Trust-Based Selling: Finding and Keeping Customers for Life (2015)
Chapter 6. Build Business Relationships
If every instinct you have is wrong, then the opposite would have to be right.
On the television show Seinfeld, George is complaining about his life. He feels that every decision, every instinct he has, has been wrong. So, Jerry’s advice is to do the opposite. As salespeople, every instinct we have is to focus on the opportunity. Managers, after all, measure our progress by opportunity. However, if your focus with a new customer is only to find opportunities, you will fail.
Although it’s not exactly the opposite of targeting opportunity, you need to build business relationships first. Once you gain access to a customer, the focus needs to remain on the customer. Focus on the customer’s needs and adding value to the customer’s experience before you look to fill your pipeline.
Every sales skill is about focusing on customer issues, or finding a solution that will help them. This is the foundation to the establishment of trust. However, every sales process implemented today only tracks what is in it for the salesperson, focusing on going after tangible opportunities. This forces salespeople to lose their way with new customers. I illustrated several times in the previous chapters that opportunity can’t be trusted. You need to start by forging a relationship. The sales managers out there are probably thinking, “You can’t forecast on or close a relationship.” I understand that relationship is only part of the equation. It’s just that without it, there is no sale. Let me also reassure you that, by forgetting about opportunity during your initial engagements, you will find many more opportunities within the first year. Opportunities you actually have the chance to win.
The Outcome of Good Relationships
Focusing on relationships has three major effects. One, it opens the window of opportunity. The more time you spend with the customer, the better chance you have to hit a purchase cycle and or a compelling event. Two, once you are engaged in an opportunity, you are more trusted; you are in a position to win. Three, by qualifying the customers you will make better use of your time. You will understand which customers fit with your product. You can start to be selective with your customers.
Going back to the example of Tom in the Introduction, where Tom chases opportunities in his first year and struggles, what advice should Tom’s manager have given him after Q1? Had I been his manager, I would have said, “Tom, let’s go down your list and see which customers best match our ideal customer profile. Of these customers, which ones do you feel a personal connection to? How much time are you spending with these customers?”
I would go on to say that I wanted him to spend half his time on establishing more trust with these customers. He can, for example, meet other people who are part of their decisions. He can organize “lunch and learns” for the customers. He can provide educational industry training or provide road maps detailing future products or services. He should provide this in the spirit of education, not with a goal of trying to sell something. He can also introduce his contacts to different people from his own organization. I will explore these in more detail, and show how such efforts help you establish trust with your customers.
Trust the System
This is where you need to trust in the process. It is not easy to do. There is nothing in the forecast to warrant the time and resources Tom is devoting to this customer. Then why do it?
You hear this all the time: “Sales is a numbers game,” but we need to change the concept of the numbers game. Looking at sales as a numbers game traditionally focuses on volume: volume of cold calls, volume of sales calls, volume of opportunities, and volume of pipeline. It means hard work, and a ton of wasted effort.
It also means that you expect failure. I have worked with many organizations that require salespeople to carry a pipeline-to-quota ratio of 3:1, even up to 5:1. Assume your annual goal is $5,000,000 in sales, meaning that in a given quarter your quota is approximately $1,250,000, or 1/4th the annual quota. Your pipeline at the 3:1 ratio should be at a minimum of $4,200,000. The company sets this threshold because, historically, their sales team has a 30% close rate. Look at it in the negative: that is a 70% failure rate. That is 70% of your time on wasted deals, wasted conversations, and wasted administrative work.
Continuing this train of thought, if you need to have $4,200,000 of pipeline and your average deal is $120,000, you need 35 deals in your forecast. If your sales calls-to-pipeline identification is 2:1, you need to go on 70 calls. If it takes eight calls to set one appointment, you need to make 560 calls.
Sales is a numbers game. However, the numbers that you need to focus on are probabilities, not volume. Volume has a compounding effect of wasting time. Increasing your odds of winning frees up your time to work on even more qualified opportunities. In Las Vegas, for example, your best odds are at the black jack table, where the odds of winning are at best 48%. (This is a gross simplification; the odds of winning are based on many house rules, and your ability as a player to make the right decisions.) With a 48% chance of winning, in the long run, you lose. Some people think it’s crazy to play roulette where the odds on the simplest bet drop to 47%. No matter how many times you spin that wheel, in the long run, you will lose. In fact, the more times you spin the wheel, the more you lose. It is no different in sales. Turning up the volume of activity with lousy odds will just cause you to fail even more. It is better to work on the odds.
