Compound Effect – How Does It Impact Sales and Prospecting?
The sales process has evolved – and searching for whales has been exposed to be an inefficient strategy. Once upon a time, it was commonplace for sales leaders to be those who could sway even the most hardnosed of prospects. Nowadays, however, the vast majority of prospects can see through this charade, and with the dawn of the internet, have a wealth of tools at their disposal to make an informed decision, not just an emotional one.
This has forced sales tactics to evolve, and the modern salesperson needs to be able to diagnose their prospect’s problems and focus their sales pitch on those pain points. Armed with the understanding of their pain points the salesperson can align the features or functions of their product to the needs of that particular company, increasing the likelihood of securing the sale. However, this has drastically increased the sales cycle length and made growing sales pipelines more difficult. The question for sales managers and leaders is: how do you optimize this?
Simply put, marginal gains can have an incredible effect when sustained over time. This is the core tenet of the ‘Compound Effect formula’, wherein if you make incremental changes across any of your processes over time they will yield large results.
What is compound effect?
The theory behind compound effect comes from self-made millionaire Darren Hardy – he postulates that it takes little touches or decisions to continuously push towards an end goal. But furthermore, by making smart and informed decisions around processes you can continuously optimize and improve them over time. Then by extension, create habitual changes which can be applied to generate bigger and better results.
Two key elements make this a powerful theory, making smart choices and consistency. As long as a decision adds value or improves on a process or function and it is applied consistently over time, then even the most minimal changes will start to build up and yield better and better results.
How can compound effect impact sales?
As sales processes have changed so much from traditional concepts, there is no longer a silver bullet approach for sales teams. Sales teams need to be more focused on what and who they are targeting, simply having a larger pool of leads is not a guarantee of improving revenue, nor is landing larger “whale” contracts as the investment required to secure reduces their profitability for the majority of companies.
So looking at the state of sales, you might think that this is not going to help sales leadership as the majority of the time they need to make large improvements to ensure that they are continuously achieving quota, especially when pipelines are trending down. While there are times that big actions are needed to save deals or reverse trends, smaller changes over a longer period are more effective in creating a stable flow into your pipeline and establish a process that can help subvert potential roadblocks in the future. Not only that but most of the incremental changes can be implemented without substantial investment reducing the impact on profit.
The key to implementing compound improvements to your sales process is to make optimizations that are easily achievable. For example:
- Scenario A: You have 1000 opportunities and your rate at marketing conversion 30% and your sales conversion rate is 20%. You have a Win Rate of 20% and you close at an Annual Contract Value of $15,000. Gives you an Annual Recurring Revenue of $135,000.
(1000×0.3 300×0.2 60×0.2 12×15,000 = 180,000)
Based on the above example if you are winning 20% of conversions then your expected revenue is $180,000. However, if you can adjust your conversion and win rates up by just 2% the cumulative impact is:
- Scenario B: You have 1000 opportunities and your rate at Marketing conversion 32% and your sales conversion rate is 22%. You have a Win Rate of 22% and you close at an Annual Contract Value of $15,000. Gives you an Annual Recurring Revenue of $232,320.
(1000×0.32 320×0.22 70.4×0.22 15.488×15,000 = 232,320)
(Example source: Winning by Design)
By adding 2% to your rates it produces a 30% increase in revenue. These percentage improvements are not difficult to find, they can be simple changes in processes or pitches.
How to make improvements?
The simplest and most effective way of implementing compound effect with your sales processes is by developing your relationships within target accounts. Strengthening your relationships within a perspective account can drastically improve your chances of converting those accounts and drive your win rate up. But how does that work?
Simply put, in the modern world of sales – building relationships is king. No matter what industry you work in, fostering a strong relationship with your customer improves the likelihood of converting them and, when the time comes, retaining their custom. One of the key aspects for B2B sales is to improve your ability to connect with decision-making stakeholders and create advocates within the target account to further boost your conversion potential. Now, we are not talking about building a large network of people within the target account that would not be worth the investment. Instead, simply look to develop a few new relationships, connecting with key decision-makers within the relevant departments and build the groundwork for new advocates to help carry your message deeper into the target account. Doing this is not a significant investment and only requires additional outreach with new messaging designed to show how your product or service aligns with these contacts pain points.
What is so important about generating more relationships within your target account? The more points of contact you have within a company the more traction you will have which generates engagement. Engagement is a key metric for any sales team to understand how well they are interacting with the prospect. If your team is sending out emails or picking up the phone on a daily basis but are not getting any response then they are not pushing the opportunity along your pipeline.
How to make compound effect changes work?
The key to making these improvements work is being SMART about them. Yes, it is that clichéd buzzword again! But SMART goals are key to making the smaller changes make an impact, if they are not targeted specifically or measurable then the impact will not be felt, simple as that. Additionally, the goals need to be long-term targets. Short-term will not see the improvements that are needed and fundamentally go against the compound theory as these take time to build up.
Once you establish what the goal is, you need to build a strategy around it to make it achievable. You need to build a structure around the long-term goal and plan how you are going to achieve this. This is where the incremental approach comes into play, to achieve your goal you will be making small changes to your processes or sales strategy to achieve the long-term goal. These changes will act as miniature goals within themselves, as each change that you complete moves you closer to the result. Furthermore, if you establish a strategy around how the touches should be implemented it makes it easier to create a habitual behaviour for your team around each process update, and thus create the consistency required to make the compound effect a success.
Ebsta’s Revenue Intelligence Platform can analyze your relationships so you can quickly discover how you can leverage your relationships and drive better engagement. Speak to our sales team to arrange a demo and see how.