Joining me on this episode is Ron Hubsher, Managing Director of the Sales Optimization Group, and author of Closing Time: The 7 Immutable Laws of Sales Negotiation. Among the many topics that Ron and I discuss are how Ron’s background in engineering led him into sales, how the sales process is like a manufacturing process, how to get more performance from your sales pipeline, and Ron’s seven laws of sales negotiation.
What’s your most powerful sales attribute?
Our referenceable client base, and walking the walk in our sales process.
Who is your sales role model?
Alston Gardner, Founder of TAS, Mike Bosworth, author of Solution Selling, and Robert B. Miller, author of STRATEGIC SELLING.
What’s one book that every salesperson should read?
Solution Selling: Creating Buyers in Difficult Selling Markets, by Michael Bosworth, or STRATEGIC SELLING: The Unique Sales System Proven Successful by America’s Best Companies, by Robert B. Miller, Stephen E. Heiman, & Tad Tuleja.
What music is on your playlist right now?
U2, and Jimi Hendrix.
ANDY PAUL: It’s time to accelerate. Hi, I’m your host, Andy Paul. Join me as I host conversations with the leading experts in sales, marketing, sales automation, sales process, leadership management, training, coaching, and any other resource that I believe will help you accelerate the growth of your sales, your business, and most importantly, you. Hello and welcome to Accelerate. Joining me on the show today is my guest, Ron Hubbard. Ron is managing director of Sales Optimization Group and author of a good book titled, Closing Time: The Seven Immutable Laws of Sales Negotiation. Ron, welcome to Accelerate.
RON HUBSHER: Oh, thank you, Andy. I’m delighted to be a guest on your show. I’m grateful to all your listeners as well.
AP: Well, it’s a pleasure to have you on the show. Take a minute, introduce yourself, and tell us how you got your start in sales.
RH: Yeah, I’m Ron Hunter. I run a company called the Sales Optimization Group, and we help world-class companies accelerate their sales by putting best practices into their sales organization. I have an engineering degree and by training I’m an engineer. I started a business, and that was how I got into sales. I always thought that, you know, there is a best practice and a best way to sort of manufacture a sale. When I was younger, I read every virtually every sales book I could get my hands on to try to figure out what were those best practices consistently.
AP: So were you a manufacturing engineer?
RH: No, just a regular old engineer, but I always thought there’s sort of a process and discipline and best practices in everything that can be done.
AP: So there’s oftentimes a metaphor that people use for sales which compares it to a manufacturing process. There are inputs which are in the form of leads, and output in the form of orders and the process in between, as you know, is like the manufacturing process. Do you subscribe to that point of view?
RH: I do. It’s kind of interesting. You know, when you look at a manufacturing process – and we work with some manufacturers, but we do a lot more with business services and a whole bunch of other companies like software and technology – if you want to manufacture a good product, you have to start with the right raw materials. If you don’t have the right raw materials, you’re just not going to get a great product. That starts with qualifying your leads. That’s something I know you talk a lot about, which is working with great, qualified leads. So, a lot of people will pursue an opportunity if someone can fog a mirror and their pipeline is kind of small. If they’re not in your sweet spot, though, you’re not going to get a high efficiency or the likelihood of manufacturing quality sales is low. So you want to start with qualifying leads. I call this an ideal sales fingerprint. You could fingerprint people and see, you know, this is exactly the kind of people who tend to buy your products and not those of your competitors. Start with that as your first step in the process. Then you want to make sure you’re going to have a great, long-term, profitable relationship. So, there are various stages and steps along the way.
AP: So, one of the things that manufacturers are concerned about is productivity. A sort of a fuzzy area in sales is what constitutes sales productivity? A part of that is understanding what sales performance is, but you look at productivity in the classic sense of a unit of output measured against the unit of input.
