Sales Arbitrage – Coming Soon to Organizations Near You
Many of us are grateful 2020 is in the rear-view mirror! The hope of a new year is mixed with increased pressure to drive higher sales performance from our teams. We’re holding sales kick-offs to motivate, and perhaps filling outstanding headcount with new hires. It is a golden moment, one that brings great optimism for the year ahead – right?
For those of us responsible for making higher performance a reality, many questions will have to be answered head-on. Will you be able to get more out of your sales team than you did last year? Will your salespeople be motivated and improve on last year’s quota attainment? Will my new hires perform, and how long will it take them to ramp-up? What can be done to ramp them faster?
Before going any further, I want you to imagine what would happen if every one of your salespeople reached 75% or even 85% of the quota? Would you make your number? How much more secure would you feel in your position? Would you be more optimistic? What if 100% made quota. Yeah, now we’re just dreaming!
But seriously, what is possible? With the fixed sales costs of sales headcount, how do you optimize your sales team’s performance? Welcome to the world of Sales Arbitrage.
So what is Sales Arbitrage?
I am sure every one of you has heard of Arbitrage. For those who haven’t, Wikipedia states the following:
“Arbitrage is the purchase and sale of an asset in order to profit from a difference in the asset’s price between markets. It is a trade that profits by exploiting the price differences of identical or similar financial instruments in different markets or in different forms.”
OK, I got that, but how does this relate to sales. As sales leaders, we have a fixed budget, a set revenue quota, and a pool of salespeople to attain it. If we have an open headcount, our goal is to hire salespeople to maximize revenue return. We may also manage our salesperson pool and replace those who are underperforming with new ones—this process, even when unconscious, is the act of carrying out sales arbitrage.
Sales Arbitrage does not require superpowers
You do not have to give your sales team superpowers. You do not need to provide them with all of the best sales tools, software, or gizmos. You need to strategically optimize how you both hire, cut, coach, and position your sales team to maximize revenue potential.
Every sales team has a few superstars, a few mid performers, and some people who never entirely made the impact you’d hoped for. There are also those that distract and make your life as a sales leader way more complicated than it should be. This is the way of sales, and if your team resembles this, you are not alone.
The problem is, you don’t have access to the data that will help you make the decisions that will help you optimize your sales team for greater success. You cannot make data-driven decisions on who to cut, who to hire, or who to persist with. You cannot articulate why your superstars perform or why some new hires never live up to the promise?
So what can I do?
You can use Sales Arbitrage to manage your sales team. Sales Arbitrage can be broken down into five steps.
1. Predict Performance
The first thing you need to be able to do is to predict performance. How many of my salespeople will make their revenue quota, and who are they.
To do this, you need to understand what qualities and attributes both contribute and hinder a salesperson from succeeding in your company. What behavioral and psychological aspects make your top performers superstars, and what makes your under-performers, well underperform?
Machine Learning and AI analyze the relationship of these attributes against your Sales KPIs to determine what drives a salesperson’s success in your company. Resulting in a prediction of salesperson performance based on that KPI.
The outcome being a performance fingerprint that predicts how a salesperson will perform in your organization, selling your products to your customers. This fingerprint is then used to determine who to hire, who to promote, who to cut, and how to coach.
2. Understand where a salesperson fits
Now that you know how a person will perform in a specific role, we can use the sales arbitrage matrix to help us make decisions. The matrix is a performance heat-map designed to help identify where an individual fits, how they should be managed, and what actions can be taken in regards to their careers.
The value of this matrix becomes apparent when you plot your sales team’s actual and predicted performance.
3. Manage the Ins and Outs of Your Sales Team
Having mapped your predicted and actual performance, you can start to make decisions about who to keep and who to cut. You can predict how much additional revenue you would make if you replaced three low performers with mid performers. You can also determine the attributes critical to a salesperson’s success and determine the coaching required to improve the performance of those who have not reached their predicted potential.
4. Validate then Rinse and Repeat
Sales arbitrage will never be a one and done process. It requires continued learning and refinement over time. The sample size of salespeople will dictate the accuracy of the prediction, and there will always be outliers. That said, the confidence in the process is in excess of 75% accuracy and, in many cases, greater than 85%. As you run your business the model is improved and continuously updated.
The Value of Sales Arbitrage
The goal is to use Sales Arbitrage as a critical driver to your sales strategy. It enables you to maximize your revenue earning potential from a given amount of cost. We are all concerned about our Customer Acquisition Costs (CAC) and Customer Lifetime Value (LTV). Maximizing your revenue attainment from your fixed sales team’s costs is a critical lever you can use to influence both.
If you’re not investing in Sales Arbitrage, your competitors will be
Do we ever spend too much time or thought maximizing our sales team’s potential as sales leaders? The likely answer to this question is no!
Sure, we have a quota to manage, and we hire new sales talent hoping that the person will be successful in helping us reach it. We also cut salespeople on occasions based on missed quotas. But our thought process is rarely strategic, and we do not plan the dynamics of our sales team.
With sales arbitrage, we can now let data drive the decisions we make around our sales team’s structure and control the levers that will drive our success. The result is a greater return on our investment.
Mat Tarbuck is one of the founders of Sellicity Inc. He has a passion for data science and works with customers to improve overall sales performance. In the past, Mat has developed and taken software companies to market in both the US and Asia.