whitepaper: sales outsourcing options

WHITEPAPER: SALES OUTSOURCING

OPTIONS

November 17

2012EXAMINING ALTERNATIVE APPROACHES TO SALES

BY JULIAN POULTER SMDI LTD

NOVEMBER 2012

WWW.SELLINGPEOPLE.BIZ

White Paper – Sales Outsourcing Alternatives

Version: 5, November 2012 Contact: www.sellingpeople.bi 020 3397 3270

of 15 Copyright © Selling People (SMDI Ltd)

Content

EXECUTIVE SUMMARY ........................................................................................... 3

APPLICATIONS OF SALES OUTSOURCING ......................................................... 3

TYPICAL BENEFITS PROMISED BY SALES OUTSOURCING .............................. 4

SALES OUTSOURCING OPTIONS.......................................................................... 4

SALES OUTSOURCING METHODOLOGY ............................................................. 5

OUTSOURCING CAPABILITIES .............................................................................. 7

FULL SALES OUTSOURCING SOLUTION ........................................................... 11

MARGIN CONSIDERATIONS ................................................................................ 12

BENEFITS ............................................................................................................... 13

INVESTMENT ......................................................................................................... 13

SUMMARY .............................................................................................................. 14

ABOUT SELLING PEOPLE .................................................................................... 14




Executive Summary

Competitive pressure and worldwide trading conditions within the IT (and other) industries has caused companies to drive down costs and optimise performance in every department including sales and marketing. Traditionally, small and medium sized technology companies have recruited their own, in house, sales force or used third party distributors, VARS and resellers as routes to market. However, companies are now increasingly considering other sales outsourcing alternatives.

Outsourcing is a well established trend, with many organisations, choosing to outsource functions such as IT/helpdesk, HR or marketing. However, the sales department is often seen as a key business process that usually ‘owns’ the relationships with the end client, so can this be outsourced?

Organisations considering outsourcing their sales to any degree need to understand the risks and how to avoid them. They should calculate the total cost of ownership and return on investment of comparative options, and finally, ensure the outsourcer tailors a sales and marketing solution to their detailed business requirements.

This paper discusses the various functions, capabilities and options available for sales outsourcing and provides some links to further reading.

Applications of sales outsourcing

Before we discuss the make up and options of sales outsourced projects we highlight some areas where it can be applied:

Application Description

Foreign territory entry Using the local knowledge and capabilities of the outsourcer to obtain a footprint in the new market quickly.

Market Evaluation Launching into new markets may be best preceded by some degree of professional market testing. Not simply desk-based research but potentially including customer-facing and assessing sales process.

Balancing effort across legacy vs. new product launches

Outsourcing either the management of a new launch initiative or the sales effort to focus on maintaining revenues from a legacy product base.

Boosting existing team Adopting a low risk strategy to expand current sales team, with flexibility to scale to meet demand levels.

“The outsourced sales function can be very useful when entering foreign markets, or to target markets outside of the focus area of an organisation’s traditional sales team“




Small client focus Outsource the management of small client/prospect targets to an outsourcer.

Company launch phase support

The outsourcer as the commercial bridgehead potentially working in conjunction with VC funders, banks, accountants, lawyers as well as partners.

Partner recruitment and support

Improve the performance of your partners with targeted bid support, sales support and pipeline reviews, training etc

Interim management Hire a part time sales manager or sales director to help in a variety of ways. Consultancy or management engagements.

Lead generation Telemarketing and e-marketing lead generation

Typical benefits promised by sales outsourcing

Sales outsourcing offers several advantages over traditional recruitment or distribution models. A sales outsourcer would probably highlight the following:

Results focus - focussed on activity, pipeline and sales orders. The expectation would probably be that invested time is paid for, but the focus is as far as practicable on achieving the results agreed.

Speed - rapid set-up in a matter of days or weeks, rather than the months that a typical recruitment or in-house operation could take

Flexibility - resources can be scaled up or down at short notice in response to change of market conditions of client needs.