RH: So I think there’s a couple of things I think you’d be most asked. Most VPs of sales will say, “Quota Achievement.” That’s two ways. That’s the percentage of quota and the number of folks hitting that quota. So if you hit 100% of quota, and 100% of your folks were at that hundred percent, that’s probably the most good, and many people over-perform. If you’re lucky, or if you’re okay, you’ll hit your quota through that average. There are also various measures. You know, one of the things we always talk about is how in sales, we are always taught about a sales funnel, right? There’s a lot of stuff that comes in the top, but there is a much smaller amount that comes out the bottom. We always talk about flipping your sales funnel, so that you can start with a small number of materials, and then work up to larger deals. In your typical sales funnel, there are some deals that you know you shouldn’t even be working on. These are just bad investments. If we weed those out earlier on, we’d be much better off. There are other deals where this deal is dialed in for us. This is when we should win. If we don’t win, it’s because of something we’ve done wrong. Then there are other deals where if we do work them, we could probably win them. It’s sort of about allocating your time, eliminating the ones where you have no chance, turning those questionable deals into winnable deals, and making sure you win those dialed-in deals and expand them. This is all so you can have a smaller amount of inputs in the top. Andy?
AP: Yeah, I mean, I think so. I wrote a book about that called Flipping the Funnel, which I think was about that concept. One thing that is more prevalent these days is metrics like percentage of pipeline coverage, or height. So, you know, my pipeline needs to be 400% of my quota for the month if I’m a sales manager. However, hat seems to sort of go against what you’re just talking about with flip the funnel or, you know, it’s a focus and this is problematic. I see it in many cases where managers have these perverse set of incentives that encourage them to have more pipeline when – as you pointed out, maybe especially in the complex sale – you’re better off if you have fewer prospects that you can appropriately exploit.
RH: Right. It’s interesting because, you know, there’s nothing wrong with knowing what your phone numbers have to be. If you close 25% of your deals, your phone has to be 4X, which is a great sort of starting point, but you can get a little more precise. You know, there’s a certain sort of version 2.0 on that. Let me give you a great manufacturing example: We work with a paper company. They were founded in 1924 and they’ve been making paper the same way since 1924. To make a piece of paper, there are roughly 14 attributes. That will define any piece of paper, whether it’s with basis weight, the fluorocarbons that go into it, all those kinds of things. Then there’s a guy who tells you, “Hey, I’m looking for this type of paper.” You know, here are the five companies in manufacturing and it could be the most commoditized product if you let it be. So companies will call up and say, “Hey, I need this type of paper.” They’ll go through this guy, they’ll look at the top three or four companies and have them bid against each other. We always talk about how companies don’t buy price, companies buy risk. If your sales process can show you the least risky solution, then you’ve earned the right to demand a price premium. The people who buy large rolls of papers are typically called converters, and converters will take that piece of paper, print a name on it, and they will chop it up. If you’ve ever walked into one of your favorite fast-food restaurants, that sandwich that you buy comes wrapped in a piece of paper, right? You know, typically that piece of paper has a little bit of a wax coating on it and it’s cut into one-foot squares. What will happen is the paper manufacturer will say, “I need this number of tons of this type of paper, and it’s going to be used to produce wrap for sandwiches.” The converter will take that piece of paper and chop it into one-foot squares, print a burger type brand on it, and then ship it out. So you want to understand what the risk point is for that company.
