As a professional sales person, Frank Robertson went to work for Cracker Jack Computers. Cracker Jack was a small business that specialized in selling both hardware and maintenance or service contracts. They expected him and their other sales people to make sales call to generate new business.
Fortunately, he already had enough experience to realize his time was limited so he had to focus on the accounts with the potential to be the most valuable to him, like large manufacturers who needed their computers and printers maintained. Most IT (information technology) managers and staff at these large manufacturers didn’t like or know how to maintain the printers themselves. Since thermal transfer printers were often a critical part of the assembly process to apply labels, these manufacturers wanted and needed service.
It was only later when Frank went on his own that he forgot the importance of picking his prospects well. He only later learned to calculate the cost of putting a sales person in the field to make a sales call.
Moreover, as Craig Garber, King of Copy and author of Seductive Selling pointed out on a Blair Singer’s Mastery Club Training Call, “Cold calling is a really degrading practice for everyone involved.” (Boldface and highlighting mine – John R. Aberle) Cold calling refers to contacts whether over the phone or in personal without an appointment or without the prospect expecting you or knowing anything about your products and services before you call.
Beyond cold calling in general being “degrading,” there are several major issues that happen when you fail to focus on only those people who will really benefit from your products and services, who recognize that they have a need, and who have the money to buy.
Problems with Calling on Unqualified Prospects:
- You annoy the false prospect who has no need (though this person may in the future be a prospect if you didn’t alienate that person)
- You waste your time
- You demoralize yourself
- Your closing ratio hurts
- You lose confidence in your sales ability
- You fail to build a good customer relationship that could result in future sales and referrals.
- You will hate selling because of the high amount of rejection you experience
Cost of Sales Calls
To appreciate how expensive it is to call on the wrong people, calculate the cost of sales calls. You will quickly see how vital it is that you choose the networking meetings you attend. For instance, chamber of commerce meetings are not all equal. Some will only draw the employees for the free food and drinks but no owners or executives. Find out which meetings your ideal prospects participate in, then join those.
Assumptions in Computing the Cost of a Sales Call:
- Business-to-Business sales
- Outside or field sales rep
- Draw against commissions (pay in advance of sales that gets deducted out of the earned commissions until the draw amount is recovered)
- Draw calculated at $20 per hour or $40,000 per year.
- Sales person gets a $300 per month car allowance plus gas at $.35 per mile, a smartphone allowance of $60 per month, and a laptop computer allowance of $375 per year.
- The rep also participates in the Christmas party, the summer picnic, and the company medical & dental insurance.
- Being as he/she is a field sales rep, the Workers Comp rate is higher due to the greater risk of injury.
- A “labor burden” calculation also figures in FICA, Medicare, FUTA, SUTA, & SDI.
- The labor burden further includes vacation and holiday pay, pay for meetings, breaks, and sick day.
Labor Burden Example
Using all the above assumptions, that $20 per hour sales rep ended up costing $35.24 in hard costs. But when you include the soft costs of vacations, holidays, and company meetings, your sales person now runs $49.17, almost two and a half times the base rate.
How to Calculate the Average Cost of a Sales Call
Determine Activity Required for a Sales Call
Nobody when prospecting gets every appointment, much less every sale so you need to look at the activity to get a sale. These numbers here are from Frank’s experience 25 years ago. They will vary for you based on how warm the lead is, i.e. did they call in or email requesting your contact or requesting more information? Have you dealt with them before? Are they part of a narrow niche that uses your products and services or that of your competitors?
For instance, collection agencies rely heavily on predictive dialing systems to keep agents productive. Likewise, credit unions depended on credit union computer systems to operate and serve their members. The stronger the association with their perceived needs and your products and services, the fewer the calls you need to make to get an appointment. Also, if they already recognize your company as someone potentially relevant to them, the greater the likelihood of your getting to at least talk with them.
Rough Example of Sales Activity to Get One Appointment
- 1 appointment out of every 3 contacts with a decision maker
- 1 contact with a decision maker out of every 5 contacts
- 1 contact with a “screen” or gatekeeper out of every 3 calls (dials)
So, in this hypothetical scenario, you will get an appointment for every 45 dials. Next, you have to factor in your preparation time to prepare materials targeted directly to that prospect’s anticipated needs. Remember, this first appointment is for the prospect to come to know, like and trust you. For any moderate to high priced purchase, it is unlikely you will make the sale on the first call.
Frank found when selling maintenance contracts on printers and computer equipment that four to eight sales appointments were necessary before the proposed contract fit their needs and budget. One of these contracts yielded $34,000 per month x 30 months = $1,020,000 plus additional time and material work, so obviously, it was worth that many sales calls including travel from over 12 hours away. That contract was considerably larger than the next largest though.
Time Commitment to Generate and Make Appointment
Even a local sales call in a major city can take an hour to commute 30 miles each way.
Initial telephone prospecting cold calls
Telephone calls to contacts (10 minutes each)
Telephone calls to decision makers (30 minutes each)
Travel roundtrip 30 miles away
Total time for one appointment
> 510 minutes = 8.5 hours
Cost of one onsite, business-to-business sales call: 8.5 hours x $49.17 = $417.93
Obviously, these are all fictitious numbers though based on Frank’s experience. You can adjust them any way that you want to, such as closer calls, short appointments, more efficiently setting appointments. Nevertheless, this is a very realistic number. Some experts are even considerably higher in their calculations though, admittedly, some are much lower though most do not do as detailed a labor burden calculation so they may actually be low balling their costs.
Like Frank you may be surprised by the actual cost of putting your sales people into the field. If you are the only sales person in your company or an entrepreneur, the cost of a sales call becomes even more important for you to factor in to your planning. It will show you how selective you need to be about focusing your efforts on your ideal customer profile. If you are a solopreneur, it becomes even more serious because of the opportunity cost, which means that every sales call means you aren’t doing something else that is of higher value.
Make sure that you or your sales reps concentrate on prospects matching your ideal customer profile, people who are most likely to need your products and services and who can buy. The cost of a sales call is higher than most people realize. Just use it to guide you to make those calls where the opportunity will cover those costs and yield a profit.
Open your heart in selling
John R. Aberle, Aberle Enterprises
How Relationship Selling Rewards Small Business