Available expertise – Professional approach, utilizing predominantly existing in-house staff with proven and common sales processes and systems rather than recruiting new external staff.

Cost – relatively low upfront costs; possibly no recruitment costs, offering the benefit of lower initial risks.

Facilities – options to base sales staff either on client’s site, in the field or in the outsourcer’s offices. Ability to use the outsourcer’s address and telecommunications facilities.

Intelligence - an outsourcer offering quality market intelligence could accelerate access to target markets

Sales outsourcing options

There are several different models of sales outsourcing available and these are discussed briefly below.

Resources can be increased or decreased scaled up or down at short notice according to campaigns or results.

Resources can be scaled up or down at short notice in response to changes in demand




Interim or contract resources

With this model the outsourcer essentially provides sales resources to the client. This could be in its simplest form a part time sales executive, up to a team of sales people across a geography. Resources can be at the sales or management level.

Solution based

Using a combination of the key resource: sales executives, lead generation/telemarketing, sales management, systems, processes. These are combined in a unique solution to the client and implemented in a professional manner using the outsourcers engagement methodology.

Sales force take over

In this model the outsourcer takes over the complete sales operations of the client in order to increase revenues but also achieve cost savings though the use of its infrastructure, contacts and intelligence.

Sales Outsourcing Methodology

An overall approach to an outsourcing engagement should typically consist of four main phases:

a. Preparation – Scan & Plan

b. Launch, Test & Review

c. Initial Operations

d. Full or long term operations




Figure 1 - Sales outsourcing methodology

The key phases are discussed in brief here and in more detail in the related whitepaper: A Proposed Sales Outsourcing Methodology.

Preparation

The initial Preparation phase is concerned with developing a robust sales and marketing plan for the commissioning organisation. This may just cover a short initial period but would usually provide an outline of operations over 1-2 years.

The key element of developing the plan is an intensive sales and marketing workshop attended by senior management of both parties. This looks at all aspects of the sales (and/or marketing) operation.

This phase is also known as Scan & Plan, where the Plan element consists of some rapid desk based market research complimented by some outbound telemarketing resource. This allows the proposition(s) to be quickly tested in the market in front of live prospects.

Input from this early test is used as input to the sales strategy and plan. Usually 5-10 days of test calling is suggested and on average 10 surveys (discussions with senior decision makers) per day. By its nature there are many assumptions made in a sales plan before

The typical 4 phase engagement:

a:Preparation – Scan & Plan

b. Launch, Test & Review

c. Initial Operations

d. Full or long term operations




operations and these early tests and the Launch phase help determine the real world scenario.

The remaining component of the Preparation phase is to complete the remaining items of set up that are required to get the engagement going: logistics, training, recruitment etc.

Launch

Following the Preparation, a longer Launch phase is then undertaken where the emphasis is on getting in front of as many prospects as possible to outline the proposition in detail and build pipeline. In the Launch or Test phase the emphasis is on selling and closing deals, but in these early stages, significant review and feedback is maintained to track progress against the plan and its assumptions.

At the end of the Launch phase the results are reviewed and a decision can be made on progressing to the next phase and the sales plan can be updated if necessary with the live metrics.

Initial Operations

The Initial Operations phase is now all about generating sales orders and ramping up the sales operation. If the plan calls for five field sales personnel within one year the Launch phase may only use one full time equivalent (FTE). This resource may in fact be split into two for extended coverage, segmentation or comparison purposes. This is part of the flexibility of a sales outsourced solution.

Over time the resources will then be increased and can be adjusted as requirements change over time and as the project evolves.

Full Operations

The Full Operations phase can be an extension of the Initial Operations or the client may wish to set up their own subsidiary or distribution channel and the outsourcing be phased out or be used to support certain aspects of the sales function. Many clients may also choose to take a sales operation in house once an early sales footprint has been established. All options are possible and transparency in the short and long term plans will help both parties.

Outsourcing Capabilities

The diagram below shows graphically the main functions required in an outsourced sales function.