The first point is initially the piece of paper. If that paper breaks on the production lines, that’s 10s of thousands of dollars of downtime, right? Or that wax buildup. As a paper is going through the machine that wax buildup causes that machine downtime, again, that’s 10s of thousands of dollars. You want to look at who’s price-sensitive to that. Is this decision being made by the procurement team or is it being made by the operational team? You can start weeding out your prospects. Who’s going to make the final decision? It’s really interesting. This is a case study that we did with one of our clients. This was by a company that was bought by a private equity firm. They had about 1500 prospects. In the entire world that they could sell to, we went through and ranked and scored each one of their prospects based on what’s an ideal sales fingerprint for us and who’s likely to buy from us on a long term basis. These guys are only probably shoppers, but they understand the value of having a perfectly perfect roll of paper. There are a few other attributes as well. I would recommend anybody do this in their pipeline. You can rank your prospect according to an ideal sales fingerprint. There are also unacceptable client profiles. If someone’s 90% ideal, then that’s an opportunity you should pursue and pursue with rigor and if you don’t win it, it’s probably something you’ve done and done not well. Other folks are sort of you know, 10% ideal and have 50% of the red flag profile or the annex. customer profile, and those are people who want to get out of your pipeline quickly. We’re working with this one customer. Over the years, I’ve met about 150 customers. In one year, we took them up to 225 customers. We grew sales 22% in the first year, and another 8% until the middle of their second year, just by using that simple technique of ranking people in our profile. That’s the kind of dramatic things that you can do. For people who know anything about the paper business, it’s a negative growth industry. The paper industry grows about 2.2% a year and if you factor in inflation and things like that, it’s a negative growth industry. That’s sort of a real-world example. Just by putting sales discipline and process in place, you can make tremendous results. There wasn’t a question of needing more pipeline. You need more quality, folks. That’s always a good second screen. So typically, you know, you need three extra for your quota to be in your pipeline. You actually need less than that, but you need the right type. You can have five or six sets of bad folk and it doesn’t matter, or you’re going to have three acts, and you’ll more than make your quota.
AP: Now, in those cases, were you finding that the ultimate deal sizes that they were getting were larger?
RH: Absolutely, because people understood the value that they were delivering. It’s winner take all in some businesses if you get a piece of the pie. In sort of dual-source or tri-source businesses, you end up getting 90% of the pie, right? In single-source businesses you get 100% of the pie, and people are ordering more materials, and then they get more customers. So that one converter who sold sandwich wraps to chain X, Y, and Z; they added on other chains to the quality. There’s access. So that goes back to the manufacturer and that paper manufacturer winds up getting bigger and bigger orders. You’re helping your customer be successful as well.
AP: But interestingly, you’re describing a situation that you had sort of less coverage on the pipeline. You were closing a higher fraction of the deals and the deals that you closed are larger. If you take that back and look at that from sort of a manufacturing point of view, I would imagine that one of the key metrics that they were doing in manufacturing was via footage of paper that they were producing per hour.
RH: Correct. Something along those lines. Yes.
AP: All right. So why don’t we measure the amount of revenue produced by rep per hour of selling time in sales?
RH: Yeah, you could, you could do that.
AP: You know, but why don’t people? To me that’s increasing productivity without adding any headcount. Instead you’re being more targeted on the counter or selling to your closing higher fraction, producing greater revenues. So obviously, the amount of revenue produced by your selling time went up fairly substantially, and that’s productivity. To me, productivity has nothing to do with attaining quota. That’s performance. What I want to know is what you think is the great gap with many sales leaders, and most sales leaders don’t understand this whole fraction about, you know, how many dollars of revenue was each rep producing per hour of sales time.
RH: Right? And, you know, and I understand that if you’re VP of sales because that’s how you’re measured. I mean, you know, I completely agree with you about improving productivity, but they’re always measured by quota. So, you know, by improving productivity, you’re going to get a net increase in the number of people hitting quota.
AP: So you then understand what your true capacity is within the resources you have for attaining a certain revenue number?
RH: Right? You know, if you think about how revenue numbers or quotas are typically assigned it’s like, “Here’s the number, we need to grow 10 to 15%, right? So I’m going to give that to you. Mr. or Mrs. VP of sales is going to dish out that additional quota plus a markup so just in case they don’t make it, the company still hits a quota. So they may assign, you know, plus 25% to their team, and then they’ll allocate it in different ways. That’s typically how it’s assigned. It’s assigned by what the business needs to do, as opposed to where they can improve productivity.
AP: This is something I’ve talked about and people in the audience probably tired of hearing me bring this up, but it’s the next real frontier in terms of how we manage sales. I worked in the business at fortune when I was much younger in my career and as managing sales teams, where I had the information because we worked in sort of defense business or part of the company’s defense business and we had to track everybody’s time, including sales reps, by the hour.