Adding more volume to low-odds activities will compound your failure. Working to increase your odds of success at each stage of the sale with compound your success.
The tragedy in all of this is that the data has been staring us right in the face, but we ignore it. If you look across a large data set of all salespeople within a company, the close rate might be 70%. So, at first glance, it makes sense to use the 70% close rate as a metric to set pipeline targets. However, this includes the 80% of the not-so-good salespeople. Sales management ignores the pipeline rules for their top performers. Since Johnny has a great close rate, we will not pressure him for the higher ratio in pipeline. Since Johnny does not fit the model sales management expects, or manages to, he is labeled a sandbagger—someone who underforecasts their deals to look like a hero at the end of the quarter. Management looks at Johnny as the anomaly. Instead, why not use him as the role model? He is a top performer, so let’s look at his numbers, pipeline, close ratios, behavior, and selling strategy. Does it make any sense to manage to the non-performers? Instead of labeling Johnny as a sandbagger because of his low pipeline ratio, look at Johnny’s close rate. Now figure out why Johnny has a better close rate and teach the others some of his techniques.
I guarantee you one thing: He is not being pressured to waste his time managing bad deals.
Don’t play the volume game unless the odds are stacked in your favor. If you insist on seeing the numbers, look at the numbers from the proper angle.
Here are the questions you (and sales management) should be asking: How do we increase prospecting success rates? How do we improve the number of calls we have to make to get an appointment? How do we increase the rate of sales calls to opportunities? How do we better qualify customers, so we are spending our time only on high-odds deals? How do we know when the odds of winning are bad? How do we stop managing to a 70% failure rate?
Why Trusting the System Makes Sense
Purchase cycles are long in most B2B sales; sometimes there are up to 7–10 years between decisions. Again in IT, telephony equipment, networking, or data storage, purchases are made every four years or more. Assume for example that the customer uses a four-year purchasing cycle. Out of the 48 months between purchases, the customer might start looking for new product or vendor, if they do not automatically go to their preferred incumbent vendor, about four months in advance. Now assume that they interview two or three vendors in the first two months of this buy cycle. Your window is down to those two months at best. That’s two months in four years, a one out of 24 chance of hitting the customer at the right time.
You can see this in Figure 6-1. The larger circle is 24 times bigger than the smaller circle. The small circle represents the two-month window you have to hit an opportunity. The medium-sized circle represents a one-year window of opportunity, or customers you are establishing relationships with.
Figure 6-1. Window of opportunity
To play the volume game, you aim at 50 different customers, or you are looking for opportunity in 50 customers. So you give yourself 50 times the chance to find an opportunity. However, you know nothing about the customers. What are their decision criteria, who are the power players, what are their budgets, is there a strong incumbent? The list goes on. This is like hitting a moving target (Figure 6-2).
Figure 6-2. Moving target opportunities
With a change of focus, you move from targeting opportunity to establishing a relationship with a customer. That will give you a much bigger target to aim at over time (Figure 6-3).
Figure 6-3. Stationary customer targets
Establishing trust takes time, so assume now you can aim at only half the customers, or 25. With this new approach, qualifying customers first becomes important. There is no sense in aiming at customers who are not going to buy. Customers in this case are no longer moving targets. They are stationary. Customers are there for the entire first year; they are not fleeting opportunities.
Which of the targets looks easier to hit? The 50 small moving targets, or the 25 stationary targets?
Not only is it easier to hit the stationary targets, but when you do hit an opportunity, you have a much better chance of closing business. When aiming only at opportunity, you become column fodder—the vendor uses you to keep their preferred vendors honest—meaning your chances of winning are greatly diminished. Nonetheless, most sales managers tell you to shoot more arrows, make more sales calls, and work harder. I have seen some reps succeed on sheer will, and some on luck. Most of us are not that lucky, and most of us are unwilling to work that hard.
