Image_hero-four-ways-sales-teams-app

Four ways the best sales teams beat the market

By Daniel Birke, David Sprengel, Jochen Ulrich and Michael Viertler

Top-performing sales leaders know that the traditional metrics for evaluating sales ROI aren’t always adequate for the new complexity of digital and multichannel selling.

Managing large sales forces has never been easy for multinational companies. However, increasing competition, margin pressure, the rise of digital and proliferating channels have added a significant layer of complexity. Already today nearly a third of all B2B purchases are done digitally while customers use an average of six channels for prospecting, forcing sales leaders to rethink how they source leads, manage pipelines, and sell more effectively.

Rather than being overwhelmed, the best sales leaders have figured out how to overcome this complexity to drive above-market growth. Our analysis of 73 B2B technology companies shows that across sectors, the top 25 percent of companies achieve a better than 2x higher sales ROI compared to the bottom 25 percent.

What do they do right? Based on our experience and analysis, they maintain a clear focus on four things:

1. They understand what really matters

The key to smart investing is having good data that highlights where the greatest sales ROI is. That starts by knowing what to measure. Many companies, however, measure sales efficiency in terms of sales cost versus revenue. That metric is misleading because it does not sufficiently reflect the margin differences between sales channels. A more meaningful sales ROI is to measure sales cost against gross margin or profit (EBIT).

This sales ROI metric helps leaders more effectively align the number of accounts per sales employee with actual and potential revenues.  By analyzing the sales ROI potential of various segments, for example, sales leaders uncover different channel approaches for each. In one company, analysis revealed that sales ROI in indirect channels was 50 percent greater than in direct channels.

The best leaders also achieve such high sales ROI by reducing overall sales costs without giving away too much margin. Approaches include a strong “quality instead of quantity” focus on their highest-performing partners. They also tend to de-emphasize direct discounts, such as rebates and product offerings.

2. They don’t waste money

While the old addage “It takes money to make money” is popular, it’s not true when it comes to the best sales leaders. The best of them keep their costs lower than their peers do. Consider that 72 percent of companies in the top quartile of sales ROI also have the lowest sales costs. Effectively controlling costs requires a clear and objective view of profitability and cost-to-sell by channel, product, and customer.

With this foundation, sales leaders can make better decisions, such as scaling back sales efforts for lower-value orders. They also invest in processes and training that cut costs, such as installing technologies that reduce the number of order exceptions and cross-training people to have multiple skills. This level of efficiency not only reduces costs but also allows sales leaders to profitably pursue lower-margin business.

3. They free up their salespeople for selling

Top-performing sales organizations have the same percentage of sales staff in sales management roles—around 8 percent—as lower-performing companies. However, they have about 30 percent more sales staff in support roles. While this may seem counterintuitive, this approach frees up sales reps from more administrative tasks, such as order management and developing sales collateral, and allows them  to devote more of their time to customers. The result is that frontline sales reps are three times more productive than their peers.

One leading high-tech-equipment business, for example, found that 28 percent of sales-rep time was spent on low-value activities like handling complaints. They then shifted about half of these transactional activities into a sales factory and freed up 13 percent of sales reps’ time for selling.

Sales executives also need to take a hard look at their sales support systems. Some activities can be automated or streamlined, some can be delegated and pooled into back-office sales factories, and others can be cut entirely. Implementing such operational and structural changes requires a clear understanding of just what constitutes low- versus high-value-add activities and what resources are currently devoted to each.

4. They are adept at multichannel selling 

Companies that effectively sell across multiple channels (inside sales, outsourced agents, value-added resellers, third-party retail stores, distributors, or wholesalers) achieve more than 40% higher sales ROI than companies wedded to a single channel model (only key account management and/or field sales). Managing multiple channels calls for effectively addressing selling opportunities based on value versus on volume, and recognizing that not every channel is optimal for every product. For instance, inside sales reps can handle key accounts with low-complexity products, whereas more costly in-person support should be assigned exclusively to key accounts with high-complexity products.

How does this work in practice? An IT hardware producer had seen declining profitability and rising sales costs in its main business unit. It started by benchmarking performance in the sales organization and discovered that its sales ROI of 2.6 was far below the industry median of 3.5.

The company decided it needed to do a better job getting its sales force to focus on growth opportunities. It developed a new customer segmentation based on revenue and opportunity rather than global accounts, commercial accounts, and small and medium-sized businesses. Aligning sales coverage accordingly, the company devoted more resources to higher-value segments, i.e., those with higher revenue and higher future opportunity, and reduced coverage for accounts with lower revenue and opportunity.

Benchmarking its global business across five divisions and three regions also revealed significantly higher sales costs compared to its peers. The company examined its channels, including a direct sales force, distributors, and online channels. The direct channel captured higher gross margins (40 percent) than the distributor channel (35 percent). However, sales costs were higher too: 20 percent versus 12 percent of revenue. To ensure that the higher direct-channel spend generated the greatest possible return, the company matched  different sales people to various customer segments, based on their purchasing profile. Leadership assigned a dedicated sales person to each of the most important global accounts. A dedicated sales rep served 5 – 10 of the next tier of customers, while lower value customers were served by inside sales or the web. This allowed the company to achieve the best match between actual and potential revenues on the one hand and sales costs on the other. To reduce costs, they replaced excess specialist channel managers with less expensive generalist managers in affected business units. This approach yielded an expected  5-10% productivity gain (~USD 150-300m).

Many companies are understandably afraid to “tinker with” sales, the only part of the organization that actually brings in the revenue. We believe, however, that more aggressive action to match sales resources with sales ROI opportunities is critical if companies are looking to beat the market.  

This article originally appeared on the Harvard Business Review (HBR) Blog Network website

More on Marketing & Sales
Article

The next-generation operating model for the digital world

Article - McKinsey Quarterly

What makes a CEO ‘exceptional’?

Article - McKinsey Quarterly

Three game changers for energy

Article - McKinsey Quarterly

How functional leaders become CEOs