I was CC'd on the following email from Managing Parter and General Manager of our Sales Augmentation Practice - Greg Schwarzer. It was written as a follow-up to a discovery meeting with a company that (at least from our perspective) is desperately in need of our assistance.
This letter does a wonderful job of identifying the kinds of deep rooted sales issues we come across....nice work Greg!
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Dear ______,
I wanted to say thanks to you and your team for your time spent today discovering a bit about each other. I hope we have a chance to engage with you as I know we can bring a lot of experience and knowledge to bear regarding the issues we discussed.
From an outsider’s perspective, and to help with your internal discussions about the best path forward, here are some of the observations I took away from the meeting.
ABC COMPANY has yet to find a repeatable sales process. Ultimately, this results in a lack of predictability in the overall pipeline / forecast. At the same time:
- Average sales price ranges widely
- Sales cycle ranges widely
- Entry point varies widely
In our experience, we have found that increasing the inflow of lightly qualified leads (traditional lead generation) is unlikely to significantly alter this equation.
Some causal factors may include:
- Very little structured/repeatable process around lead->meeting (working the top of the funnel)
- Discovery meetings don’t have a known/consistent structure and are executed differently by different individuals
- Questionable ability of some individuals to do effective discovery
- Time spent on accounts that will never move forward
- Unspecified/inconsistent sales process from initial meeting->close
- Little structure around how activity is measured (through SalesForce.com) and its effect on movement in the pipeline
- Wide variety of targets (companies, industries, individuals) with lack of knowledge on which ones are the best initial penetration targets and what message to play to them.
- Uncertainty regarding which offer sets to lead with for which audience type.
In my opinion, quickly getting to the core of these issues will put you on the path to predictability in your pipeline.
3VLSI is uniquely positioned to drive volume into the top of the funnel, rapidly test multiple targets and messages to help focus where to apply effort versus what is a waste of effort, build repeatable process in both top of the funnel as well as from discovery through to close, and ultimately allow you take ownership for the sales process and people once we have jointly established repeatability and consistency on both ends of the funnel. We don’t have a silver bullet, but we have worked through this problem set many times, and have the references to support that claim.
I look forward to catching up with you at the end of the week.
Best Regards,
-Greg
Monday, September 24, 2007
Wednesday, September 19, 2007
Outsourcing Lead Generation – You must be out of your mind
I regularly receive inquiries from companies looking to outsource their lead generation efforts. Their intent is fairly straightforward – They would sell more if only their ‘experienced’ sales people could get in front of more qualified prospects.
In most cases, the desire to outsource lead generation is driven by the acknowledgement that ‘We can’t get the people we have to make cold calls’ and/or the acknowledgement that ‘We tried building a lead generation team ourselves and haven’t been successful.’
The third, often-unstated, reason is the urgent need for near-term revenue -‘We need to boost sales this quarter’. This is perhaps the most absurd reason because it ignores reality that sales cycles are rarely less than three to six months long.
Regardless of our client’s motivation, I made the decision years ago not to offer lead generation as an outsourced service. I have since ‘tweaked’ this stance but there is value in understanding the logic behind this decision. Eschewing lead generation as an offering was a straightforward business decision…. the economics don’t make sense.
Before fully explaining this statement, let me provide some context. Companies typically refer to inside sales and outside sales. Instead, we talk about the sales process in terms of sales resource competencies – specifically, the capacity to Initiate Opportunities and the capacity to Develop (and close) Opportunities. Instead of fixating on location, our competency-based approach acknowledges the reality that significant business can be closed ‘over the phone’ while dispelling the image of outside sales as cruising around town in the company car sipping Frappuccinos.
The economics of Opportunity Initiation can be considered from two vantage points. The first is Revenue Impact defined as the relationship between level of effort and the degree to which that effort directly contributes to revenue generation. In terms of time and effort, Opportunity Initiation represents 75% of the total energy required to generate revenue. At the same time, that effort does not appear to directly contribute to ‘closing’ deals. Companies find it hard to justify allocating more than 25% of their total cost of acquiring that revenue (Cost of Sales) to this portion of the overall process.
This 75% contribution of effort to 25% allocation of cost is only half the story. The economics of Opportunity Initiation must also be evaluated based on the expense associated with running a team. Lets do some math:
- Assuming we are targeting a 20% labor cost of sales, $1,000,000 requires $200,000 in salaries and commissions.
- In our suggested model, a minimum of 25% of this total cost of sales ($50,000) will be allocated to Opportunity Initiation resources with the balance ($150,000) used to fund Opportunity Development resources.
- If we factor a conservative 20% labor overhead (taxes, benefits, etc) we are left with $40,000 and $135,000 to fund Initiation and Development respectively.
- Many variables exist (average deal size, sales cycle etc.) Regardless, it is probably reasonable to believe a ‘Developer / Closer’ can be acquired for a base of $65,000 and $135,000 in total target earnings.
Focusing on Opportunity Initiation, we are left with a few challenging questions:
- Is it reasonable to believe you can field an effective Opportunity Initiation effort with $40,000?
