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Monday, August 10, 2020

C-Suite Advisory

Downsizing Your Sales Force Is a Mistake. Here’s Why.

Businessman

In the past, sales teams used to be the gatekeepers for every company’s transactional revenue. Every customer went through them. Now, though, more and more organizations believe sales is overvalued — especially if marketing teams are attracting customers through inbound channels.

The role of salesperson is shifting to be one of a customer service agent. This is often true for companies that overestimated their market size or grew too quickly, but even successful companies are cutting down on their salespeople. Last year, Merck reported that it would downsize its American sales force by 1,800 people due to increasing digital channels. Similarly, Microsoft noted that it would eliminate 4,000 sales and marketing positions to focus on specialized markets such as artificial intelligence and cloud computing.

Of course, no company will come out and say, “Hey, we made a bad decision by cutting so much of our sales team.” But I’m sure some companies regret these cuts. Given the right culture and environment, each salesperson has the potential to experience what my company calls a quantum leap: a lightbulb moment when an average sales rep suddenly becomes great. Unfortunately, such blossoming moments can’t always be orchestrated. Oftentimes, they must simply be waited out.

Cutting ties too quickly isn’t the only problem. Sometimes startups prematurely ramp up hiring before they’re ready to scale. I’ve heard about a formula for growing your sales force described as the “magic number”: You add your sales and equity, then divide it by the cost of your sales machine. If that number is above one, you’re ready to scale.

But let’s say you screwed that up. Maybe the solution for scaling too fast isn’t downsizing your salesforce — maybe it’s building a better sales machine in which your star players help develop newer members of the team. Downsizing is nearly always a mistake. Before resorting to cutting team members, ask yourself these questions:

1. What problem are you solving?

Are sales dropping off? Blaming the sales force is easy, but it isn’t always right. It might be feedback about your product-market fit. Maybe your word-of-mouth advertising channels are undeveloped. Maybe you need to hear some operational feedback. Or maybe your salespeople aren’t working as hard as they should be in the field — and maybe that’s because of poor culture, not poor competency.

I could go into two different sales organizations in the same industry and see two very different mindsets. The first might say, “Our sales team is doing everything it can; it’s just customers being lost to Amazon. Things are tough, and we’ll have to let people go.” And the next company in the same industry might say, “Everything’s good. We’re on track for 25 percent growth.” When the culture is a good fit, employees generate better results.

2. Who are you getting rid of, really?

You’re likely eliminating “A” players who haven’t yet become “A” players. But if you’ve conducted proper training, they know the industry, and they’ll probably find success at another company in the future. They just weren’t in the Crock-Pot long enough. If you let your salesforce go too early, you might actually be training salespeople for your competitors.

The general rule has been that the amount of leash you give someone should be directly proportional to the amount they cost you. If your compensation plan is largely commission-based, don’t just say, “I hope they figure it out, but if they don’t, they’re not costing us money.” Act as if sales leaders are made, not born. I’m also wary of comp plans that offer industry-outlier base salaries. Great salespeople don’t care about their base salaries; they care about year-over-year opportunity.

3. Are you eliminating revenue, too?

Downsizing often saves money at the expense of revenue generation. It’s easy to know how much you’ll save after a layoff, but you never really know how much revenue that’ll cost you. Don’t throw the baby out with the bathwater. Good salespeople are smart: They’ve got relationships with your best clients. You might be thinking, “Oh, we can transition.” But if you lay off the wrong person, he or she might take that client right on over to his or her next role. Nondisclosures and noncompetes can only do so much.

A study by researchers at the University of Wisconsin–Madison and the University of South Carolina found that even a 1 percent downsizing event can create 31 percent turnover within a year. This doesn’t mean you can’t shake up the company; you just have to do it right. In 2013, AT&T decided that rather than eliminating 100,000 positions that were poised to become irrelevant, it would conduct a mass retraining so it could keep knowledgeable workers. Just 18 months after creating this program, AT&T reported 40 percent decreases in product development time and a 32 percent boost in time to revenue.

Downsizing ruins morale and might very well harm your team’s revenue. Rather than cutting your team, use your sales force to solve problems. Make sure you’ve answered the right questions before you make a change.

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Mike Monroe
Mike Monroe is a Christian, husband, dad, and marketer. Mike started at Vector Marketing in 2000, hoping to stick out from the crowd and develop professionally. Mike is an opinion columnist for the CEOWORLD magazine.