RH: Right. Right. You know, we can manufacture things within a millimeter. But when you try to manufacture sales, there’s so much variance on it. You can look at the same people selling the same products to the same customers, and one person can have a 50% close rate, and some have a 10% close rate on selling opportunities. It’s the same thing with discounting, right? Some of the same people selling the same products to the same customers, and one person will have a 50% discount rate, some will have a zero percent discount rate. So I completely agree. There’s a lot of upside potential when you put that process and discipline into sales.
AP: Oh, yeah. The upside is generating more revenues with existing resources. Absolutely. So let’s talk a little bit about sales negotiation, because this is what your book is about. I think it’s sort of interesting, you know, where does the selling end and the negotiation begin?
RH: That’s a great question. To me, they’re interrelated. Negotiation starts with the very first interaction and sometimes before the first interaction. You always want to think about closing with the first interaction you have with the customer. I always think there’s the overt negotiation and the covert negotiation. So the overt negotiation is, boy, we get down to this contract and we’ve got terms and conditions, we’ve got pricing, we’ve got a whole bunch of stuff, right? I put my thing on the table. Now we’re negotiating pricing terms. Right? That’s sort of the overt negotiation, but everything you do before then is just as important as you go down the sales process. So you want to be thinking about your negotiation strategy as you go through your sales strategy. What I always talk about is that there are two things you need to negotiate: You have to put up a superlative sales effort, but just because you put up a strong sales effort doesn’t mean you’ll negotiate well. It creates the potential to negotiate well. If you combine that with a strong negotiation plan, you’ll capitalize on your potential. If you have a weak or non-existent plan, you’ll squander that potential. If you put a poor sales effort in, there’s no negotiation process, there’s no magic abracadabra that I can tell you that’ll make up for a poor sales effort. So two things for negotiation success are the greatness of your sales effort and having a negotiation plan.
AP: Okay, so you said that negotiation starts with the beginning. I’m prospecting, where am I negotiating?
RH: You’ll be negotiating through the entire sales process. The single biggest mistake is that salespeople make is they’re not sure that they’re the buyer’s number one choice. So in a business to business sale, typically you’ll be competing with 2-5 other competitors and you’ll want to ascertain and make yourself the number one choice. If you’re not the number one choice, you’re negotiating to beat down the price of the real winner – your competition. So what you always want to do is be the number one choice and if you’re not the number one choice, don’t negotiate, because they’re easy to beat down the price. If you’re the number one choice, you want to think about how you’re going to command a price premium, how you’re going to deliver even more value to that customer, and make this deal even more profitable for you and more profitable for your client or your prospect.
AP: What’s that look like? I mean, again, you’re a sales rep, you’re at the beginning stages of just engaging and connecting with the prospect. So tell the audience what that means relative to when you start negotiations. What are you saying to the customer?
RH: So you know, there are things you’re going to want to know. What is the value of solving this problem to the customer? What’s going to happen if it doesn’t get solved? You’re going to want to quantify and create an ROI or payback value for them. You’re going to want to talk about the things that make you unique and how you help lower that risk. In your sales process, if you can show that you’re the least risky solution, then you’ve earned the right to command a price premium. Don’t lose any competition. You go on to the buying process, you’re going to want to know the personal agendas of each of the buying folks if you can. You’re going to want the decision-making process. You want to know any kind of compelling event that’s going to happen. You’re going to want to feel comfortable presenting a price premium to them later on.
AP: Reducing risk has been essential to selling, which I talked about in my first book. Yeah. Other factors you brought up as is understanding their needs, their wants, the value they’re going to see during the financial calculate all that, if agreed to, and I said as part by the prospect that I got the bind as you go through, then you set yourself up to negotiate from a position of strength.
RH: So, you know, we always talk about everything that we teach, compliments what they’re already doing. You know, there’s nothing that I sort of mentioned there that would be shocking or surprising to any seasoned sales representative.
