It’s the classic sales dilemma: How much time should you spend acquiring new customers vs. retaining existing customers?
A new study by Professor Carter and colleagues found some surprising results: On average, salespeople in their sample spent 9% too much time acquiring new customers, which represents a loss of nearly 11% in annual sales per salesperson.
Here’s what the research tells us how to optimize your time spent acquiring vs. retaining customers.
The strategies used to determine time spent on customer acquisition
In general, companies use three types of strategies when determining how much time their sales teams spend on customer acquisition activities:
- Firm-level customer acquisition allocation: a uniform customer acquisition allocation across all salespeople in the firm.
- Supervisor-level customer acquisition allocation: a uniform customer acquisition allocation for salespeople set by their supervisor.
- Salesperson-level customer acquisition allocation: an individual customer acquisition allocation based on each salesperson’s optimal performance.
Looking at data from 227 salespeople, 106 of their supervisors, and their prospect/customer databases, the researchers examined the relationship between the time spent on customer acquisition and sales performance.
The results found that on average, salespeople spent 54% of their time on customer acquisition activities. In this sample, 67% of the salespeople are misallocating their time and hurting their sales, with 49% over-allocating their time and 18% under-allocating their time to customer acquisition.
Firm-level customer acquisition allocation
If customer acquisition allocation was set on the firm-level optimal level of 45%, the average salesperson’s annual sales would increase by $239K (a 10.6% increase).
Supervisor-level customer acquisition allocation
If each supervisor sets their sales team acquisition allocation to the supervisor’s specific optimal level, the average salesperson’s annual sales would increase by $409K (an 18% increase).
Salesperson-level customer acquisition allocation
If each salesperson set their acquisition allocation to reflect his or her own optimal level, the average salesperson’s annual sales would increase by $541K (a 24.0% increase).
(Carter et al., 2014)
Using a salesperson-level allocation strategy is clearly the winner. So how do you determine what a salesperson’s optimal customer acquisition allotment should be?
The factors that increase customer acquisition success
Carter and colleagues looked at factors believed to increase customer acquisition success including:
- experience: years in the current position
- product knowledge breadth: understanding of the company’s products and matching solutions
- job commitment: likelihood of leaving the company within the next five years
- prospect quantity: total number of prospects in their funnel
- prospect quality: proportion of prospects from cold calls
Surprisingly, salespeople experience did not affect the relationship between acquisition time spent and sales performance.
Product knowledge breadth
Salespeople’s optimal acquisition time allocation increases as their product knowledge breadth increases. For salespeople lower in knowledge breadth, their optimal acquisition allocation is 35% of their time. For salespeople higher in knowledge breadth, their optimal acquisition allocation is 48% of their time.
This means for salespeople lower in product knowledge, the majority of their time is spent more effectively working on retaining existing customers, whereas for salespeople higher in knowledge breadth, their performance is maximized when they split their time evenly between acquiring and retaining customers.
Salespeople’s optimal acquisition time allocation increases as their job commitment increases. For salespeople lower in job commitment, their optimal acquisition allocation is 38% of their time. For salespeople higher in job commitment, their optimal acquisition allocation is 48% of their time.
Somewhat counterintuitively, salespeople’s optimal acquisition time allocation increases as prospect quantity increases. For salespeople with fewer prospects in their funnel, their optimal acquisition allocation is 35% of their time. For salespeople with a greater number of prospects in their funnel, their optimal acquisition allocation is 49% of their time.
Salespeople’s optimal acquisition time allocation increases as prospect quality increases. For salespeople with prospects of lower quality, their optimal acquisition allocation is 38% of their time. For salespeople with prospects of higher quality, their optimal acquisition allocation is 46% of their time.
The data suggests that on average, salespeople are spending too much time trying to acquire new customers instead of retaining existing customers, and losing out on nearly 11% of annual sales revenue as a result.
Contrary to popular advice, the data show that implementing firm-wide customer acquisition targets is the least effective method of maximizing sales revenue.
Instead, setting customer acquisition targets customized to each salesperson would lead to approximately twice the sales gain compared to setting firm-level targets. Figuring out a salesperson’s optimal acquisition–retention trade-off should be based on his or her (1) product knowledge breadth, (2) level of job commitment, and (3) the quantity and quality of prospects.
If you’re not doing this, you’re probably wasting time on sales activities with diminishing returns and losing out on a lot of money.
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