The key functions are now discussed in turn – sales executives, sales management and lead generation, processes and systems, facilities and expertise.

Sales Executives

Front line sales personnel are clearly at the heart of any sales operation. Sales executives have traditionally been recruited on a full time employment basis. The upside is quite apparent but the downsides are often less obvious. For example, there is a high cost and hence risk if full time sales resources fails to give the required return on investment, particularly in the often, overpaid IT sector. The worst acquisition a business can make is an expensive sales recruit who does not sell anything and leaves after six months, resulting in wasted time, effort investment, salary payment and hefty recruitment fees.

Sales contracting and outsourcing is a relatively recent form of ‘recruitment’, particularly in the IT industry. Sales contractors, often self employed, tend to be more common in other industries such as financial services and pharmaceuticals, and manufacturing industries often utilise self employed agents.

A sales contractor usually offers increased flexibility and lower risk for a number of reasons:

Sales contracting is usually based on a simple, daily rate plus commission and expenses (phone, travel). This compares favourably to a 15-20% of salary recruitment fee, typical in permanent IT sales roles. The total recruitment fee typically equates to around eight weeks of an effectively working contractor.

Whilst some larger organisations need a full time sales resource, in reality, many smaller organisations do not initially need ‘packages’ of five sales days per week. Contract resources are recruited according to need and as there is no formal employee relationship, administrative overheads are much lower. An initial commitment of just two days a week for instance, can significantly reduce upfront costs and risks.

Flexibility is increased and can be extremely useful. For instance, instead of one full time resource, having two people at 2-3 days per week, where each has different skills, or focuses on different territories or verticals, can be beneficial.

Additional resources can be recruited for peak periods to assist with specific campaigns or demand.

The key point about sales resources, contract or full time, is that the outsourcing organisation can be responsible for the day to day management of the resource or choose the outsourced model where the outsourcing organisation provides the recruitment, training and management.

IT sales people are normally paid a package split around 50:50 between basic salary and a margin based commission scheme, a cost that needs to be kept in mind with any form of recruitment.

The value of the product being sold and the length of the sales cycle have a direct bearing on the type of sales people required:

As a general rule of thumb products with a value of $1000 or less need to be sold with a self service approach – such as the web perhaps in conjunction with reactive telesales or customer services.

Sales outsourcing components:

Sales executives

Management

Lead generation

Marketing

Processes & systems

Facilities

Expertise




Products with a value from $1000 - $3000, depending on the margin available are more suitable for sales by telephone and perhaps the occasional fields sales visit, if required.

Products with a higher sales value can justify or require a field sales approach, though this may not always be required.

Sales salaries can vary from a basic of about $25k to about £100k as measured on a full time employment basis (valid in the UK in August 2010). The lower rates are found in tele-sales roles such as media advertising and the top rates in high value complex solution sales for IT or consulting services. These costs are obviously subject to various overheads associated with employment and commission. Daily rates for contractors typically vary from £100 - £300 per day for sales executives and more for sales directors and consultants.

When recruiting for full time employment or sales contractors it is useful to determine where on this pay scale you are looking to recruit from.

One of the quirks of the contracting sector is that very experienced people in the 45+ age bracket are often available fairly cheaply given their experience.

However, a clear understanding of the sales model and type of sales staff is required in any sales situation, especially where outsourcing is involved.

Sales Management / Direction

Where the outsourced sales solution is more than a single person then some element of management will be required. Even where there is only one person involved, certain aspects of an engagement will also fall under the ‘management’ function.

Outsourcing sales direction can provide an experienced sales director at a fraction of the cost of in house equivalents. There are many aspects to sales direction, the basic functions include:

Driving the sales team to close business and increase revenue

An accurate weekly/monthly forecast and process review.

Weekly management to coach and direct the sales effort.

Strategic sessions to help with overall business growth and planning, including the review or determination of value propositions.

Creating a sales manual defining how the sales function operates in the company.

Sales resource/recruitment, for example, the candidate selection process.

