Everyone will tell you sales is a relationship business, but why is that? And more importantly, is it true? Yes, it is – and that assertion has now been quantified. CSO Insight’s 2008 Sales Performance Optimization Survey, the 14th edition of this annual examination of the challenges impacting sales performance, finds the number one reason companies win deals is because of their relationships with prospects. And conversely, a major reason they say they lose deals is because of the competition’s relationship with the prospect.

“Product superiority used to be a big advantage for companies,” says Jim Dickie, partner at CSO Insights. “But collapsing product lifecycles is changing that. If a competitor doesn’t have a feature or function today, they can catch up a lot faster than they could in the past.” The result: product superiority has dropped down to the number three reason companies win deals with just 35 percent of companies citing it versus 56 percent who say relationships drive their wins.

The study goes on to segment the type of relationship companies have with their clients and examines the win rate of forecast deals according to each relationship level. The five levels of relationship (and their corresponding win rates) include, from the lowest to highest level: Approved Vendor (44.7 percent of deals won), Preferred Supplier (48.9 percent), Solutions Consultant (48.8 percent), Strategic Contributor (52.3 percent), and Trusted Partner (55.0 percent). Dickie notes that while the win rates of Preferred Supplier and Solutions Consultant are virtually tied, forecast accuracy jumps “dramatically” at the Solutions Consultant level.

Here’s a look at what this means in actual dollars. Say you run a sales organization with 100 sales reps. And say the average quota for these reps is $1 million with the average deal closed worth $50,000. If your relationships with your prospects deepen from Approved Vendor at a 45 percent win rate to Trusted Partner at a 55 percent win rate, you’ll see a 10-point gain in win rate. And if you work through the math for this specific situation, that win-rate gain translates into a $20 million gain in gross revenues. “This is not going out and finding new customers,” Dickie points out. “This is closing a higher percentage of the forecast that you’ve already gone through. You’re just closing more of them, taking business away from the competition, taking business away from no decision.”

The bottom line: there is significant and measurable economic value to building higher levels of relationships with your prospects. No doubt you knew this intuitively, but the numbers provide a compelling reason to examine what your organization is doing today to build better customer relationships.

CSO Insights surveyed more than 1,500 companies for its 2008 report. Researchers talked to senior executives directly involved in the management of their organizations’ sales forces to identify the challenges impacting sales performance today. The 213-page report then analyzes those challenges and examines how organizations are leveraging people, processes, technology, and knowledge to address the issues successfully. The report includes best practices on optimizing lead generation, selling value, avoiding discounting, new sales rep ramp up, forecast accuracy, and more.