Sales Journal eNewsletter October 2008

Why aren’t salespeople good listeners? It may be that they are so busy “selling” that they allow little or no time for listening. Sales training seminars and books have done a disservice to salespeople by counseling that the most important task of the salesperson is to ask good questions.

Good questions play an important role in most sales interactions, but if salespeople ask questions, and then immediately move onto another question or another topic before a customer answers, it’s no wonder they are pegged as poor listeners by many buyers.

Listening isn’t difficult, and it has come naturally to all of us for thousands of years. Just think about how you would listen if you suddenly found yourself alone, frightened and smack in the center of a dark, thick forest in the middle of the night.

Under these conditions you wouldn’t need any particular listening skills or a disciplined approach to listening you might have learned from a book or in some classroom – you would listen with every cell in your body!

Standing alone in the forest, with adrenalin pumping through your veins, you would be acutely aware of every sound in the forest. You would hear the sounds of wild animals in the distance, the scurrying of smaller animals around you, the wind sweeping through the trees, and the rapid pounding of your heartbeat accented by your accelerated breathing. Nothing would escape your attention.

If our ancestors didn’t have all the tools they needed to listen effectively, and didn’t use good listening skills to avoid the dangers of the forest, we wouldn’t be here today writing or reading this article!

So, how can salespeople, and the rest of us, become good listeners? It may surprise you to learn that the last thing I would suggest to anyone interested in improving their ability to listen would be to attend a class or read a book that advertises specific techniques or a disciplined approach to listening. Discipline is the last thing required for effective listening.

Next month we will explore a back-to-basics approach to listening that works. What you read will probably strike you as counterintuitive, and may even shock you. It will most likely shake the foundation of everything you’ve been taught about listening.

The Unprofitable Crisis

If you knew that between fifteen and forty percent of your customers took cash out of your pocket, would you continue selling to them? It’s no small wonder that more senior executives don’t pay closer attention to targeting profitable customers and eliminating the unprofitable ones.

Several studies conducted by the Harvard Business School and top-flight consulting firms prove that nearly all companies have customers that cost them cash out-of-pocket. In fact, it is clear that oftentimes 15% to 20% of a company’s customers subsidize its unprofitable customers and contribute most of the company’s net profit. So, why is this allowed to happen?

As senior managers respond to pressures to increase profitability and market share, they often view increased sales as the most efficient way to improve the bottom line and expand their share of markets. Unfortunately, this strategy often backfires, resulting in declining profits.

Why does profitability often decline as sales revenue increases? Blame it on the tactics employed to increase sales volume. To increase sales, many senior executives authorize special buying programs, prizes, rebates or quantity purchase discounts designed to expand appeal to a wide variety of customers. The problem occurs when the wrong customers, the unprofitable ones, take advantage of the special offers.

The wrong customers are generally unprofitable because they only buy when prices have been reduced, and they usually demand high-cost, extraordinary services that drain company resources. Worse, these customers are often higher credit risks.

Another side effect of the tactics employed to increase sales volume is the propensity of competitors to match price cuts, prizes, rebates and purchase discounts. This usually leaves competitors selling the same overall number of products and services to the market, but at lower prices and reduced profitability.

As margins decrease because of lower prices and increasing costs, companies are forced to sell aggressively to increase sales volume just to earn the same profit they earned before prices were reduced. This vicious cycle, once set into motion, disappoints investors, stockholders, company employees and the senior executives who sponsored the sales growth strategy.

Until recently, a lack of technology and the absence of proper analytical methodology made it extremely difficult to measure and understand the profitability of individual customers. Financial information designed for external users like banks and investors was little or no help in analyzing the true profitability of customers.

Today, fortunately, computing power and accounting procedures make it possible for senior managers to determine the relative profitability of products, product groups, and individual customers. Further, it is possible to measure customer profitability on a real-time basis.

As astute managers become aware of the processes and tools available to measure customer profitability, and the potential impact these can have on the bottom line, they will use these processes and tools to their competitive advantage and will stop selling to customers that continue to take cash out of their pockets. There will be little or no excuse for selling to unprofitable customers.

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