Richard Higham pinpoints the industry’s
strengths and weaknesses – and provides some tips for improving
sales performance.

In one way sales performance is easy to measure. In many
businesses it is simply a question of beating target. Anyone over
target is seen as a high performer. Anyone under target must
therefore be a failure. The high performer is therefore virtually
‘bomb proof’. They can get away with attitude and behaviour that
would spell doom for a mid-ranking salesperson. This approach is
often fostered by sales managers who are haunted by the fear of
their star performer walking and their sales result for the year
crashing and burning. But is this all that sales performance is
about?

In a word, no. The results of the Mercuri/Motor Finance
industry survey indicate that sales performance is more complex.
Sustainable sales success is difficult to achieve and involves
hitting a wider range of key performance indicators. This article
uses the results to pinpoint what the industry needs to know about
creating and maintaining high levels of sales performance.

Key accounts

Key account customers can make or break a business. We asked our
survey respondents what proportion of their business comes from the
top 10 per cent of customers. The answer? 64 per cent of the
companies we surveyed get over half their business from their key
account customers.

For these companies a key account management strategy is
critically important – but worryingly, four in ten motor finance
companies do not believe their key account management strategy is
well defined, and only 16 per cent are ‘fully confident’ about it.
The fact that almost two thirds of motor finance businesses depend
on their key accounts for over half their sales, yet fewer than one
in five are convinced about the robustness of their key account
strategy must be regarded as a significant risk to industry
sales.

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When it comes to the implementation of key account strategies
the alarm bells start to ring even more loudly. 50 per cent of the
organisations we surveyed do not believe their key account strategy
is being well implemented and only 8 per cent have full confidence
in its deployment (see chart 2). If you are (justifiably) confident
in your approach to key account management you will enjoy a
significant competitive advantage. If you have doubts about the way
you deal with your key accounts then you are facing real business
risk.

Key account management is demanding – but get it right and the
payback is substantial. The risk of getting it wrong, however can
affect far more than the sales result. For example, when General
Motors announced it was no longer going to use Freemarkets Inc. for
its Business to Business auctions, Freemarkets’ shares halved in
value within two weeks. By the end of the year they had lost 96 per
cent of their value.  

While high volume/low value customers can be replaced, the
challenge of replacing a high performing key account is much
greater. It takes time and resource that all too often are not
available. The impact of failure or success in key account
management affects the whole business.

Winning new business

But of course sales performance not just about key accounts. One
of the areas we were keen to explore in surveying the marketplace
for Motor Finance was the balance between winning new business and
retaining existing customers. Every sales manager knows that it is
harder to win a sale from a prospect than from an existing
customer. But just how much more effort does it take? The answer to
this question will determine where resources are allocated and will
have a major impact on sales forecasting.

The survey results reveal that in motor finance the average
conversion ratio for winning business from a prospect is 24 per
cent (or over 4:1) from first contact to close. The conversion
ratio for existing customers averages 53 per cent (or under 2:1).
We asked how many visits it takes to convert business with
prospects compared to existing customers. The average was 2.7
visits to a customer but 5.2 for a prospect.

Multiplying conversion ratios by number of visits reveals that
it takes 4.4 times more effort to win an order from a prospect than
from a customer – so if you are embarking on a new business
campaign, ensure that you have a big enough prospect bank and are
allocating sufficient sales resource. 

The calculation also helps sales managers to steer the activity
of their salespeople. Achieving a business split of 25 per cent new
and 75 per cent repeat business demands that 60 per cent of the
salesperson’s time is spent prospecting and 40 per cent working
existing customers. 

It also takes more time to win business from prospects than from
customers. The average time lag on sales to a customer is 3.5
weeks. For a sale to a prospect it is 8.33 weeks. This is not
surprising when one considers the key acceptances needed to win
over a prospect – acceptances that an existing customer has already
ticked off. If I am an existing customer I have already accepted
the credentials of the individual salesperson and of the
organisation, and I have some familiarity with your products and
processes, which means that the whole sales cycle is much
quicker.

Finding sales success

Given the challenges of managing key accounts and of winning new
business we need to ask where sales success is going to come from.
What should sales managers be focussing on as the year progresses?
In the earlier articles in this series we noted the need to balance
the quantity, direction and quality of sales activity – and learned
that top performers spend three times as much time selling as
under-performers (37 per cent versus 11 per cent). 

