Sales managers may assume that their sales staff will set their sights on the biggest deals they can close when their compensation is tied to sales commissions.
But it turns out that sales professionals avoid chasing “big whale” sales in favor of lesser deals with more assurance of converting the sale, explains sales management expert Son K. Lam, a professor of marketing at the University of Georgia Terry College of Business.
“There are rewards to closing big deals — both external rewards, like compensation, and intrinsic rewards, like pride and feelings of accomplishment,” Lam said. “But at the same time, there’s a cost element.
“A big deal will consume a lot of effort and resources — so there’s a bigger cost to pursue large sales leads. Then there’s also the opportunity cost — if you go after the big whale, you could lose your small and medium-sized fish.”
The problem is that companies need to close big deals and small deals to meet their bottom line, so it pays to have salespeople who will pursue both.
Lam is fascinated by the ways sales professionals apply their judgment and decision making to their work. His paper, Why Salespeople Avoid Big-Whale Sales Opportunities, was published online in July by the Journal of Marketing. It is the first study to examine sales prospecting using psychological judgment and decision-making theory.
For this international study, he worked with Juan Xu at NEOMA Business School in France, Michel van der Borgh at the Copenhagen Business School in Denmark and Edwin J. Nijssen at Eindhoven University of Technology in the Netherlands.
The research team theorized that salespeople often avoid large deals despite the promise of higher sales commissions and sought greater understanding of the factors that fed into their thought processes.
In one of the three studies reported in the research article, they analyzed a customer relationship management (CRM) data set, tracking the lead lists and follow-through of 173 salespeople for a global lighting supplier.
Lam and his co-authors showed that the sales professionals’ initial perception of the size of the deal and the certainty of closing the deal mattered.
“Salespeople are risk-seeking when the deals are small to moderate, but risk-averse when the deals are large,” said Lam, who holds the Terry Dean’s Advisory Council Distinguished Professorship.
Surprisingly, this pattern was even more pronounced if a salesperson had performed extraordinarily well in the prior sales cycle. Lam said a salesperson who just had the best year of their career would pursue and perform best with moderately sized deals that were fairly certain.
“Usually, when you have been winning, you may become more risk-taking because you believe you are playing with house money and have a better chance of continuing a winning streak,” he said. “But salespeople typically don’t do that because they have limited resources.
“Their time, their effort and their social capital are limited. So, salespeople tend to be less risk-seeking even when they’ve performed exceptionally well in the previous sales cycle. They need to conserve their resources to reset their energy levels.”
By contrast, salespeople who were lagging behind in the prior sales cycles tended to pursue and perform better with the riskier, big whale deals. Lam believes they are less risk averse because they feel the need to prove themselves to their firm.
These patterns didn’t hold for the most experienced salespeople. They didn’t chase big whale sales, but performed best with less-certain deals of moderate size, Lam said.
“They have more resources, more contacts within the company,” Lam said. “They are not under the same kind of resource constraint that less experienced salespeople face. That changes the cost-benefit analysis.”
More experienced salespeople had built up goodwill and better connections that helped them convert the moderately risky deals more quickly and smoothly.
The takeaway is that companies can’t merely rely on larger commissions if they want salespeople to close bigger deals, Lam said. They need to address the sales staff’s resource constraints.
“If you want salespeople to go after the ‘big whale’ you have to change that cost-benefit calculation,” he said. “You have to provide them with more resources, pair them up with someone more experienced or take away their administrative tasks so they have more time to follow-up and work with customers.”