This article was originally published on HBR.com.
Many industries have had to downsize sales forces. There are several reasons for recent sales force job cuts: Shifting market dynamics are one cause, including changing customer needs, customer consolidation, new buying channels, and slowing market growth. Merck recently publicized that it planned to lay off about 1,800 U.S. sales reps following an industry-wide downsizing trend. The trend is attributed to the growth of digital communication channels and reduced access to physicians, who increasingly prefer to get product information online.
Changing company strategies is another, including new strategic product/market priorities and shifts to e-commerce. Microsoft recently reported it was cutting up to 4,000 global sales and marketing jobs and refocusing field sales effort on specialized growing markets in cloud computing, data analytics and artificial intelligence. At the same time, sales of simpler products were moving to lower-cost channels.
The desire for productivity improvement is a third reason, which includes eliminating inefficiencies and nonproductive sales time and reducing the cost of sales. Recently, Anheuser-Busch announced it would eliminate 300 U.S. sales jobs from its high-end craft beer division. The goal was to simplify the sales organization following multiple acquisitions and to give customers a single point of contact.
No matter the reason for cutting sales staff, a sales force downsizing is stressful and emotionally draining. Unfortunately, too often sales forces downsize for the wrong reasons or implement the downsizing poorly. The result is a loss of key customers and good salespeople and a substantial drop in sales performance.
Here’s how to avoid five of the most critical sales force downsizing errors:
- Error No. 1: Downsizing to save costs while ignoring the revenue impact: Companies eliminate too many jobs when they let cost savings, not revenues, dictate how many salespeople to cut. The sales force is a revenue generator; its size directly affects the top line. The cost impact of downsizing is easy to estimate and is realized quickly. The revenue impact is much more difficult to predict, but rest assured: Having fewer salespeople will generate less revenue. Incremental revenue loss from a sales force reduction accrues slowly and accelerates with time as loyal customers eventually stop buying.
To avoid excessive downsizing, link sales force size to customer coverage needs. Avoid excessive cuts by estimating costs and revenues over a minimum three-year time horizon.
The solution: Recognize that when you downsize the sales force, you downsize your sales, too.
- Error No. 2: Downsizing through multiple waves of layoffs: Gradual sales job reduction can be effective when the need to make cuts is not urgent and the process is well-managed. For example, companies sometimes avoid massive layoffs by implementing temporary hiring freezes for low-potential sales territories or by proactively eliminating poor performers. But too often, companies cut a few sales jobs and hope for a market turnaround that never happens. This leads to multiple waves of layoffs and continuous disruption to sales relationships. Amid the uncertainty, many of the best salespeople depart, leaving behind a less-effective sales team. Assuming the opportunity decline is fairly certain, companies should reduce their sales force all at once to increase the odds of holding onto their best salespeople and customers.
The solution: Measure twice, cut once.
- Error No. 3: Slashing jobs without rethinking sales strategy: When faced with downsizing, companies often feel tremendous time and cost pressure. However, downsizing without a strategy for how to meet customer needs with a leaner sales team leads to lost opportunity.
It isn’t realistic to expect fewer salespeople to work harder and smarter and to accomplish the same work the larger sales team performed. Meeting customer needs with a smaller sales team requires redefining how work gets done. Perhaps responsibility for smaller customers and simpler sales tasks can move to inside and digital sales. In that case, the downsized sales team could focus on major customers and activities for which salespeople add significant value. Defining a sales strategy up front greatly increases a company’s odds of emerging from a sales force downsizing well-positioned to defend strategic business sectors and realize key growth opportunities.
The solution: Do less with more focus.
- Error No. 4: Allowing downsizing to divert salespeople’s attention away from customers: It’s easy to understand how the uncertainty of sales force downsizing can distract from serving customers. Proactive steps can reduce the impact of this distraction. To start, make a list of key customers (for example, those contributing 80% of profits). Minimize the disruption of salesperson relationships with these customers. For key customers that must be reassigned to another salesperson, create a transition plan. Ask a sales manager to participate in the transition. Use coaching and CRM systems to help the replacement get up to speed on the customer’s needs quickly. If downsizing requires customers to buy differently (say, using digital channels), educate customers about how to use these channels. Use performance management and incentives to keep salespeople focused on important sales activities and customers.
The solution: Focus on your customers, or your competitors will.
- Error No. 5: Underinvesting in salespeople’s continued success: To keep the sales team strong, make a list of top-performing and high-potential salespeople. Reassure these people early on that they will have a job. Create a retention plan for each key person. Once the smaller sales team is in place, help salespeople adapt to the many changes they will face. Realign sales training, coaching, compensation, performance management and sales tools to support the remaining salespeople in their expanded or redefined sales roles.
The solution: Communicate that it is not the strongest who will survive, but those who can change.
By using a purposeful and strategic process for implementing a sales staff reduction, and by avoiding some common errors, you can emerge from a downsizing stronger and better positioned for future growth.