10 Ways to Reduce Sales Costs

The cost of sales is a critical financial metric for many small businesses, and they key to keeping those costs in line is to maximize the e
January 07, 2010

The cost of sales is a critical financial metric for many small businesses, and they key to keeping those costs in line is to maximize the efficiency of your sales effort. Here are 10 tips for improving effectiveness and keeping the cost of sales in line.

Mine your existing customer base first. “This is absolutely essential,” says Jill Konrath, nationally recognized sales training expert and author of Selling to Big Companies (sellingtobigcompanies.com). She says business owners frequently put too much emphasis on acquiring new accounts. “Your strongest – and least costly – position is to go back to the customers you already have, and bring them ideas that will help them reduce costs, increase their sales, and be more effective by doing more business with you.”

Make sure your sales team is following up on leads. According to Go-to-Market Strategies (gtms-inc.com), a sales and marketing resource center, recent studies show that most leads or hot prospects go cold in the first 24 hours. The center polled its clients and found that 25% of sales leads had never been pursued, with many more than that only receiving a single call. While there are many options on how to track leads and sales processes, make sure you have something in place.

Calculate how much to spend on acquiring customers. According to Jack Schmid and Steve Trollinger in Chief Marketer, setting a budget for sales and customer acquisition starts with determining the current actual cost to acquire a customer and calculating the average customer lifetime value. (Lifetime value equals frequency of purchase times duration of loyalty times gross profit.) Knowing the average cost to acquire a customer is crucial to setting an acquisition budget that ensures profitability and a strong ROI on sales expenditures.

Invest in sales tools, not more travel. Rather than sending salespeople out to prospect from ground zero, invest in tools like Inside View, a Trigger Event notification service, to reduce overall expenses and avoid inefficient use of salespeople. To reduce cost of sale and improve ROI, encourage salespeople to spend more time researching prospects and customers.

Stop creating brochures. “All marketing today should truly be about education, never about your product or service,” Konrath says. “You can save money by not spending it on ridiculous brochures that get tossed away.” Instead, business owners should focus on providing educational content.

Do your homework before setting sales and marketing budgets. Many companies fail to gather data needed to accurately set sales and marketing budgets, often relying on a single cost dimension or worse, guesswork. These broad-based budgets involve more than merely cost of sales or a percentage of company revenue. Go-to-Market Strategies recommends using a three-prong approach to setting sales budgets that incorporates industry standards, marketing planning (based on the company’s historical data including past and forecasted ROI as well as industry norms), and customer lifetime value.

Make virtual meetings the first step in the sales process. Customers don’t have time to see salespeople because time is their most precious commodity these days. “It’s taking sellers eight to 12 contacts to set up meetings with purchasing decision makers in many cases,” Konrath warns. She advises shifting a portion of the sales budget from travel to virtual meetings. “What I’m seeing right now is a lot of decision makers preferring to have a 10 or 15 minute conversation or pre-meeting first to see if it’s worthwhile to talk in more depth. Virtual meetings and webinars are extraordinarily effective today.”

Make sure your sales team isn’t arbitrarily writing off prospects. According to its Voice of the Customer research, Indianapolis-based marketing firm MillerPierce (millerpierce.com) reports that 30% of non-purchasers – leads that went from hot to cold – will be ready to buy in six to nine months. Protect your lead generation investment by continually communicating with these leads. It’s less expensive than chasing new leads and will ensure your company will be top-of-mind when they’re ready to buy.

Become your industry’s expert. Provide prospects and customers with information about how to make decisions on product and service purchases like yours, how to get the best value out of using your product and service, and how to solve business issues that your product or service addresses. Be the company that teaches how to run business better by providing white papers, webinars, podcasts, interviews, and articles.

Update sales training to 21st century practices. One of the biggest obstacles companies face is that salespeople and small business owners still read the old masters who sold in the 1970s, when the marketplace and sales climate were entirely different. “They’re actually getting bad advice that boomerangs against them and makes it harder to them to get sales,” says Konrath. Budgeting for training to make sure your sales team’s skills are up-to-date is a worthwhile investment.