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Is Sales Productivity Tax Real?

Writer's picture: Dimitris AdamidisDimitris Adamidis

Sales Productivity Tax
Sales Productivity


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Only 37% of sales reps’ time is spent on revenue-generating activities, according to Insidesales.com. Although the impact on the sales teams is pretty apparent, several other company-related impacts are associated with that metric. This indirectly inhibits the company's ability to deliver on multiple fronts and even impacts the ability to generate revenue and profit in the future. The higher attrition might be a harbinger of the future company's performance problem. Although this is not as simple as one linear process, one must worry about it before financial risks materialize. Let's focus on the impact of the company's financial performance through the lens of reps' inhibited productivity. 


The primary financial impact of unproductive sales reps is the direct loss of income. Sales reps are the driving force behind revenue generation, and when they are not performing at their full potential, it translates into missed sales opportunities and lower revenue numbers. Fair enough. All of us know that.  However, a sales rep's failure to meet their quota directly impacts the company's top-line revenue, which was committed to the board. It can impact historical growth and lower the prediction of future revenues while looking for new investors or the stock price. 

Unproductive reps may struggle to acquire new customers or expand existing accounts, leading to stagnant or declining revenue streams. This is the flip side of the sales process, but if your reps can't effectively work with the account to renew and upsell, your ability to generate cash from that carries a significant risk. 


It's one thing to have reps fail to generate revenue and another to contribute to higher customer acquisition costs (CAC). CAC is a critical metric that measures the cost of acquiring a new customer, including sales and marketing expenses. If sales reps are inefficient, more resources (time, effort, and money) are required to close deals, driving up the CAC. High CAC can erode profit margins and make it challenging to achieve sustainable growth. Of course, CAC doesn't include only sales costs; a well-defined one can reveal the problem with sellers rather than marketing. 


Unproductive sellers are an opportunity cost "tax" for the company. I consider them a tax because every company has to go through this, similar to the inevitability of taxes. The resources invested in hiring, training, and compensating these reps could have been better utilized elsewhere, such as Hiring more productive sales, investing in sales enablement tools and training, or allocating resources to other revenue-generating initiatives, e.g., product marketing. These opportunity "tax" costs can hinder the company's ability to maximize its potential and achieve its growth targets.


The combination of lower revenue, higher customer acquisition costs, and opportunity costs can significantly impact a company's profitability and cash flow. Lower profitability can limit the company's ability to reinvest in growth initiatives, product development, or other strategic priorities. Reduced cash flow can strain the company's financial position, making meeting operational expenses and debt obligations more difficult. You remember asking the CFO to approve your new post-sales system request for another $250K/ yr? That might be helpful with improving the team's productivity only if you know they are capable. Is that what you can prove in your conversation with the CFO? That's a tricky question to answer. 


Company reputation and customer relationships are often forgotten in this context. Lack of sufficient sales productivity can also damage the company's reputation and customer relationships, which can have long-term financial consequences, lowering your cash flow predictability, therefore increasing cost pressure and pushing you as a sales leader towards cuts to keep the safe cash cushion in case the high risk of missing the number occurs. This can be detrimental to your long-term strategy execution. Cost savings are always advised, but being constantly on the back foot will restrain your ability to implement new tactics and improve existing workflows. That's not good and very frustrating. 


Moreover, poor customer experiences due to unresponsive or ineffective sales reps can lead to customer churn and negative word-of-mouth. Damaged relationships with existing customers can make it harder to cross-sell or upsell, limiting revenue growth opportunities.


So why is the low productivity happening in the first place? This is not an exhaustive list, but it can give you some ideas on where to start digging and understanding the problem. 


Lack of Prioritization and Time Management: Sales reps often struggle to prioritize their leads and deals based on their likelihood of closing. Without proper customer analytics, an understanding of the principles of your buying persona, and explicit training materials, organizations struggle to build a transparent system for prioritization. Sellers may spend time on less promising leads while neglecting more high-potential prospects, resulting in inefficient use of their time. Often, you can't blame them because certain priorities were not set or properly communicated or enforced by the first-line managers. In case of a lack of cohesive approach to those activities, reps tend to find excuses for not doing sales skills practice and coaching, as these activities are often deprioritized compared to actual selling time. Proper time management and prioritization of high-value activities are crucial for sales efficiency.


Another common mistake made by sales teams is properly using sales enablement resources. The search results indicate that sales reps frequently ignore or underutilize the latest content and resources provided by marketing or sales support teams. They reuse outdated materials they are already familiar with rather than leveraging new, potentially more practical resources. This inefficient use of sales enablement resources can hinder reps' ability to engage with prospects and close deals effectively. I must say to their defense that often, these materials focus on the process, not on building effective habits. 


Lack of regular feedback and coaching from sales management is also to blame. Ineffective sales management is why sales reps fail to improve over time. Reps need guidance, feedback, and support from their sales managers to identify areas for improvement and develop their skills. Many sellers come from different industries, backgrounds, and experiences. Although their managers should seek diversity to retain the creative edge, their coaching should bring them all together into a few things that must be ruthlessly enforced around the prospecting and customer thinking process. This is considered a one-off task because, otherwise, someone is tagging them as micro-managers. This is not a micro-management skill if you teach someone how to be an effective salesperson. And, even if it is, wouldn't you take a risk to help both sides retire more quotas? 


Conclusion: 


Understanding the financial impact of unproductive sales reps enables finance and sales leaders to prioritize initiatives to improve sales productivity, such as better training, coaching, incentive structures, and sales enablement tools. Allocating your cost tax is fundamental for the CRO and CFO to work together. Having the right analytics, understanding your customers, and understanding gaps in the process should be driven by your operations teams to bring the highest ROI on every dollar spent. Cost is not the only concern; it's the return you can bring in the fastest possible way that can't be done in Excel. Yes, that's where it starts but it requires a tedious, arduous, and daily monitoring of the completion of your sales tasks. It takes your first-line managers to get a sh** done mentality that provides constructive feedback to the sellers daily (yes! daily). Addressing sales productivity issues can directly and positively impact the company's financial performance, profitability, and long-term growth prospects.

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