|
 Unleashing the Revenue Potential of Inside Sales
By Joe DiMisa
For sales managers searching for greater sales productivity without increased costs, opportunity may be right around the corner — the corner that leads to the inside sales division. ("Inside sales" is typically defined as inbound/outbound call center representatives.) Given their high level of customer contact, the inside sales team often owns the customer relationship. Deploying these people effectively can boost revenues and contain costs.
Aggressive deployment of inside sales resources was a lead strategy cited in recent Sibson Sales Forums, which included high-tech, hardware, semi-conductor and telecom companies. According to participants, inside sales as a percentage of total sales headcount more than doubled from 2000 through 2006,* and companies are making better use of this lower cost sales resource.
Shortcomings of Typical Approaches to
Allocating Inside Sales Resources
Companies often use their inside sales crew in one of two ways: they allocate inside sales resources according to account size or sales strategy.
Segmenting by account size, typically by large, mid-market and small accounts, appears to be easy, intuitive and low risk. Fewer sales resources are directed toward small, less profitable accounts with lower impact on the top-line. Greater attention is paid to the large, critical accounts. Although sales costs are higher, given their size and strategic importance, major accounts can offset the incremental sales cost. An approach to mid-market accounts is less clear cut, as they likely vary in size and growth potential. And therein lies the rub. While segmentation by size seems foolproof, the correlation between account size and account value can vary widely across market segments and economic conditions. Middle market accounts frequently represent greater growth and profit potential than small or even large customers. Further, large accounts tend to command greater discounts, while small accounts may offer profit potential at much lower levels of volume. Clearly, simple segmentation is less straightforward than it seems.
Which brings attention to the second commonly favored approach: segmentation by sales strategy. This practical model allocates resources according to where the action (and the resident skill) is, with the objective being to protect and enhance the value of active customers. Thus, the inside sales team focuses on new account prospecting and on customer retention. Creating leads within existing active accounts may be a secondary goal.
Unfortunately, companies that employ these models risk leaving money on the table. Neither approach guarantees that resources go to the accounts with the highest potential for profitable growth. Nor do they recognize differences in customer types and preferences. Further, in most cases, these models are implemented without fully considering the impact on sales productivity, and that could suboptimize resource allocation.
So how can a sales organization use its inside sales resources most effectively? We have identified three keys to success:
- Understand the revenue and profit potential of each segment,
- Match resources to customer type, and
- Monitor sales productivity.
Understand the Segment’s Revenue and Profit Potential
To identify a segment’s potential for generating revenue and profits, sales management must explore the answers to the following three questions:
- Where are revenue and profits coming from today?
- Will this pattern continue?
- What factors will influence the current pattern of demand?
Until this picture is complete, sales management cannot allocate resources optimally. The following analysis can help a company look at current patterns and assess future opportunities and issues.
Where are revenue and profits coming from today?
Conduct a Pareto (80/20) analysis of current revenue and profit: Start with the segments; then examine the accounts within segments, and, finally, the products within accounts. Such a detailed analysis should bring trends to the surface.
Will this pattern continue?
Once the current state is clear, examine future sales potential to identify what factors will affect it. Break revenue into five dimensions: penetration, acquisition, retention, "old" products and "new" products. This breakdown shows how the business has actually grown, providing data on whether last year’s sales strategy yielded the desired results.
The chart below illustrates the three types of revenue — retention of current customers, new sales to current customers (penetration) and acquisition of new customers — and the percentage of business or favored-market approach that may come from each revenue stream. The five essential sales strategies are: (1) current offerings to new customers; (2) new offerings to new customers; (3) more current offerings to current customers; (4) new offerings to new customers; and (5) retaining existing revenue.
The Five Essential Sales Strategies
What factors will influence the current pattern of demand?
With historical revenue mapped across each of the five dimensions, determine if this potential will persist. Consider external (economic or regulatory) and internal (industry) factors. Also consider revenue churn, which can significantly limit a company’s ability to grow profitably, particularly when churn includes high-profit accounts. Understanding churn (i.e., lost year-over-year revenue) and the company’s ability to manage it creates the foundation for "new revenue" growth through penetration and acquisition.
The diagram below illustrates the factors to consider when assessing revenue potential at the segment, account and product level. It shows a growth target of 20 percent, but a loss of 15 percent of last year’s revenue. This company will have to account for 35 percent more revenue to meet its growth goal: 20 percent growth plus the 15 percent churn). To do this, the organization has pledged to penetrate existing accounts with new offers in addition to selling more "legacy product" offerings. The amount shown in the chart is 20 percent. This still leaves a gap or shortfall of 15 percent, which would come in the form of new customer revenue, either new offerings or legacy product offerings.
Sibson’s Pentration, Acquistion and Retention PlannerSM (PAR Planner)
Note: PAR Planner is a tool that best-in-class organizations use to help determine how they will grow, and where the revenue will come from. It helps determine the most practical sales channels.
The goal of this prospective assessment is to spot disconnects, or anomalies that could signal break out opportunities.
Match Resources to Customer Type
Once revenue and profit potential is clear, sales resources can be matched to customers based on the customer’s buying processes and business requirements and how best the seller can meet them considering the sales process for the product. The two perspectives enable a company to determine what type of sales deployment will best meet the customer’s needs in a profitable, cost-effective manner. The deployment decision should consider many factors, such as economics, the sellers’ skills, how value is created and delivered, and the customers’ tolerance for remote resources.
For example, a high-tech company decided to use its inside sales team selectively to build awareness of the company’s products and provide access to product information. However, as the company examined its customers’ buying process and its own sales process, it realized that two key sales process steps — solution development and design — were tightly scripted and did not require face-to-face interaction. As a result, it turned a larger part of the sales process over to inside sales resources, lowering total sales costs for the segment.
Monitor Sales Productivity
As sales processes and coverage models become more complex, determining real sales productivity becomes more difficult. However, a thorough understanding of sales productivity and its drivers will optimize the allocation of sales resources. Moreover, the ability to spot changes in the performance of the drivers will enable the sales organization to adapt with greater agility and speed, raising its level of competitiveness.
The model below presents a useful view of the sales productivity equation. Most critically, it contains measurable, objective data. Too often, sales organizations cloud their view of sales performance by using subjective or qualitative measures to assess performance. Thus, they may fail to spot trends quickly, or inaccurately judge cause and effect. The model gives sales representatives and sales management primary control and influence over these measures. It also firmly connects sales productivity and economics.
Sibson’s Model of the Sales Productivity Equation
The effective use of this model depends on the active participation of an organization’s marketing, sales, finance, information technology and human resources departments. It also depends on the organization’s ability to take a segmented view of sales productivity starting with segments and moving through regions to individual accounts.
Final Thoughts
Introducing new resource allocation methods and making tradeoffs between opportunities or segments present challenges. But the payoffs associated with swiftly allocating the right resources to the right growth opportunities within the right segments will maximize return on sales resources.
Companies with a long-term view of business development recognize that inside sales likely owns customer relationship. They are using sophisticated training to build the same capabilities across field sales and inside sales. Enhanced capability will provide substantial advantage by reducing the allocation of resources to activities and accounts that consume value, serving customers the way they want to buy, and placing greater distance between competitors as demand increases.
Joe DiMisa is a Senior Vice President with Sibson Consulting in Atlanta. He can be reached at 770.403.8006 or jdimisa@sibson.com. |