There is no question that sales management needs to keep
salespeople very aware of the need to keep call rates up. If
salespeople argue “I do fewer, longer calls”, then sales managers
must examine closely if the time invested per customer is really
worth it. It may be – but the argument can also be used as a
smokescreen. The really key figure may not be sales calls but the
percentage of the working week spent actively selling.

It is clear that quantity alone is not enough. As one sales
manager said, “If my people are selling badly and talking to the
wrong people, then if I get them doing more of the wrong things
with the wrong people they’ll just do more damage.”

Sales management needs to make sure the direction of activity is
right as well. This means both product focus and customer focus.
Our data suggest that while 45 per cent of sales managers are
reasonably confident their salespeople understand their product mix
policies, only 30 per cent have similar levels of confidence about
customer mix. When sales conditions are tough it is doubly
important to focus salespeople on the right products and customers.
It is all too easy to slip into the default sales strategy of
“selling the things I know to the people I like”.

Management performance

But for some motor finance organisations the performance of
those who run and manage the sales team can be an issue. We saw,
from the survey, that only 9 per cent of companies have full
confidence in the coaching skills of their managers. We also
observed that while some managers take one-to-one reviews and joint
customer visits very seriously many are doing very little in this
area. Field sales managers have a vital role in building the
quality of the sales force, and our survey indicates that many
companies should focus on getting their sales managers to multiply
the effectiveness of the sales team and not just add to it through
their own selling.

We noted previously that 40 per cent of companies believe they
need to improve their selling skills by at least 50 per cent over
the coming three years if they are to hit their business targets.
This will not come without effort and resource.

This is particularly true when one considers that an un-trained
sales team does not stand still – competitively, it moves
backwards. If sales organisations in motor finance have sound,
well-implemented key account strategies they will be safeguarding a
vital proportion of their sales result. If sales organisations
analyse the differential between new and existing business and plan
accordingly they will be much more likely to achieve the desired
result. And if those organisations monitor and improve the
quantity, direction and quality of sales activity then the result
will be bigger, easier and more predictable.

Get the basics right

Greg Standing

The case of County Leasing Ltd and another v East is a reminder
of the need to get the simple things right when enforcing
hire-purchase and loan agreements, such as calculations of arrears,
notices of termination and demands for payment, even where the
agreements are unregulated.

In this case, the parties entered into hire-purchase agreements
for two vehicles and a business loan agreement. East defaulted in
payment on each of the agreements and County purported to serve
notices of termination of the hire-purchase agreements and
repossessed the cars. 

dThe court found that the termination notices were
either premature (as East was not actually in arrears in relation
to one vehicle due to a set-off agreement) or had not been served.
Therefore it was County which was in repudiatory breach of the
hire-purchase agreements and liable for conversion of the cars.
Fortuitously for County, the court found that East had suffered no
capital loss as a result of the seizure, since to have obtained
ownership of the vehicles at the end of the agreements, East would
have had to pay more for the vehicles than their value upon
repossession. No evidence as to the cost of hiring replacement
vehicles had been put forward either.

The court also found that a clause in the business loan
agreement obliging East to pay, on termination, the outstanding
principal amount plus interest for the entire outstanding period of
the loan was a penalty clause and so was unenforceable. However,
that finding did not mean that there had been no valid demand for
payment (which included both the principal sum and interest) under
the clause.

Whether or not a demand is valid will depend on the terms and
conditions of the agreement which will state whether or not it is
necessary for the demand to state accurately the amount due. If it
is not necessary, then a statement of the correct sum due is not
required for the demand to be valid. A demand for an amount in
excess of that actually due will not necessarily render the demand
ineffective. There had been a valid demand here, albeit that the
lender was only entitled to a much reduced amount. 

How to avoid trouble

Check all balances and any side agreements with borrowers to
ascertain the true financial position before notices of termination
are issued. Make sure processes for service of termination notices
are in order, followed and documented. Check the terms and
conditions to see what needs to be included in any demand for
payment. Of course, where the agreement is regulated by the
Consumer Credit Act, the provisions relating to default and
termination notices will need to be followed to the letter.

The author is a director in Wragge & Co LLP’s Finance,
Insolvency, Recoveries and Sales team

Motor Finance Issue: 42 – April 08
Published for the web: April 23 08 16:19
Last Updated: April 24 08 14:4