AP: So we see more products that have previously been sold maybe as a capital expense are now sold as part of a subscription-based service. That seems like that takes away some of that price negotiation. Well, I mean, if you’re selling something for, you know, $200 a seat per month as opposed to this is a million-dollar thing that you’re going to buy, we don’t have a lot of room for negotiation now that this is a service providing thing.
RH: So I think that what I see in the B2B Software as a Service space is people still want the same discounts and they’re going to press you on that. If you have standard pricing, that’s fine. I have no problem with that. However, if you look at some of the most notable Software as a Service names out there, they discount 20%-50% all the time. That’s not unusual. Depending on the size of the deal, you know, even though it’s delivered as Software as a Service, it may be paid for differently. So if you’re working in a really large deal, you know, we might be a multi-million dollar deal. That certainly doesn’t change the way the application is delivered, but the way you may pay for it may be changed. You may want five years upfront. For smaller users, there may or may not be pricing flexibility, but certainly, everyone’s going to ask.
AP: Well, how does the negotiation strategy change if you’re selling in a SAS model versus the old, more conventional model that existed before for software?
RH: You know, it’s really interesting, Andy. It’s sort of like how every human being has the same amount of muscles and has the same number of bones. If you want someone who’s left-handed, that infrastructure doesn’t change. Every negotiation goes through the same seven steps, just how you customize and configure them will vary a little bit.
AP: So briefly, what are those seven steps of sales negotiation?
RH: Yeah. So the first is you have to be the buyer’s number one choice. We talked about how companies don’t buy price, companies buy risk. In your sales process, if you can show you’re the least risky solution, then you’ve earned the right to command a price premium. If someone calls you up and the person there asks about prices, you’ve got to walk it back and talk about “Well, what are your issues? What are you trying to accomplish?” You always want to be the buyer’s number one choice, you want to know the value you create. If you don’t know the value you create, you’re going to be left to defend the price. That’s going to put you in a reactive and negative negotiation position. So Andy, let’s say I’m trying to sell you something that’s going to cost $200 a month, and I don’t know if it’s going to bring you $10,000 worth of value, right? You want me to drop the price to $100 a month. You know, it’s going to take us three months of negotiation, to go back and forth over the price. You know, it’s going to take a lot of time. I’m going to have to go to my VP, we’re going to have to go through legal, we’re going to have to do 18 different things. By the time we get it solved, even if we were to give you hundred dollars a month – and I’m not saying we will and I don’t know what we’d want back in return – you’re already losing out on $40,000. Is it worth losing out on $40,000 to save $100 a month? So you always want to talk about the value created. That’s one of the biggest mistakes people do is they don’t know the value created so they’re left to defend the price.
AP: Or cost, right?
RH: Right, you’re talking about cost and that can get down to zero pretty quickly. There’s always someone willing to undercut you, so you have to know the value created, and a lot of our clients, when they start using a negotiation methodology, they get firm about talking about the value they create. So only about 5% of companies that we know of typically have an ROI calculator, and less than that use it. Typically, when we work with them, that number is greatly increased and you have to be able to – even it’s on the back of an envelope – talk about value. The way we talk about value to our customers, is by talking about what 5%, 10%, 15% reduction discounting will do to your share price. So for every client we do a share price calculator that says, “Hey, if you’re discounting by 5%, you increase your share price by $40 – or whatever the number comes out, depending on that particular brand.” You have to be prepared to resist squeezes. Know they’re coming, and in fact, be disappointed if someone’s going to squeeze you, right? Anybody worth their salt can squeeze you in a business sales negotiation. So you want to be prepared to resist squeezes.
AP: So here’s a structural question for you because this is something that that I see. Once the negotiation started, sales was no longer part of that. So, you know, what are you seeing out there? What do you recommend?
RH: Yeah, and you want to know the decision-making process upfront. So you know, when you’re working with your economic buyer, wherever it is, you’re going to want to be a team, you’re going to go and want to ask them what obstacles can get in the way.
