Published in July 2005

Developing New Business
By David McNutt

A simple approach to healthy, organic sales growth.

     Business development is the focal point where the disciplines of marketing, sales, product or service development, and customer service are brought together to form a company’s new-account strategy. However, in a great many businesses, the matter of new customer or client acquisition is approached haphazardly. Often the core responsibility for new accounts is left to the owner or, in some cases, to the salespeople. When left to the owner, often the process is undocumented and not integrated into the company. When left to the salespeople, it often leads to poor account acquisition that hurts margins. The results are less than satisfying, more expensive than expected and generally inadequate from the standpoint of contribution to profit. In either case, improvements come not from strategy, but by accident.
    To work best, new-account acquisition must incorporate marketing messages, sales processes and product or service capabilities that converge to achieve specified business performance. The goal is to create new accounts with targeted margins, often without having to increase fixed costs. This process involves four simple but essential procedures that are formalized as part of the overall account acquisition strategy: Plan, Specify, Identify and Justify. 

    
    A Sample New Account/Client Specification:


   • Must be within 100 miles
   • Must potentially represent repeat business
   • Must have potential for service contracts
   • Must appreciate value versus being a price buyer
   • Must have a good pay history
   • Should be a recognized company that can be leveraged to acquire other customers
   • Minimum purchase volume of $25,000

    Most new customer/client acquisition efforts involve sporadic, unmeasured and usually unplanned investments. The cash spent on this type of effort consists of salaries, phones, free consulting, demos, administrative time, marketing communications and, sometimes, promotional or entertainment activities. In this situation, the “do what it takes to bring in the business” philosophy becomes the driver of the sales-force efforts. What is needed is a coordinated plan to measure results against expenditures.
     A strategic new-accounts plan describes sales goals in terms of target margins, expense structures and company capabilities, allowing the entire organization to understand and buy-in to the process. In fact, acquiring new accounts/clients should be a “core competency” of any company. It should be just as important as the manufacturing or customer-service core competency, but it can’t happen without a clear plan and specific goals.
    The second procedure is to decide what kind of account/client is desired. In the same way that a systems consultant writes a specification, a company must specify the type of customer it wants. This is perhaps novel to some companies that will take any customer or client who has a pulse and a checkbook. But is your business so undefined that you just want any account/client? What makes a good or optimal account/client for your company? Is the quality of revenue dollars the same across all of your customers? Or are there differences that represent potential volume growth with some while others are a one-time sale?
    As a general rule, no customer is just buying a product or a service. There is an underlying need, another specification, if you will, that optimally meets that customer’s objectives. The company must understand what the prospective account/client requires and must be prepared to invest in the expertise to meet that need. Understanding the account/client type and its objectives is a basic skill of asking, listening and translating this information into a profile of the account.
    After the initial profile, the next step is to quantify what type of business must be generated. Not all business or new accounts are equal. Without describing the customer in terms of revenue type and size, a company might find that its new-account efforts are focused on big projects. As we all know, big sales generally are more competitive, often result in lower margins and are harder to find because they are fewer in number. Smaller new accounts with lower volume potential may yield higher margins and a better return on invested resources. With the cost of an in-person sales call ranging from $100 to $300, the time and expense devoted to even modest account/client research can be justified easily.
    Once the new-account targets have been profiled, the third procedure is to identify specific businesses and screen the most likely prospects. Rich sources of information for identifying targets include press releases, trade articles, associations, marketing references and websites. Much can also be learned by talking to suppliers, competitors and other business leaders. Sometimes, talking to current customers can be a rich source of information as well. A few days devoted to secondary research can prove rewarding and result in a good list of candidates to consider.
    Narrowing the candidate list to a manageable number of qualified potential new accounts is an important part of the identification procedure. The list of qualified prospects should be ranked based on the depth of information you have of the prospect. Using good judgment and probability can help narrow the list. The top manageable number of candidates should become the initial target list. This number will, of course, vary based on the time allocated to the new business process.
    These qualifying activities should be performed on an ongoing basis, with the target list re-evaluated based on results and new information. Not every target prospect will become a new customer, and some will take longer to convert than others. Sticking to the planned list requires perseverance and commitment by management and salespeople to support the extra efforts that go into the process. Without upper management support, sales representatives will tend to revert back to old methods of prospecting and prospect hunting.
    Lastly, you must justify these efforts by measuring results. Companies that do not have a formal strategic new-account acquisition plan often will simply look at the top-line sales increase and, as long as the company is still experiencing a positive trend in profit growth, the results will be viewed as successful. However, a true justification of the new-account efforts is required to prove real success. The goals that were set should be evaluated on a three- to six-month basis, which is the most common sales cycle in our industry. Measures such as the number of new accounts, average sale size, gross margins, type and mix of costs, length of the project and payment history must all be analyzed against the targeted metrics. For example, if your overall objective was a contribution margin of $100,000 with no increase in fixed costs, was this achieved?
    To avoid incorrect focus by the business development and sales team, these results must be made public. Charting and publishing results will provide the team with an understanding of the cost of sales to secure a new account and its contribution to the company’s well-being. After all, it is quality new business that the new account process ultimately provides.
    A new account/client acquisition process requires a planned approach involving multiple departments and coordination. It is intended to take a company beyond simply increasing revenue volume any way it can. Using these simple procedures takes deliberate and thorough planning, with input from senior management and cooperation from everyone.


David McNutt, a member of Sound & Communications’ Technical Council, is based in Chicago and has been involved in many business sectors of the systems integration industry. Send comments to him at dmcnutt@testa.com.

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