Under the best of circumstances, the analysis of the pipeline is based on input from the sales organization. Notable by its absence is any input from the buyer (which, as you’ll see in later chapters, could give sales management a way to audit where the buyer stands in the buying cycle, and therefore provide a sanity check). With or without a CRM system, leaving the buyer out of the picture often means that the timing of asking for the business is much more a function of when the company wants (or needs) the order than of when the prospect or customer is ready to buy. In other words, it is rarely customer-focused.
Many companies spend the last few days of nearly every quarter attempting to squeeze out business in order to make their numbers. Many senior executives leave their calendars open during the last week of the quarter, allowing them to embark on “closing junkets.” The tool commonly used to get buyers to commit earlier than planned is substantial discounting. Some buyers are so offended by this approach (“I was na´ve to assume that the initial price they quoted was real!” or worse, “They must think I’m an idiot!”) that they ultimately decide not to do business with a company that employs these kinds of traditional closing techniques.
One difficulty with selling in this fashion is that it tends to turn into standard operating procedure. Emptying the pipeline at the end of March is likely to transform April and May into the months for rebuilding the pipeline, but not closing much business. This culminates in another high-pressure close toward the end of June. Another difficulty is that savvy buyers learn to delay buying decisions, in the knowledge that they will get the absolute best price at quarter’s end.
Are you skeptical that such “fire drills” are commonplace among established and reputable companies? Consider the following quote by Computer Associates’ chief financial officer, Ira Zar, from an article in Forbes:
Negotiations [at Computer Associates] came down to the last day of the quarter, with Hail Mary discounts of up to 55 percent fairly common in the business. In the quarter ended September 30, 2000, CA did $1 billion of its $1.6 billion in revenues in the last week. We ended up trading phone calls at 11 at night.
Prior to our working with them, one company entered the last quarter of a particular year with a chance to achieve $300 million in revenue—a threshold they had never before attained. Senior management then decided that this target was within their reach, and instructed managers and salespeople to close everything they could (i.e., go as low as necessary) so that the goal could be achieved. The good news is they succeeded, booking a few million dollars beyond the magic number. At the subsequent January kick-off meeting, jackets were distributed to everyone with that record year’s revenue figure embroidered on the sleeves. The meeting proceeded with a general sense of satisfaction, accomplishment, and even euphoria. Success was in the air!
Then came the bad news. As a division of a larger company, the company received its quota from on high. The objective assigned by the parent company for the following year was $360 million—a 20 percent increase over the record revenue that had just been delivered. As you might expect, virtually nothing closed in January and February, as a result of emptying the pipeline in December. The company finished the first quarter with bookings below 50 percent year-to-date. Ultimately, it stumbled its way toward matching the revenue delivered the previous year—but not before both the chief executive officer (CEO) and the VP of Marketing were relieved of their duties midway through the second quarter. With 20-20 hindsight, the results were predictable, as the company effectively had a 10-month year to produce the revenue. You can imagine the resulting impact on profitability.
Even without being instructed to do so by their management team, many traditional salespeople are guilty of closing prematurely, often attempting to close the wrong person. Attempting to close non-decision makers (and close them prematurely) can cause several bad things to happen:
The person being closed on may end up feeling inadequate or insignificant.
You may convey the stress you are experiencing to the buyer, even to the point of appearing desperate.
The person may become a messenger to the decision maker about your discounted pricing.
If the decision maker is serious about doing business, the discount you provide to the person who cannot buy may become the starting point for negotiating further concessions.
If the order is not closed during the quarter, you may have set an expectation of pricing that you may be unwilling or unable to meet, based on your situation when the decision can be made early in the next quarter.
You may lose the transaction because of your bad behavior.
A sales process should contain a specified time to close that was agreed to by the buyer. Senior management can attempt to accelerate orders at their own risk.