- Who will manage this function? To this point we have ignored the costs associated with managing ‘Initiators.’
- Acknowledging not every sales person is successful and ‘Initiators’ are prone to moving on, what is the impact of resource failure rate / attrition on the economics?
I started this entry by stating the economics of Opportunity Initiation are terrible. It is interesting to note that our clients typically report a 25% success rate for their internal Initiation efforts – that’s right…factoring involuntary (‘You’re fired!’) attrition and voluntary (‘I quit’) attrition, it takes four resources to deliver the expected revenue from a single funded headcount.
This data leads to two conclusions based on three hypotheses:
Hypothesis #1 – As a stand-alone function, Opportunity Initiation (inside sales, lead generation, etc.) is unsustainable. More accurately, it is difficult to cost justify lead generation as an internal effort due to the expense to impact ratio compounded by a high degree of resource failure and attrition.
Hypothesis #2 – Outsourcers face the same economics, which is why 3rd party vendors are populated with $12 per hour staff that lack the necessary skills or training. You are unlikely to find an outside vendor that can deliver a quality service at a price you are willing to pay.
Hypothesis #3 – Without an effective Opportunity Initiation effort, it is difficult to fully leverage your higher value (and higher cost) Opportunity Development resources.
Conclusion #1 - Companies must deploy Opportunity Initiation efforts in-house because internal efforts can be quality-driven even in the face of poor economics. Stated differently, a company has the capacity to over-invest if a long-term benefit can be found. Outside vendor s rarely take the same approach.
Conclusion #2 - The economics of Opportunity Initiation can be improved dramatically (and investment increased proportionately) if a company factors the long term benefit of using its Opportunity Initiation team as its primary source for tomorrows Opportunity Developers. In simple terms, the most important reason to deploy an Opportunity Initiation effort today is to ensure access to the experienced talent you will need tomorrow. In our research, an internally produced Developer/Closer costs you one-fourth of sourcing from outside your company.
Like I said…if you are considering outsourcing lead generation, you must be out of your mind
In most cases, the desire to outsource lead generation is driven by the acknowledgement that ‘We can’t get the people we have to make cold calls’ and/or the acknowledgement that ‘We tried building a lead generation team ourselves and haven’t been successful.’
The third, often-unstated, reason is the urgent need for near-term revenue -‘We need to boost sales this quarter’. This is perhaps the most absurd reason because it ignores reality that sales cycles are rarely less than three to six months long.
Regardless of our client’s motivation, I made the decision years ago not to offer lead generation as an outsourced service. I have since ‘tweaked’ this stance but there is value in understanding the logic behind this decision. Eschewing lead generation as an offering was a straightforward business decision…. the economics don’t make sense.
Before fully explaining this statement, let me provide some context. Companies typically refer to inside sales and outside sales. Instead, we talk about the sales process in terms of sales resource competencies – specifically, the capacity to Initiate Opportunities and the capacity to Develop (and close) Opportunities. Instead of fixating on location, our competency-based approach acknowledges the reality that significant business can be closed ‘over the phone’ while dispelling the image of outside sales as cruising around town in the company car sipping Frappuccinos.
The economics of Opportunity Initiation can be considered from two vantage points. The first is Revenue Impact defined as the relationship between level of effort and the degree to which that effort directly contributes to revenue generation. In terms of time and effort, Opportunity Initiation represents 75% of the total energy required to generate revenue. At the same time, that effort does not appear to directly contribute to ‘closing’ deals. Companies find it hard to justify allocating more than 25% of their total cost of acquiring that revenue (Cost of Sales) to this portion of the overall process.
This 75% contribution of effort to 25% allocation of cost is only half the story. The economics of Opportunity Initiation must also be evaluated based on the expense associated with running a team. Lets do some math:
- Assuming we are targeting a 20% labor cost of sales, $1,000,000 requires $200,000 in salaries and commissions.
- In our suggested model, a minimum of 25% of this total cost of sales ($50,000) will be allocated to Opportunity Initiation resources with the balance ($150,000) used to fund Opportunity Development resources.
- If we factor a conservative 20% labor overhead (taxes, benefits, etc) we are left with $40,000 and $135,000 to fund Initiation and Development respectively.
- Many variables exist (average deal size, sales cycle etc.) Regardless, it is probably reasonable to believe a ‘Developer / Closer’ can be acquired for a base of $65,000 and $135,000 in total target earnings.
Focusing on Opportunity Initiation, we are left with a few challenging questions:
- Is it reasonable to believe you can field an effective Opportunity Initiation effort with $40,000?
- Who will manage this function? To this point we have ignored the costs associated with managing ‘Initiators.’
- Acknowledging not every sales person is successful and ‘Initiators’ are prone to moving on, what is the impact of resource failure rate / attrition on the economics?
I started this entry by stating the economics of Opportunity Initiation are terrible. It is interesting to note that our clients typically report a 25% success rate for their internal Initiation efforts – that’s right…factoring involuntary (‘You’re fired!’) attrition and voluntary (‘I quit’) attrition, it takes four resources to deliver the expected revenue from a single funded headcount.