Contribution towards company ‘best practice’ methods for operating a sales function. This can include resourcing, the sales model (how we sell), the sales cycle (the route to a sale) and sales process - including departmental interfaces (vital in a professional service operation), forecasting and reviewing processes.

The sales director will interface with your internal or external lead generation, marketing, and sales teams.

In some cases, the sales director will run some or all of the marketing function as this is fully related to the sales effort and lead generation. If they do not control this function they will certainly need to contribute through management meetings and perhaps service level agreements for marketing expenditure and results = leads.




Whilst the daily rate of a sales director may seem comparatively high, relatively little of his/her time may be needed. In a small sales team environment of 2-3 people, after the initial setup phase, only half a day every week of sales management may be required.

Sales manager / director outsourcing can also be purchased in isolation as an ‘interim manager’. This should be considered if the client:

Has sales experience but insufficient time to properly set up, operate and review the sales process.

Lacks significant, board level sales experience.

Considers the risk and cost of a full time sales director as too expensive. Their basic salaries range from £60k to £100k. These costs double when other benefits and bonuses, including equity are taken into account.

Lead Generation and Marketing

A key consideration for CEOs and sales and marketing directors is how to generate sufficient leads to fill the sales pipeline.

There are many different ways to generate leads, including, media relations, promotional events, white paper marketing, e-marketing, the web site, social media, networking and telemarketing to name but a few.

Should lead generation be outsourced?

It is rare for a good sales person to also be an effective cold caller or lead generator. Whilst many Sales Executives may be good ‘all rounders’ there are usually areas where they are weaker or simply uncomfortable. Many sales executives dislike generating leads themselves, especially where cold calling is involved.

Typically, when a sales person has undertaken (usually as a last resort) cold calling and generated their own leads, they step into their preferred role of converting the leads into sales. Whilst this is going on, there is little or no lead generation taking place. For this reason splitting out the lead generation, so that it is a regular ongoing activity can be worthwhile.

Many marketing departments do not offer a regular and/or robust lead generation service to their sales organisations. Poor or lethargic marketing departments often misdirect their campaigns; and the leads produced are of low quality. This can be due to many reasons, often insufficiently targeted contact database and poor qualification of leads.

The problems of undertaking lead generation internally also fall foul of managing the “internal” sales function. This is commonly staffed by relatively, inexperienced sales staff who constantly look for their next career move away from cold calling.

Above all other factors, the quality of the researchers/telemarketers undertaking the calling is of vital importance. Investment in data, process and technology will achieve nothing if the person chosen to make the calls is of insufficient quality and lacks experience.

Outsourcing lead generation to a capable company ensures the aforementioned services are provided and managed professionally. A lead generation contract ensures your chosen service provider focuses staff attention on using their core skills to increase your revenue, without diverting your sales force from the areas of the sales cycle, where they are most effective.

Marketing

If an outsourcing organisation is contracted to solely provide sales, they will need a clear understanding of your marketing strategy, expenditure and the associated service level




agreement. It would be unrealistic to reduce marketing and not expect a reduction in lead generation and resulting sales.

Many organisations are seduced by the commission-only sales option. As an example a sales outsourcing organisation risking a £4k per month expenditure is very likely to do this if the client is spending £20k per month on marketing but unlikely to be happy if there is no marketing spend! (See related whitepaper on Commission Only Sales)

Many smaller organisations often suffer from having few, in house sales skills and little or no marketing expertise or resources. For this reason, some or all of the marketing can be provided as part of a sales and marketing outsourcing arrangement. This could include press releases; collateral production and proof-reading, web-site messaging, Google adverts (PPC),outbound mail and email campaigns, lead nurturing etc….

Processes and systems

An experienced outsourcer should bring a series of best practice systems and processes to bear on any engagement. Typically this would include:

CRM/SFA/Contact management system set up for efficient use in data management, cold calling, contact and pipeline management and client reporting

Sales methodology – so all people on the project know the status of leads and prospects – the client may need to be trained in this

Regular and clear project reporting

Quality staff, recruitment and training processes

ISO 9001 or similar accreditation for quality processes

Facilities

The outsourcer should have local physical offices with full time staff and the telecoms and data infrastructure to run several businesses.

