I attended the Barnes Buchanan conference for the security industry, as I do every year. I thought others might appreciate a recap, from my interested third party perspective. As a former lender to the security industry, I have a unique perspective that combines my passion for sales performance with an eye for ROI and financial stability. The result is a laser focus on profitable growth for security companies. There were certain nuggets from this year’s conference that companies who choose to grow should pay attention to. I believe the takeaways are not only applicable to the security industry but can be applied to most industries.
Because I look at everything with a growth lens, I picked up on the following topics that seem to have folks buzzing:
- Customer Creation Costs
- Capital Cost
- Attrition Rates
- Alternative Distribution Channels
Here are my thoughts on how a sound sales approach can address each of these four concerns.
How Sales Effectiveness Can Reduce Customer Creation Costs:
According to presenters at the conference, the cost to create a new customer has risen over the last ten years. Investors and lenders are keenly focused on this trend, as they should be. While it is reported that the cost is down in 2015 compared to 2014, it has crept up over a longer period. While the trend may hold across other industries, it is especially important in an industry where the cost to create a customer often well exceeds the income that the customer brings to a company for months — if not years.
Understandably, this was a hot topic in the informal conversations I had and heard over the course of the conference. One of the easiest ways to positively impact this metric is to improve your sales efficiency. At Braveheart, we frequently see company owners and leaders who have accepted mediocre performance from their sales team, accepting behaviors that do not produce adequate growth. We have numerous examples in the security industry and other industries where we have helped clients transform their sales effectiveness through improved sales leadership and management, more effective sales talent hiring, and precise onboarding. Companies we’ve worked with have increased their sales per salesperson and have been able to decrease the number of salespeople while still growing their sales. Talk about an impact on your creation cost. This alone can dramatically improve this metric. It isn’t easy, but it is simple.
How Sales Effectiveness Can Improve Customer Attrition Rate:
It was reported that the gross customer attrition rate is down since 2014. It has fallen slightly over the course of the last ten years with about 50% of this figure being attributed to customers moving. On the surface, this is good news. In the security industry, the gross attrition rate averages about 12%. Again, I believe that we have grown to just accept mediocrity in this area.
Looking at this from a sales perspective, for every eight customers you put on, you lose one. Now, granted, you might have fantastic service and inside salespeople who save those customers when they move, but they don’t do it for free. There is obviously an expense associated with that. If you could improve that functionality in your company and focus on developing those inside salespeople, you could potentially improve your sales effectiveness in this area as well.
Do your inside sales folks who are focused on saving and re-signing clients have the ability to sell additional services while they have the customer on the phone? I am not saying CAN they do it. I suppose there is not a prohibition preventing them from doing it. I am saying WILL they do it? Are they trained and skilled at asking for additional business when they make a customer’s move to a new location an easy one? Are they skilled at getting the name of the person moving into the home where equipment is already installed? Better yet, are they skilled at asking for referrals from those customers when they have just helped make something that seemed hard (moving) a little easier for them?
The security industry, as well as many others, could benefit from treating inside salespeople as true professional salespeople, rather than glorified customer service people. Unfortunately, just being a great service provider to customers is not necessarily a predictor of success in sales. But, to move the needle on the important metrics —such as attrition and creation costs— expert sales skills are necessary for all customer facing positions.
According to Mark Sandler of SPP Advisors, a leading investment bank in the industry, attrition is a key component which influences sales multiples so is an extremely important focus. Sandler states “Attrition rates can have a significant impact on the valuation of a company. Improving the effectiveness of the sales team and service team to minimize the attrition rate makes tremendous sense for owners who want to increase the value of their company.”
How Sales Effectiveness Can Offset Capital Costs:
As we all know, the cost to borrow continues to be exceedingly low. Therefore, the last two points I discuss may not be viewed as emergencies in the way that higher creation costs and attrition rates will be. However, when borrowing rates rise, these items will be of consequence since cash may become significantly squeezed.
If you have a business that relies on outside capital to fuel its growth, you may be in a low-rate lull, allowing other costs to rise. However, when the pendulum swings it will be increasingly important to have your other metrics in line and costs contained as much as possible, otherwise the business will be choked. Now is the time to improve sales efficiency and reduce customer acquisition costs so that you can remain healthy in a rising interest rate environment, be able to continue the growth, and grab market share from your competitors.
There is a boom of lenders to the industry right now. Bear in mind, when large borrowers become problems and cause stress to their lenders, that pendulum swings too. Get your sales costs and customer creation costs in line now to prepare for the inevitable rise in borrowing costs and the potential for a tightening of lender enthusiasm when a big credit goes south. A simple way to do this is through sales effectiveness.
How Sales Effectiveness Can Help You Tap Into New Distribution Channels:
In the security industry, DIY is all the buzz, and it has proven to be a viable distribution channel for some companies. Because of the high customer creation costs, many traditional companies are considering branching out into a DIY model. However, the idea that creation costs will be significantly lower in the DIY space may be misguided.
While there is truth to the fact that installers will not be required, and outside salespeople will not be required, expert inside salespeople are still necessary, and I do mean expert. Technical support staff available by phone are likely needed as well. It might be one thing to have an installer who can go out and install a system. It is quite a different competency to be able to talk a customer through installing the system themselves, regardless of how easy it may be.
My area of expertise is sales, so I especially am concerned about the requirements to effectively staff a sales team in a manner that will net positive returns. As noted above, inside salespeople are not glorified customer service people. To be effective with a DIY strategy, with an inside sales team, those individuals will need to be compensated like the professionals they are. Otherwise, you will waste a significant amount of money on poor-performing salespeople and on turnover, the cost of which is reported to be three to five times the annual salary of the salesperson. Talk about a negative impact on creation costs. Yuck!
Additionally, the marketing costs associated with driving business to your website and your product will be expensive. It will not be cheap. Frankly, security expertise is not required to move effectively into this space. Being skilled at driving consumers to your website and converting those potential customers to actual customers is far more important than specific security skill. The desire to grow differently or through another channel is common across industries. Be cautious that just because another competitor is doing something, it doesn’t necessarily mean it is a silver bullet. If you decide it makes sense to branch out, having a highly optimized and well-functioning sales team can reduce much of the risk associated with a new channel.
It became apparent as I talked and listened during the conference that sales effectiveness can help fix all of these concerns. However, doing so requires a commitment to sales excellence rather than accepting mediocrity. The rewards are tremendous for the companies that choose this path.
To learn more about what Braveheart Sales Performance does to help security industry companies grow, download our collection of case studies here.