AP: In my experience it’s more of a serial process. It’s very rare where companies are negotiating simultaneously with two competitors. I mean, real contract negotiations, right? It’s like gosh, the decision gets made subject to a final contract, but they make a decision on one party and then move forward with one party. If the negotiations don’t work out, they’ll go to the next one, but they won’t invest the effort to go simultaneous? I mean, what are you seeing in that regard?
RH: Yeah, so there’s always a backup. Absolutely. There’s also always the number one choice. And you want to make sure that you’re the number one choice. There are two parts to serial: With other companies and the other is within that company, right? So you’re going to want to know when it goes through legal and procurement, what are they looking for? What do we need to get to make them happy? How can we bring them on earlier on? If you’re going to go through procurement, how can we engage them? How can we make them look good? You’re going to think about those things in advance. You’re not going to get down to, “This deal’s worth x, this number of dollars per user per month.” You’re going to want to be proactive. That’s one way of differentiating yourself during the sales process. You have to know how you can create a competitive advantage. If you’re working with procurement and you’re working with legal, and you’re going seriously with another competitor, you can understand where you are in a decision-making process. So if you’re getting access to their legal and you’re getting access to procurement, you’re probably in a better position than that other company. I also like asking my clients if they were to take price out of the issue, who would be your number one choice? Why or why not?
AP: Okay, perfect. Now we can move to the last segment of the show. I’ve got some standard questions I ask every guest. So in this first question, it’s a hypothetical scenario where you’ve just been hired as a VP of sales at a company whose sales have hit a rough patch. The CEO is anxious to get things turned around and unstuck. So during your first week on the job, what two things would you do that could have the biggest impact?
RH: I would want to assess the sales talent. If it’s an old team or an established team, you’re going to want to assess who you’ve got on your team and where you can help them improve. Then, I want to make sure they’re working on the best opportunity, so I create an ideal sales fingerprint and scrub the pipeline. We see right away what we are working on and where we’re going.
AP: Okay. You just won the award for answering the question the fastest. Now some rapid-fire questions. You can give me one or two answers or elaborate if you wish. So the first one is when you are out selling your services, what’s your most powerful sales attribute?
RH: I think there’s a couple of things. The biggest thing is a referenceable client base. You know, we bring out some pretty heavy-hitting names, and it opens people’s eyes. I think our sales process is very thorough and we walk the walk. So a lot of times when clients bring us in it’s because they put the best sales effort in.
AP: All right, who’s your sales role model?
RH: Well, I have a couple of people who I always call my sales rockstars: Austin Gardner, who founded Taz; Mike Bosworth from Solution Selling, Bob Miller, Miller Heiman, those are my three big rock stars.
AP: Okay. One book besides your own, that every salesperson should read.
I would say Miller Heiman’s The New Strategic Selling or Mike Bosworth’s Solution Selling.
AP: So what music’s on your playlist these days?
RH: I’m stuck in the 90s and 80s, so YouTube is probably my biggest one. Will Hendrix is thrown in, which would put me in the 60s as well.
AP: Okay, that’s a good mix. I like that. Well, good. Well, Ron, thanks for being on the show. tell folks how they can connect with you.
RH: You can connect with me if you go to our website www.salesog. Send me an email at firstname.lastname@example.org
AP: Great. Well, good, Ron. Thanks again. being on the show. And remember, friends, thank you for taking the time to listen to accelerate today. And remember, make it a part of your day every day to deliberately learn something new to help you accelerate your success. And one easy way to do that is to take a minute and subscribe to this podcast, Accelerate. That way, you won’t miss any of my conversations with top business experts like my guest today, Ron Hubsher, who shared his expertise about how to accelerate the growth of your business. So thanks for joining me and until next time, this is Andy Paul. Good selling everyone. Thanks for listening to the show. If you like what you heard and want to make sure you don’t miss any upcoming episodes, please subscribe to this podcast on iTunes or stitcher.com. For more information about today’s guests, visit my website at andypaul.com.