I recently asked a friend, Dave, how his company was faring in the current economic downturn. When Dave replied that sales were below projections, I asked him about his CEO’s strategy for coping with declining sales revenue.

Dave told me that he didn’t think the CEO had a strategy. Instead, Dave told me that the CEO simply instructed the sales team to “Go out and round up as many new customers as quickly as you can find them.”

Dave is right. Rushing out helter-skelter looking for new customers isn’t a strategy; it is an ill-advised sales tactic born out of desperation and doomed to failure in an unforgiving economy. Worse, this predictable, knee-jerk reaction to slowing sales isn’t likely to help solve a sales revenue shortfall and may, in fact, contribute directly to vanishing profits and a company’s demise.

Every sales organization should plan on losing about 20% of its customers each year through natural attrition. Seeking out new customers, then, should be a natural part of an overall sales revenue strategy.

Dave’s CEO, however, in mandating that his sales team seek out and convert as many prospects into new customers as quickly as possible, has unwittingly unleashed a war of attrition on the company’s current customers. Here’s why:

Sends The Wrong Message To Customers

According to a recent survey conducted by Robert Half International, bad managers get the blame for most defections at U.S. companies; even though senior executives profess that employee retention is their No. 1 concern.

When polled by Robert Half International, senior executives cited unhappiness with management as the primary reason for losing top performing employees. These same managers listed limited opportunities for advancement and lack of recognition as the next most important reasons for the defection of top performers.

Surprisingly, inadequate salary was cited by only 13 percent of the executives as a prime reason for the exit of execptional employees.

There are only so many superstars available to all departments of U.S. companies. In the selling organization, defection of sales superstars should be particularly worrisome for senior executives. Like all superstars, there aren’t enough top performing sales professionals to go around, and they are rarely looking to peform their magic under bad managers.

This reality makes it crucial that senior managers not allow bad managers to drive away top talent. The fact the senior managers are often the cause of top performer defections is a topic for another day.

We have learned in talking with our clients, especially during these difficult times, that the lament, "Sorry, we have no budget," is just a starting point for what can turn into a fruitful conversation that benefits both the seller and the buyer.

As a senior executive or senior sales leader, how do you respond when your sales professionals tell you that their buyers are telling them that their companies have needs, that they'd like to do business with your company, but they have no budget for your products or services?

Sales Hurdles

In talking recently to an influential, mid-level manager at an international IT consulting firm, we were told that an important initiative we had been working on with the manager had been taken off the table for 2009, along with several other initiatives approved in 2008. He explained that he had no budget for something everyone in the sales organization acknowledged was critical to the future success of the sales team.

The manager went on to explain that in order for anyone in the company to receive approval for any expenditure in 2009, or at least until further notice from the executive suite, those who requested funds would have to answer three critical questions:

Anyone who has managed salespeople has made hiring mistakes. At one time or another all of us have found ourselves unable to resist hiring a candidate who seemed to be a sales superstar, even though our intuition made us uneasy or something in their story just didn't jibe with reality.

Today, more than at any time in the last 80 years, business success will depend on getting the right people on the sales team and making sure they are doing jobs that best use their innate talents.

Avoid the Myth of the "Sales Personality"

When managers want to hire sales superstars, they tend to hire people with stereotypical sales personalities—people who are outgoing, talkative, personable and gregarious. And because sales managers, for a host of reasons, prefer this personality type for their teams, they convince themselves that customers will prefer them as well.

This so-called "sales personality" is a myth. Belief in this myth may be as responsible for bad hiring and disastrous promotions by employers, and poor performance by salespeople and sales managers, as anything else in the sales talent management equation.

Almost no one appears to be immune from the world-wide economic quagmire that threatens our prosperity for at least the next several years. Since it appears that we really are all in this together, it may be time to revisit the five rules I learned for playing Win-Win with customers.

Rule #1: You must promote open, honest communications.

Rule #2: Both parties must want to play Win-Win. Win-Win doesn’t mean you or your customer wins twice!

Rule #3: Your product or service must “fit” the customer’s wants, needs and ability to pay or perform.

Rule #4: As a sales professional, you are responsible for understanding WIIFM – the what’s-in-it-for-me for you and for your customer.

Rule #5: If it becomes obvious that a sale would harm one or both parties, you must be willing to walk away from the opportunity.

Explaining the rules of playing Win-Win to customers can be an effective tool for communicating your desire for mutual cooperation and qualifying your customer’s intentions. It also may help you and your customer survive, maybe even prosper, during these difficult economic times.

