Has your CEO ever demanded you improve total sales without increasing operating expenses (OPEX)?
Recently, we talked about the need for salesforce transformation to compete in the modern business world. One important area to consider is the ongoing operating expense of your salesforce.
Have you ever questioned why you have enterprise reps in a specific city; like Omaha, NE or Bend, OR? Have you noticed that you were spending 10% of your OPEX in a market that represents 5% of your total revenue?
The reason is surprisingly simple. Most market and territory coverage decisions are the result of a sales manager’s gut feeling about what city or account is going to be the next big thing. The end result is patchwork coverage that doesn’t match up with the most valuable opportunities. Specifically, there are 5 key symptoms to look for:
- Sales reps under-serve key customers
- Reps spend too much time covering low value accounts that should be channel led, duplicating the effort and cost of channel partners
- Travel and expenses are inflated to get reps to where they should have been in the first place
- Sales rep attrition is occurring due to territory quota setting that does not create equal opportunity
- Rules of engagement are unclear, inconsistent, and conflicting among the primary selling motions of direct, channel and inside sales.
Previously, sales leaders lacked the analytical tools and knowledge to make decisions about business budgets. Thankfully, that has changed. Today’s tools let you take an objective look at your market through analysis.
- Industry addressable market and growth information
- Customer dispersion against addressable market
- Revenue and cost by sales territory
- Number and type of accounts per rep
- Enterprise customer and rep geographic dispersion by account segment
“Research shows that optimizing territory design can increase sales by 2 to 7%, without any change in total resources or sales strategy.” – Harvard Business Review
The net result is that you are able to increase sales without changing your resource costs by:
- Balancing opportunities for different reps
- Aligning your channel, direct and inside sales to where they will do the most good
- Focusing your OPEX where there is the greatest revenue potential
- Freeing up OPEX from low growth and low addressable market territories to invest in additional quota bearing reps in higher value territories
How to improve sales without increasing OPEX in 5 steps:
1. Establish market and investment profile using addressable market and growth rate by sales territories
Start by creating a market profile using total addressable market and growth rates by sales territories.
Using the market profile, you can determine opportunities for investment and divestment allowing you to focus on improving margins in low growth and shrinking markets, as well as push for top-line revenue in high-growth territories.
2. Understand current-state coverage and targets against market profile
After creating your market profile of overall opportunity, analyze your customer’s characteristics including location, revenue size and buying behavior. A single sales rep may need to travel hundreds of miles in low density markets to touch 10 large accounts. Alternatively, in Manhattan a rep may not need to leave a single building.
Understanding your customers and market profile will also help you manage your annual targets, quotas and customer experience. If you have a high TAM and high growth area, focus should be on growing revenue and taking market share. But if you are looking at a small market with low growth, you will get better company performance by focusing on the cost per order dollar and balancing channel, inside sales and direct coverage.
3. Quantify performance of sales territories
Next, take a look at revenue and margin at the territory level. This requires looking at both the revenue driven in an area, as well as the cost to get it. Overall, you get a clearer picture of where you drive revenue profitability as well as understanding territories where sales costs drag profitability to an unacceptable level.
Just because you are driving positive revenue in an area doesn’t mean direct coverage is the right approach. You may be able to get higher overall profitability by going after those same customers through a partner channel or by using inside sales instead of direct field sales.
4. Review the allocation of customer accounts to sales reps
Although you may have one key account in Phoenix, that doesn’t mean it makes sense to incur the cost to have a full-time rep there. In order to hit annual quota, sales management may feel compelled to load the rep with smaller accounts to provide an ability to hit quota. This jeopardizes the original intention of assigning the rep to the key account for a high-touch relationship.
By looking at how many accounts a rep has, and the proportion between enterprise, mid-size and small business, you can get a good idea about whether they are able to give your high value accounts enough attention.
5. Align resources based on market profile, customer segmentation and geographic placement
With a clear understanding of where you are today and where you want to be you can align your resources in a way that gets you there.
This means investing in your direct resources where solution complexity is high, TAM and growth rates are high, and the density of customer accounts is greatest. It means making choices to repurpose OPEX from low-growth and low-TAM markets.
Successful sales leaders make fact-based choices on the location of reps, number of accounts covered, use of channel and inside sales resources, and the use of overlay and specialist teams to cover the market in the most efficient and effective way possible.
Market and territory coverage is too important to leave to gut instinct and chance. You have to be strategic about where you are focusing on value and where you focus on top line revenue and growth.