This data leads to two conclusions based on three hypotheses:
Hypothesis #1 – As a stand-alone function, Opportunity Initiation (inside sales, lead generation, etc.) is unsustainable. More accurately, it is difficult to cost justify lead generation as an internal effort due to the expense to impact ratio compounded by a high degree of resource failure and attrition.
Hypothesis #2 – Outsourcers face the same economics, which is why 3rd party vendors are populated with $12 per hour staff that lack the necessary skills or training. You are unlikely to find an outside vendor that can deliver a quality service at a price you are willing to pay.
Hypothesis #3 – Without an effective Opportunity Initiation effort, it is difficult to fully leverage your higher value (and higher cost) Opportunity Development resources.
Conclusion #1 - Companies must deploy Opportunity Initiation efforts in-house because internal efforts can be quality-driven even in the face of poor economics. Stated differently, a company has the capacity to over-invest if a long-term benefit can be found. Outside vendor s rarely take the same approach.
Conclusion #2 - The economics of Opportunity Initiation can be improved dramatically (and investment increased proportionately) if a company factors the long term benefit of using its Opportunity Initiation team as its primary source for tomorrows Opportunity Developers. In simple terms, the most important reason to deploy an Opportunity Initiation effort today is to ensure access to the experienced talent you will need tomorrow. In our research, an internally produced Developer/Closer costs you one-fourth of sourcing from outside your company.
Like I said…if you are considering outsourcing lead generation, you must be out of your mind
Tuesday, September 11, 2007
Follow up to 'What Keeps a Salesperson from Leaving'
I received a follow-up Linked-In question from Lee Levitt - the analyst for IDC whose question I answered a few weeks back.
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Townsend,
You make an excellent point.
Given the transitory nature of sales reps, how do we then provide continuity for the large accounts? Our research indicated that sales rep tenure is highly valued by buyers -- it takes a while for the rep to get to know the account and for the rep to get to know the internal systems in their own company. Until they do (both), they're relatively ineffective as a relationship manager.
Lee
----
Here is my response:
Of course buyers value continuity. However, I would suggest the assumption by sales organizations and customers that continuity is a function of sales rep tenure is fundamentally flawed.
This logical flaw is largely the result of the degree to which competencies like ‘effectiveness’ are treated as binary phenomena (i.e. ‘A sales rep cannot be effective until they learn our systems which takes six months.’) when effectiveness and internal systems knowledge represent continuums.
A couple of other thoughts:
- Initially, your question focused on retention. This has evolved to a concern for ensuring continuity within an account. I would suggest that both ‘retention’ and ‘continuity’ are emotional (subjective) sales issues. The true need lies a few layers deeper. To get there, it may be instructive to ask yourself (our your survey respondents) a few questions along the lines of: ‘…and greater continuity would allow my company to?’ or ‘….and an absence of continuity is preventing us from?’
- It appears that the conclusion you have drawn from the various responses is that sales reps are, by nature, transitory. I disagree. Sales reps are by nature opportunistic meaning they tend not to have physical or emotional issues related to ‘migratory’ behavior. This has a very different connotation from ‘transitory’ behavior, which suggests certain wanderlust. Perhaps your comment was just a semantics error and we are saying the same thing but I find many companies fail to understand that many sales professionals desire continuity rather than shun it.
Kind regards,
Townsend
---
Townsend,
You make an excellent point.
Given the transitory nature of sales reps, how do we then provide continuity for the large accounts? Our research indicated that sales rep tenure is highly valued by buyers -- it takes a while for the rep to get to know the account and for the rep to get to know the internal systems in their own company. Until they do (both), they're relatively ineffective as a relationship manager.
Lee
----
Here is my response:
Of course buyers value continuity. However, I would suggest the assumption by sales organizations and customers that continuity is a function of sales rep tenure is fundamentally flawed.
This logical flaw is largely the result of the degree to which competencies like ‘effectiveness’ are treated as binary phenomena (i.e. ‘A sales rep cannot be effective until they learn our systems which takes six months.’) when effectiveness and internal systems knowledge represent continuums.
A couple of other thoughts:
- Initially, your question focused on retention. This has evolved to a concern for ensuring continuity within an account. I would suggest that both ‘retention’ and ‘continuity’ are emotional (subjective) sales issues. The true need lies a few layers deeper. To get there, it may be instructive to ask yourself (our your survey respondents) a few questions along the lines of: ‘…and greater continuity would allow my company to?’ or ‘….and an absence of continuity is preventing us from?’
- It appears that the conclusion you have drawn from the various responses is that sales reps are, by nature, transitory. I disagree. Sales reps are by nature opportunistic meaning they tend not to have physical or emotional issues related to ‘migratory’ behavior. This has a very different connotation from ‘transitory’ behavior, which suggests certain wanderlust. Perhaps your comment was just a semantics error and we are saying the same thing but I find many companies fail to understand that many sales professionals desire continuity rather than shun it.
Kind regards,
Townsend
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