Expertise and intelligence

This is an interesting issue. Ideally when recruiting for a position it would be reasonable to expect, in a new business situation, to recruit an experienced person/team. The ideal might be a senior sales resource with 10 years domain expertise in the relevant industry or product sector.

However, if this is not readily available it may take time and money to recruit the ideal resources.

This is one model of operation; the other is to use the outsourcer’s existing team, as long as it is experienced. This team will have all the sales skills, knowledge of the processes and systems and the local markets. The only thing missing is the client’s proposition knowledge and that is something the client controls and can easily disseminate to the sales resources.

An outsourcer should also bring intelligence on the market as a result of operating in the sector for a period of time. Intelligence is often software information, as distinct from leads, but can be useful in initiating conversations and developing relationships.

Full sales outsourcing solution

Combining all of the above services: lead generation; sales resource, direction, marketing with facilities and expertise results in a fully outsourced sales solution.

Outsourcing to a third party means that all day-to-day decisions and activities are handled by the outsourcing company but they may interact with your key company departments




where input into the sales cycle is required. The Project or Sales Manager should probably form a key part of your management team.

The outsourcing company can vary key elements of the sales function: leads, operational and management resources, over time, according to business needs. For example, additional resources can be acquired for a specific campaign, both in terms of the lead generation and follow up sales resource. At the start of an engagement significant effort is required in lead generation. After 6 months, more effort may be required in ongoing account management or opportunity management.

A full sales outsourcing arrangement compares very favourably with trying to recruit a single person to cover all of these activities.

Ultimately, an outsourced contract is usually based on revenue performance. It includes a basic retainer and commission or bonuses based on the revenue/margin delivered. The commission-only sales approach rarely performs well. Review the related white paper entitled “Commission-Only Sales – fact or fiction”.

The basic retainer could be equivalent to the management and overhead costs of the project, or it could be based on time and materials where all the project resources are charged for on a daily rate.

Given a base is being charged, the commission element could be relatively low, similar to that given to a company’s own direct sales people.

There are many aspects to negotiating a sales outsourcing contract, some of the variables include: equity; commission, base rates, market exclusivity, timescales, sales support, marketing spend etc.

Margin Considerations

There are many aspects to an organisation’s sales and marketing effort. When choosing sales channels to market there are three main approaches:

Direct sales effort internally: your own sales and marketing team; premises, costs, overheads, legal etc.

Enlist partners/distributors/VARs/resellers - these are third party companies, whose business is aligned or complimentary to yours and naturally opens up opportunities for your product/service. They may even pay an upfront fee to become a partner if you are a market leader.

Sales outsourcing service providers are companies that will sell products or services on your behalf, within its range of expertise for a fee and usually a commission. They become part of your business rather than a separate channel.

The key differences between the three models are their comparative costs and the risk/reward ratios. Outsourcing sits somewhere in the middle of these three options. For example:

Option Upfront cost Risk Commission paid

Direct/Internal High High Low (2-15%)

Partner model Zero other than training, management time etc.

Very low High (35-55%)




Outsourcing Low Medium Medium (10-30%)

Commission rates vary widely between engagements, product and industry and these figures are purely illustrative.

Where the product or service or the sale is high value or complex, the partner model initially tends to be quite unproductive in the first year of operation. In many cases the first sales orders will need to be developed and/or undertaken with significant support from the vendor. In these cases, an outsourcing sales solution can be far more productive.

Where IT products are sold through distribution channels, margins and financial models are highly variable and beyond the scope of this paper.

Benefits

To summarise, the benefits of an outsourced sales approach are many and varied:

A small initial outlay can dramatically reduce risk compared with other solutions because there can be a high return on investment due to the proven, successful sales people employed by the outsourcing company.

