The Cash to Cash Cycle
Part Three of Series
Part One: http://www.bizmanualz.com/articles/01-05-05_inventory_procedures.html/?ART78
Part Two: http://www.bizmanualz.com/articles/01-11-05_accounts_receivable.html/?ART79
Next Week: Accounts Payable
We?re sprinting toward that million dollar mark…and we?re only a couple strides away?
Decreasing inventory carried us over the first hurdle, and last week reducing Accounts Receivable sped us through the half-way mark. We?re making great time, so let?s bring on the next mile marker ? marketing and sales.
Increasing Overall Sales and Marketing Effectiveness
If you are an organization spending $500,000 or more on marketing expenses (e.g. advertising, trade shows, print materials, direct mail, etc.) then STOP! We found it again. Why you ask?? Because marketing has the greatest potential of being very unproductive. In fact, many marketing programs struggle to break even, and actually frequently lose money. So if we increase the overall effectiveness, then we can eliminate 50% or more of your wasted marketing efforts, which translates into $250,000 in cash.
So now, let?s see how this actually works in a real-life scenario.
Sales and Marketing Company Policy Case Study
An organization with $500,000 in marketing expenses needed assistance. We examined their sales and marketing process to understand and quantify the lead flow, follow-up, and demand forecasting issues. Then we designed and implemented a process to improve their sales cycle efficiency and tie it closer to their customer?s buying cycles. After the marketing reductions, we then reinvested $100,000 back into new processes for public relations and Customer Relationship Management (CRM), both of which were suffering badly.
The metrics we developed reduced their marketing expenses by 60% overall and increased their sales cycle efficiency from 40% to 60% within 6 months of implementing the new procedures. With these new processes and reports, the company now tracks sales cycle efficiency and life-time value rather than just sales quota achievement, as the measure of their sales & marketing effectiveness. The result: an extra $300,000 in cash plus a 50% increase in process capability (capacity).
As we have seen time and time again, time can be our best friend, if only we let it.
Methods to Design the New Sales & Marketing Process
Improve Follow-up. Only about two percent (2%) of sales occur on the first contact. Eighty percent (80%) of sales will require five to eight contacts before the sale closes. This means that if you are contacting the prospect less than five times or more than eight times, then you could have a problem with follow-up.
Sales Cycle Efficiency. Time kills deals. The speed at which a prospect is converted into a customer and the number of prospects required to make that conversion determines your sales cycle efficiency. So ask yourself, are you taking the right steps to measure and reduce lost sales?
Life-Time Value. How profitable a given customer is over time defines your LTV or Life-Time Value. Companies spend ten times more to acquire a customer than to keep a customer. However, existing customers are more likely to purchase again, spend more money, and therefore become more profitable. If you don?t know your LTV, then how do you know how much money to spend and on which customer segment?
Demand Forecasting. Every customer buys on a cycle. So this means that you should track cycle times and variance to increase the accuracy of your forecasting and the loyalty of the customer. Do you know when your customers need to reorder?
Improve Lead Quality. Do you have methods in place to measure the conversion potential of each lead? Lead generation activities (i.e. forms) should pre-qualify every new lead so that you can take the right follow-up actions for the marketing offer. Strong leads produce strong sales.
Increase Awareness. To keep the sales pipeline full of good quality leads you must continuously increase the awareness of your company and the solutions that it provides. Public relations is more efficient at building awareness than advertising, yet many companies spend wildly on advertising and trade shows while neglecting to fund public relations efforts much at all. Increase your name recognition, not your budget.
Reduce Discounting. Discounts represent deficiencies in the sales & marketing processes, which means that you should use them sparingly. Instead, determine the root cause and then fix the process that?s causing the need to discount. Show customers the added value, and they won?t focus on price.
Train Personnel. Provide your sales & marketing personnel with regular formal training. This will arm them with better product knowledge, as well as presentation, negotiating and selling skills that will improve effectiveness. This will boost both employee morale and the bottom line ? a win-win.
Control of Sales and Marketing Policy and Procedures
Improve your sales cycle efficiency. Reduce your marketing expenses. Tie it closer to your customer?s buying cycles. And take control of your sales and marketing program to let it work for you.
Improvement with Well-defined Policies and Procedures
With well-defined processes and procedures in place, you will increase efficiency by reducing ineffective sales and marketing programs. And, again, we make such improvements to create more cash on hand ? all toward that million dollar goal and to cross the finish line.
Next week, we will hurdle the final $250,000 mark with the Accounting Payables function ? so close you can see it.