This post originally appeared here in the salesforce.com blog.
Someday, somewhere, someone is going to write the Official Sales Dictionary. And it’s going to be awesome. Salespeople, sales leaders, sales trainers, sales operations, sales consultants, and everyone else will know with certainty what the other person is talking about. Communications will be streamlined, and directions will be clear.
However, that day has not yet arrived.
Ambiguity Is a Problem
Along with such ambiguous terminology as “sales coaching,” “sales process,” and “sales enablement,” we find three terms that are used interchangeably in everyday conversations: “sales productivity,” “sales efficiency,” and “sales effectiveness.” For those of us in the sales improvement business, these terms are quite satisfying to use because they imply some level of rigor, precision, and measurability. However, they are all three used rather loosely to describe almost any type of sales improvement. And that’s where the problem begins.
Productivity, efficiency, and effectiveness are NOT the same things in a sales team, and knowing the difference is critical to managing each. I thought it might be useful to put some definition around the terms because it has assuredly helped me in my career to think of them as distinct. It enables a much more thorough analysis of sales force issues and provides structure to sales improvement initiatives.
The simplest way to express the differences between productivity, efficiency, and effectiveness is with a formula (because formulas make things, you know… rigorous, precise, and measurable):
[ Productivity = Efficiency x Effectiveness ]
Sales Productivity
In my definition, sales productivity is the product of the other two factors: sales efficiency and sales effectiveness. Productivity is the ultimate goal of any sales improvement effort — when you improve the efficiency or effectiveness of your salespeople, their productivity unavoidably goes up. In the research that fueled our book Cracking the Sales Management Code, we found companies were measuring sales productivity with metrics such as ‘revenue per rep’ or ‘percentage of reps above quota.’ In the most basic terms, productivity is the output of your sales team.
Sales Efficiency
Sales efficiency is about the prudent allocation of sales resources. These resources could be anything from a financial budget to a computer network, but without question the most precious resource in any sales team is time. Time does not discriminate — everyone has exactly the same number of hours in the day. So, achieving sales efficiency is principally the challenge of maximizing the amount of productive time that your sales team has in a day. Eliminate low-value activities, replace them with high-value activities, and your efficiency will be on the rise. Sample metrics of efficiency might be ‘number of sales calls per rep’ or ‘frequency of customer contact.’
Sales Effectiveness
Sales effectiveness is not about how you allocate your sales force’s resources — it’s about how potently you utilize them to achieve your goals. If you can find a way to squeeze in 20 additional prospecting phone calls for your reps each week, then you’ve accomplished the aforementioned feat of improved efficiency. How skilled your reps are at executing those phone calls is a sure measure of their effectiveness. A more effective salesperson might produce ten qualified opportunities from those 20 calls, while a less effective seller might only create five. More effective salespeople will yield a higher output from the same level of effort because they just do the task better. Sample metrics of effectiveness might be ‘deal win rate’ or ‘percentage of successful sales calls.’
Someone once described the distinction between efficiency and effectiveness in this way: Efficiency is about knocking on as many doors as possible; Effectiveness is about what you do when the doors open. You could call it a dichotomy of ‘Will versus Skill’ or ‘Braun versus Brain,’ but the important thing is to understand that there are two different forces at work that influence the productivity of your sales team.
Two Paths to Improvement
Of course, improving both efficiency and effectiveness is the ultimate objective of good sales management, but you should approach these two factors in decidedly different ways. Improving efficiency is often the easier of the two tasks, since it can be accomplished by simply shuffling tasks on the calendar to make room for more productive effort. Truly, efficiency can be improved today with just a little thought and discipline.
Effectiveness requires a lot more effort to improve because it involves the development of additional capability on the part of your sales team. Whether that incremental capability comes through training, or coaching, or the implementation of new sales tools, there’s almost always a period of learning and adoption that must be endured to reach higher levels of sales effectiveness. Regardless, you always want to be trudging forward on both fronts.
Sometimes you can use the formula above to literally calculate sales productivity. For instance, if your team makes 1,000 sales calls each week (a measure of efficiency), and each call yields $50 (a measure of effectiveness), then productivity for the week will be $50,000. However, the value in distinguishing the terms is really in knowing where your sales improvement efforts are exerting force. The software you buy to improve the efficiency of your sales might not have any impact on its effectiveness, and vice versa. Knowing the difference is critical to good planning.
The differences between sales productivity, efficiency, and effectiveness are subtle but important:
- Sales productivity is boosted by improving the efficiency and effectiveness.
- Efficiency is comparatively simple to improve because it is often just a re-allocation of current salesperson effort.
- Effectiveness can be much more challenging because it requires improved salesperson capability.
To-date, no one has written that Official Sales Dictionary, and it sure will be useful when it comes. Perhaps these terms will be the first three entries.