Flexibility and efficiency is increased by acquiring a wider range of skills as they are needed. Customers outsource services to compliment and support their own organisation’s core skills.

Reduced financial outlay by having an engagement where there are few upfront recruitment fees.

A two to three month Launch and Test phase can be used to prove the concept and likely success rates before committing additional investment and resources.

Resource levels can increase or decrease, as required, at short notice. Low performing resources can be changed, quickly and easily.

Sales resources can be split geographically if the outsourcer provides UK wide sales solutions. For example, a five day sales resource could be split: three days in the South, a day in the Midlands and a day in Scotland. The same principle can be applied to divide sales resources according to vertical markets or product groups.

Employee relationships are not created eliminating the associated overheads and risks.

You can have total resource control and management as with in house sales employees, with performance metrics and targets – subject to the method of outsourcing, initially agreed.

The outsourcer may also procure additional leads from within its network for agreed finder’s fees and commissions.

Investment

Return on investment (ROI) is vital for those considering sales outsourcing. The outsourcer should provide a detailed costs and revenues spreadsheet to assist with ROI calculations, free of charge.

In the methodology the preparation (Scan & Plan) phase is typically fixed price and is a few days at consultancy rates.




The Launch / Test phase is typically charged on a time and materials basis, for the resources utilised, plus a small commission for any early sales.

In the longer term the arrangement could be anything sensible – a continuation of the time and materials operation of the Test phase, a commission only arrangement or more typically some form of retainer and a higher commission.

The items below indicate typical daily rates of contract sales people in the UK in 2010.

Sales Resources senior level rates vary from £250 to $500 per day, according to qualifications and experience, with no recruitment fee outlay. Junior sales resources range from $150 to $300 per day. Commission and expenses are also typical. There are usually no additional charges such as holidays or sick leave.

Sales Direction is normally only required in relatively small amounts and varies from around $450 to $1200 per day.

Commission on sales is always generated at a pre-agreed rate, often between 5% and 15%. Method of calculation can vary slightly according to product or service. For example, software sales commission is usually calculated purely on revenue, service solutions are also often based on revenue, however, the rate has to reflect the margins achieved.

Expenses should be kept to a minimum, however, some are inevitably recharged to the customer, for example, travel and telephone usage or use of office facilities

Outsourcing investment figures vary with contract although there is generally a basic charge per month and a revenue-linked, variable commission style figure.

Summary

Many business functions have been successfully outsourced over the years and this approach has recently adopted and developed to optimise the sales function.

This approach will become more common place, particularly within the small and start up business community, as they often do not have or cannot afford to employ their own, in house professional sales expertise.

In addition this solution is very applicable for an overseas company setting up in a new market where the outsourcer brings a wealth of local knowledge and contacts.

About Selling People

SMDI was founded in 2003 and has rapidly become one of Europe’s leading sales and lead generation consultancies. SMDI has provided market evaluation, lead generation and sales outsourcing services to a variety of companies, small, large and across multiple sectors.

SMDI provides services, consulting, best practice and technology around the LAMP process.

We operate in many sectors but our specialism is the demanding IT software sales sector. Within that sector we have particular expertise in:

Business intelligence & knowledge management Help Desk & service management

Return on investment (ROI) is vital for those considering sales

outsourcing.




CRM & customer service ERP Media Internet marketing

SMDI operates using a number of full time employed consultants, sales and tele-marketing executives, including in-house project and sales management. We supplement this with external associate resources to extend our skills and geographic coverage. Our external network consists of approximately 50 associates allowing us to operate in many sectors and geographic areas.

SMDI Ltd

Unit 12, The Power House

Higham Mead

Chesham

Buckinghamshire

HP5 2AH

Phone: 020 3397 3270

Email: [email protected]

Web site: www.sellingpeople.biz

mailto:[email protected]

whitepaper: sales outsourcing options

Business

preparation scan

scan

sales executives

initial operations

cold calling

lead generation

sales people

sales resource