of openness, trust, and profitability. That's when they happen at all, because we see so many major deals - carrying with them the potential for many years and millions of dollars in sales and profits, fail to get off the ground due to crap approaches to negotiating the deal in the first place.
It isn't just us who see this phenomenon. In studies of over 25,000 negotiators, MarketWatch Centre for Negotiation - a research firm, found that negotiators typically lose up to 42% of the total potential value of a transaction. While this is due to distrust and lack of communication, the root of the problem is that the majority of negotiators neither have a strategy nor any idea of what they are trying to achieve when then enter into a negotiation. They negotiate "Trump-style" with their “gut” and allow emotions to drive their demands, frequently lurching from one pothole to the next. Consequently, it becomes nearly impossible to develop open, honest, and transparent partnerships that allow for the creation of added value. In fact it's a miracle many deals get done at all. Organisations on the receiving end who we research during client engagements tell us frequently they end up with a, "better the devil you know" end-game, rather than perceiving any great degree of value from the relationship.
RPMG Negotiation 101 Course
We've helped many of our clients to improve their closing performance, particularly on major deals, simply buy paying attention to the most fundamental principles of negotiation strategy and execution. If the term BATNA is a mystery to you or your sales team, our RPMG Negotiation 101 might be for you.
By the way, we can go all the way to Negotiation 301, but 101 has been enough to improve close rates on major deals by an average of 128% across 16 clients. As in so many things, just doing the basics well is often all you need.
Sales people in mid-large companies throw the phrases "Key Account Management" and "Strategic Account Management" in conversation every day.
Ask ten sales people to define what they mean, or to define even the basic criteria for an account to be "key", and you’ll get 11 different answers - at least.
When companies lack an effective and universally understood definition of key account management, they cripple their chances for success straight out of the gate. If you can’t define something, you have next to no chance of develop a coherent strategy around it.
Key Account Management is a systematic, disciplined approach to managing and growing a named set of an organisation's most important customers to maximise value for both parties and work together towards commonly agreed goals.
As well as having a core definition, we find that when our clients have a shared understanding of the following six components of key account management helps create focus and drive success:
They view and treat their key accounts separately from those that are simply big in terms of revenue or profit. In other words, size isn't the sole determinant of being "key".
They limit the number of key accounts, and guard them jealously from uncontrolled and ill-advised "growth for growth's sake" tactics.
They pursue and engage with key accounts as long-term partners that build innovation and value together, and frequently become deeply and closely linked to each other’s future.
They allocate key account focus on three core topics: penetration, expansion, and protection from competition.
They view key accounts as critical business assets that require continued, and often significant, investment to yield maximum returns. These investments sometimes result in discrete structuring and alignment of key business’ processes and systems to optimise their value.
Key account investments are ROI'd and relevant metrics are tied to the organisation's long-term business strategy.
RPMG's Key Account
Sales forecasting must surely be the biggest oxymoron in the business lexicon today. No process or document causes businesses of all shapes and sizes as much stress and heartache as the sales forecast.
The heart of the problem with sales forecasts is they are almost invariably wrong. Predicting sales is an inherently risky - and sometimes even a dangerous business.
That's because few business processes are prone to anywhere near the same degree of bias, distortion and just plain cognitive dissonance as a group of people forecasting a future sales result.
The following video on the subject is very funny, but it's funny because it's so accurate. We still see organisations for whom this video describes their reality with frightening accuracy! We can laugh about it, but it's worth bearing in mind that failures in this process cost companies around the world billions of dollars and the people who work in them their livelihoods.
A different approach - rolling driver-based revenue forecasting
The power of driver-based planning was superbly depicted in Michael Lewis’ novel, Moneyball, and the subsequent movie starring Brad Pitt and Jonah Hill.
Using data and a brilliant baseball-adaptation of driver-based planning, Billy Beane the General Manager, transformed the Oakland Athletics Major League Baseball team from serial failures to a team that consistently made the playoffs and transformed not just the game and industry of baseball, but nearly every other professional sport on the planet as well. The A's still hold the MLB record for most consecutive wins in a single season. They did it by employing driver-based decision making. Most people just think it was an entertaining movie, but the story is also true.
Beane and his team took an unprecedented approach based on a concept called Sabremetrics to deep statistical analysis in the world of Major League Baseball, and used it to identify the team’s and the individual player's core drivers for success. Through a detailed analysis and by rejecting more than 150 years of "accepted wisdom", the team uncovered the true underlying drivers of success for a baseball team, revealing the massive inefficiency in how baseball talent was priced and deployed. The rest, as they say, is history.
At RPMG, we deploy our Telemetry deep revenue analytics platform to do for our clients what Billy Beane and his team did for Oakland - and MLB.
Customers don't just buy stuff. Revenue results from a series of complex interactions between 36 core drivers, each correlated to the others mathematically, and then in turn affected by a series of external factors over which - unless they are Google or Facebook, organisations have zero ability to influence. Things like political changes, interest and exchange rate movements, customer sentiments in particular markets and decisions by competitors. We use Revenue Performance Heatmaps like the one below, to help clients understand how their drivers behave.
Billy Beane and the Oakland A's used Sabermetrics to analyse baseball performance and prescribe how to buy runs - and wins. At RPMG we use Telemetry to predict revenue performance and prescribe how to buy sales!
To learn more about Telemetry and the power of rolling driver-based forecasting to improve revenue performance, click here