The secret, once again, is to focus on the customer, the relationship, instead of the opportunity. Don’t aim at the small circles; aim at the larger ones. Work on building the relationship when there is no opportunity. No matter if you are cold calling, networking, or getting to the customer through referrals, your main goal should be to understand the customer, and start building trust.
If you find opportunity, you must be honest with yourself and truly qualify the deal. Do you have a chance to win? Or are you the column fodder I have discussed?
If you don’t find opportunity, and the customer states they are not in the market—“I am not looking for X at this time”—your answer should be, “That’s okay, I would prefer not to start our business relationship in the middle of your buying cycle. We can spend time now understanding your needs, which gives us time to show our value and earn your trust.”
Your intent quickly goes from “they want to sell me something,” to “they are here to help our business.” Taking this approach builds trust instantly.
When you are willing to spend time with customers not currently in the market, they begin to trust you more. They will more readily believe you want to help their business grow and relieve problems.
Do the Math: Opportunity versus Relationship
In the previous example, I showed how the right focus improves your chances of finding real opportunities. But, how does the math work? What happens to your pipeline? In the previous example, you were aiming at 50 customers, and you had a 48-month buying cycle, so your window of opportunity is maybe two months long. To be more generous, I will give you a window of three months.
Your chance of finding any opportunity with a customer, real or not, is only 6.25% (3/48). Now multiply that by 50 customers, and you are working a total of three deals. I am going to be generous with this example again, and say that you sell multiple items and now you find twice as many deals, or six.
Remember you are mainly column fodder if you don’t have a relationship, but I will be incredibly generous again and award you a close rate of 33%. (It is probably closer to 15%.) Congratulations—you will win two opportunities in a year. In the IT industry, where vendors have direct relationships with the customer, with no help from a partner, this is typically what you see from 80% of new hires. The numbers will be slightly better if the company has existing relationships with the customer.
Here is the math if you aim for the big circles, possible only when you aim at establishing the relationship with the customer before you chase opportunities.
First, work 20% smarter and aim at only 40 customers. Now, do not look for opportunity, but look to qualify customers, and spend time with them. You are engaged with the customer whether or not there exists an opportunity. Again, how you stay engaged without opportunity is covered later in the book. The window of opportunity of each customer raises on average from three months to nine. With the same 48-month sales cycle, you now have a window of opportunity of 19% (9/48). Over 40 customers, you will see 7.5 targeted opportunities.
However, here is the real strength of this strategy. In actuality, you will see many more opportunities. In your educational approach, you will pique the interest of your customer about opportunities they may not have been thinking of. And while spending time with the customers, once you have established trust, you will find they will start to bring you more opportunities. Conservatively, this will double the number of opportunities you’re exposed to. For our purposes here, that’s four opportunities per engaged customer.
Increased trust also brings higher close rates. In this example, I will be ultra conservative and use a slightly higher close rate than when you did not have a relationship, or 50%.
This math now works out to this way:
40 customers X 19% window X 4 opportunities per customer X 50% deal close rate = 15.2 deals
There are many circumstances that influence all of these numbers. But in general, you are looking at five times the number of won deals. Typically, with this approach you will not only have more deals, but the deals will be bigger. The “numbers game” shows that establishing relationships will drive more opportunity. Focusing on opportunity does not correlate into driving relationships.
When you chase opportunities, you have a limited number of relationships built by the year’s end. In year two, you will still be chasing opportunities and working any deal or customer you can find. In the other scenario, you have purchasing relationships with at least seven customers. And, you have started building trust with up to 20 more customers. You can stop chasing opportunities, because with the trust you have built, customers will start presenting opportunities to you. This will also lead to more referrals. This is the difference between chasing deer, and knowing the land like the back of your hand.
The goal of this chapter is to drive home the point that focusing solely on opportunity is not the most productive use of your time. I have stated this a few times, but it’s worth repeating. Your success does not depend on the first opportunity you find, it depends on a long-lasting relationship with the customer.
Now that I have explained the strategy, you need a way to track progress. In the next chapter, I will combine the aspects of opportunity and trust to give you the equation you need to win business. This equation will help you develop a process to follow, and help you determine your ability to compete with more established vendors.