In business, the Golden Rule has often been interpreted as “He who has the gold makes the rules.” Today, in this unprecedented economic environment, it’s the CFO in most organizations who hovers over corporate gold reserves and who helps write the rules for doling out the gold bars.

If sales professionals aren’t acutely aware of a new economic decision maker who is lurking behind most B2B purchasing decisions, they may be missing opportunities to make sales they are now losing.

The unseen economic decision maker in many purchasing decisions today is the CFO, and according to a recent survey by Duke University, most CFOs are worried, if not downright depressed by the prospects for the economy and for their companies in the foreseeable future.

In the Duke University survey, CFOs in the U.S. and around the world responded with unprecedented pessimism about the expected performance of their firms in 2009. Not only did most of the respondents say that they will cut spending and employment in 2009, and that their firms will post losses for the year, but nearly two thirds of the CFOs expect the world-wide recession to last another year.

Some well-meaning sales consultants, unfortunately, are offering inane advice to sales professionals about dealing with what appears to be a world-wide, long-term economic malaise that is changing the game of sales. I recently read an article by a consultant who advised four steps for increasing sales in the current economic meltdown.

He admonished sales professionals to “stop procrastinating,” which begs the question Yoda might ask: “Get anything done when you procrastinate, do you?” The consultant then advises sales professionals to “get organized.” Again, I can hear Yoda asking “How many sales can you make when disorganized you are?”

His third piece of timely advice: “energize your attitude.” How many sales are made by salespeople with obvious poor attitudes? Finally, the consultant advises sales professionals to “start prospecting.” This is usually sound advice that helps prevent an empty sales funnel; but under current economic conditions, be careful about prospecting for new customers who have difficulty paying their bills or are headed to bankruptcy court.

My three-word response to this consultant’s advice: Feel-good-flapdoodle. If ever there was a time to face the facts of the new reality for sellers - Just the facts, Ma’am - it’s now.

The Facts:

If you knew that between fifteen and forty percent of your customers took cash out of your pocket, would you continue selling to them? It’s no small wonder that until now more senior executives haven’t paid closer attention to targeting profitable customers and eliminating the unprofitable ones. The current economic environment almost guarantees that CEOs and CFOs will focus on customer profitability in the immediate future.

Several studies conducted by the Harvard Business School and top-flight consulting firms prove that nearly all companies have customers that cost them cash out-of-pocket. In fact, it is clear that oftentimes 15% to 20% of a company’s customers subsidize its unprofitable customers and contribute most of the company’s net profit. So, why is this allowed to happen?

As senior managers respond to pressures to increase profitability and market share, they often view increased sales as the most efficient way to improve the bottom line and expand their share of markets. Unfortunately, this strategy often backfires, resulting in declining profits.

What would you do if the sales consultant you hired to help increase your company’s profitability told you to fire some of your best customers? You would listen, if your sales consultant was our customer profitability expert, Jim Lambert.

Jim reminded me about recent studies that indicate that at least 15% of a company’s customers actually cause out-of-pocket losses to the seller. It is no small wonder that more executives don’t focus on the profitability of their customers, especially in this tough economic environment.

For some companies, like distribution enterprises where margins can be razor-thin, regularly assessing customer profitability is a metric that usually spells the difference between sustained profits and a trip to bankruptcy court.

Unfortunately, traditional approaches to assessing customer profitability often do more to confuse and generate arguments among stakeholders than to provide a meaningful picture of a customer’s profitability.

A traditional accounting approach like activity-based-costing (ABC), for example, assigns a percentage of all overhead costs to every transaction. For the sales organization, this creates at least three problems:

When sales leaders and senior managers push their sales teams to “market” on behalf of the organization, something is wrong. Salespeople aren’t marketers, and successful marketing doesn’t require salespeople to step into a marketing role.

Professor Peter Drucker, widely regarded as an extraordinary thinker on business and management, regarded marketing and sales as antithetical. In fact, contrary to popular thought, he did not consider them synonymous or even complimentary.

According to Drucker, the aim of marketing is to know and understand the company’s customers so deeply that when they see the company’s product or service offering, it so clearly fits what they want that they are ready to buy. There is no need for traditional selling in this scenario – there is only a customer ready to buy and a company that either stands in the way or facilitates the purchase. In an ideal world, where marketing functions optimally, selling becomes superfluous.

In the business-to-business environment, the job of the marketing group is to fill the top of a company’s sales funnel with high quality, bona fide prospects that are ready to become customers.