I am often asked about the most common issue preventing businesses from scaling and reaching their revenue goals. The answer is not that simple as common issues range from churn, missed quotas, bad hires and varies from company to company. Business owners cite underperforming reps, legacy systems and unstructured training as the possible culprit but rarely look at why those issues are plaguing their organizations.
In working with clients, I noticed a pattern of assumption in regards to the main problem and the perceived guilty party from the CEO’s perspective. The sales department is generally the focal point as its the engine that drives businesses forward to attaining revenue goals and achieving critical business objectives. That being said, rarely does any executive peel the onion and look into the individual who is responsible for leading the department — the Sales Manager. My experiences, and the data I have uncovered is illuminating. Let’s take a look at the status quo in the form of performance based on data, the ultimate cost of a bad sales manager, the main cause, and how a small adjustment will lead to a monumental impact on your bottom line.
Status Quo — Performance
Let’s take a detailed look at how sales managers are performing today. The following data came from research by Vantage Point Performance. They worked with a group of global B2B sales forces, including 515 sales managers and 4,691 salespeople.
- The bottom 25% of sales managers were performing at 76% of their target.
- The middle 50% of sales managers were performing at 99% of their target.
- The top 25% of sales managers were performing at 115% of their target.
Top-performing sales managers achieve 39% more of their target than bottom-performing managers. While you might expect that kind of range in performance for salespeople, this dispersion for sales managers is unprecedented. A high-performing sales manager is substantially outperforming a poor-performing sales manager.
That same study also looked at the percentage of reps achieving quota:
- The bottom 25% of sales managers had 47% of reps achieving quota.
- The middle 50% of sales managers had 48% of reps achieving quota.
- The top 25% of sales managers had 65% of reps achieving quota.
While the middle-performing sales managers were at 99% of their target, only 48% of their reps were hitting quota. The data proves that many sales managers can get to their quota not because all of their reps are knocking it out of the park, but because they have one or two reps that are knocking it out of the park. Alternatively, they’re making it up with their own sales in the case of the player/coach role.
The top 25% of sales managers drive more consistent performance in their sales teams. This is a better measure of sales manager performance than overall quota attainment because these managers help all of their reps perform better.
The Cost of Bad Management
Now let’s take a look at the price businesses pay for poor sales managers.
Recent research by Vantage Point Performance reveals that the cost of poor sales management is massive. As mentioned in the above study, low-performing sales managers underachieved their top-performing peers by a whopping 39% in revenue attainment.
To quantify the financial impact of this underperformance, they further observed that the managers had an average of 9.1 salespeople reporting to them. If we assume an annual quota of $1 million for each sales rep, this yields a gap in sales manager performance of $3.5 million per manager. When you consider the total number of sales managers across these organizations, the real opportunity costs of poor sales managers is mind-boggling.
But the more important question is, how much is bad sales management costing you? To assess your own revenue shortfall per manager, simply multiply the performance gap between your own top and bottom performing managers by the number of reps reporting to them and the average quota for their reps. I know one company that calculated its lost revenue to be more than $10 million per manager. It was an eye-opening and sobering realization, but it was also just basic math.
Now comes the why. According to the Bridge Group, the average company spends $10,000 to $15,000 hiring an individual and only $2,000 a year in sales training. This is in most part due to sales managers being tasked with providing the initial and ongoing training, yet sales managers themselves lack sufficient training. In the CSO Insights Sales Manager Enablement Report, it was revealed that 18.6 percent of organizations made no annual investment in training for sales managers. An additional 18.6 percent spend less than $500 on each manager. This means that, in total, 37.2 percent of companies are making little or no investment in this area.
According to the Sales Management Association’s research report titled “Sales Manager Training,” 41% of companies participating in the survey had allocated zero budget for sales manager training. Of the 59% who did have a budget, half were delivering only generic management training — nothing specific to leading a sales team.
This is startling information. For what many consider to be the most crucial, stressful and challenging job in corporate America, seven out of ten frontline sales managers are not receiving the training they need to excel at their job. They are not being taught the skills needed to do effective sales coaching, rep performance assessments, funnel reviews, sales forecasting and so on. As a result, they struggle with the difficult transition from selling to managing salespeople.
According to the Sales Benchmark Index, over 74% of sales managers admit they have poor communication skills. This begs the question of why they are in the position to begin with. It also reflects a cry for help in the form of training and development which is severely lacking.
The good news is that there is legitimate hope for your managers at the lower end of your performance spectrum. Additional research conducted with the Sales Management Association demonstrated the remarkable significant impact you can make on sales performance when you invest in your sales managers. In fact, the research revealed a pretty amazing insight about the leverage of sales management training.
They asked 161 companies to describe the relative investments they were making in training their sales managers versus training their frontline salespeople. More specifically, they asked them what percentage of their total sales training budgets was allocated to their managers versus their sellers. They correlated their answers with their company’s actual performance against revenue goals. The more companies invested in their sales managers, the more they exceeded their revenue goals.
Companies that allocated greater than 50% of their sales training budget to managers exceeded their revenue goals by 15% more than companies that allocated less than 25% to this important population. Interestingly, only 18% of the companies could muster the nerve to spend more on their managers than their salespeople, but the results were unmistakable: When you invest in your sales managers, you realize greater returns than when you invest in your sellers.
There are two key takeaways for senior leadership. First, sales managers are the key point of leverage in your sales force — both positive and negative. When you have low-performing sales managers in your ranks, each one costs you millions of dollars in lost revenue. Your actual cost depends on how bad they are, how many salespeople they affect, and how big your quotas happen to be. But research suggests that large companies are missing out on tens of millions of dollars in revenue because of poor sales management.
Fortunately, the second takeaway is much more inspiring. Sales managers also represent the greatest opportunity for improvement. When you invest heavily in your sales managers, you get big returns for your effort. Furthermore, it’s been our experience that most sales managers are starved for training on how to do their jobs better. When they finally receive it, they love it, and they use it. And research shows that it makes a huge difference in the performance of their teams.
So somewhere in your sales force, you have millions of dollars in lost revenue that’s hiding in plain sight. Your sales managers hold the keys to recovering that revenue, but you will only realize it if you invest in training them to do their jobs better. Once you make the commitment to develop your managers, you will surely discover healthier pipelines, more accurate forecasts, and greater revenue growth. If you want to have a truly outstanding sales force, then you need to build a team of truly outstanding sales managers.
When you invest in your sales managers, you realize greater returns than when you invest in your sellers. You still need to focus on training your salespeople. But if you want to make a real impact on your bottom line, start with sales managers.