Select the right sales model for profitability
Today, a common challenge for companies is to find the right sales model for their products and services. Where previously a deal could be signed, delivered, and invoiced upfront, companies today face subscription models and pay-as-you-go schemes. The selling company faces all the cost of sales up front, through development cost and sales salaries, while the income is deferred over time. This creates challenges to financing and cashflow, especially in growth companies.
As sales managers, we may not need to be CFOs, but we certainly need to understand the concept of cost of sales and be vigilant that our company doesn’t run out of money before getting paid by customers. It is up to us to do what is possible to lower complexity and cost, and to maximize the size of each transaction and charge well for our solutions.
Complex sales needs large deals
Look at the complexity involved in your sales cycle. How much work does it cost you to sign a deal? What guidance does your prospect require in the process? Too many companies are struggling with a too-expensive sales model for the sales their team actually produces. Customers and partners all would like to get your product at a good price (or for free if they could). At the same time, they demand guidance and help from our salesforce to understand the product and its benefits.
What is the real price they would need to pay, given the extensive hand-holding and human interaction during the process?
Sales can be very different depending on what you sell, and range from giant projects and systems sales where tens or even hundreds of people are involved in one single sale, and where the sales team closes a deal a year, to high volume sales, where the seller needs to close tens of deals every day. We normally talk about high-touch and low-touch sales, and sometimes even no-touch sales if self-service, to distinguish these models. Most of us are somewhere in between these extremes.
The trick is to find your model and align it to your business to make it profitable.
In more technical terms, this is all about aligning the ratio between your cost of sales, or customer acquisition cost (commonly known as CAC) with the money you can expect to earn from that customer, your deal-size, or in businesses with high recurrence, your lifetime value (LTV) on that relationship.
Do not get stuck with high-touch sales in a volume business.
Especially in B2B technology sales, with sellers claiming high differentiation, your customers are likely to require handholding through the sales process.
This costs you money. Customers in this type of business are also used to receiving lots of attention from the sellers, as low-cost SaaS models and pay-as-you-go schemes are recent, and customers have not yet gotten used to taking a technology decision without guidance and human interaction.
Find out where you are on the scale between low and high touch
The first step you need to take is to get to know your real current sales cycle complexity. If you don’t know where you are, you will not know how to improve. Put some simple measurements and metrics on your process. What’s the real effort you put in for every sale? Find out the following:
- The effort—calls, e-mails, other interactions = “touches” that you on average need to convert a lead into a deal?
- The average time spent on these “touches.”
- Perhaps you have accurate activity registers in your CRM, but if not, do a manual “post mortem” on your last 10-15 successful deals. (This can be turned into a great team building exercise for a sales meeting.)
It is also relevant to look at the total time your team spends on sales to determine how efficient your sales team is. The longer the process is in the successful cases, where you actually end up selling, the more important it will be that your team is doing a good job qualifying opportunities early in the cycle.
Improving profitability per transaction
So, let us assume you have discovered that you have a complex sales cycle, with a too low average deal-size for you to feel happy about it.
What can you do about it? Logically, you have two options:
- Lower the sales cost/effort (your customer acquisition cost – CAC).
- Increase your deal-size, which increases the value of that customer for your life time value, or LTV.
Often the latter is more difficult to achieve in the short run, but in a longer perspective, it is where we want to head towards. On the short term, quicker fixes help the cost of a sale. There are a number of things you can try to see immediate results.
Short-term fix – work Cost of Sales
Shorten the cycle – Identify the stages in the sales cycle/process. Are there any steps that could be improved or eliminated? Could demos be automated? Can you create some materials that help to accelerate the process and limit the number of “touches”?
- Spend some time on this. Why not invite a few of your trusted partners or even customers to get their feedback?
- What would have been the minimum help they really would have needed when they decided for you?
Improve pipeline efficiency. – Disqualify early. Learn how to maximize the proportion of time spent on opportunities that convert into sales, and minimize the efforts spent on opportunities that will not. The earlier in the process you can narrow down your pipe, and choose where to spend your time, the lower customer acquisition cost you will have. (read our article on sales efficiency here)
Automate, automate, automate – Try to eliminate any human interaction from the process except for where it is absolutely necessary.
- If you are receiving your leads from webforms on your pages, get yourself some marketing help. Inbound marketing can be very powerful. Consider marketing automation tools, providing “hotter” leads instead of a mix of cold, lukewarm, warm, and hot ones. A rep that is behind quota tends to let many bad leads through.
- Minimise the sales admin work a salesperson needs to do on proposals and order management. If your proposals are customised every time, try improving your qualification process so that only opportunities that will convert receive proposals.
- Can the purchase process be automated with credit card payments or buying via a web interface?
These tips may or may not be right for you, but what you should do is to work on identifying what will work for you. Work through your sales cycle, adjust, and improve wherever possible.
In the medium to long term, increase your deal size
The other side of the coin, to improve your sales figures for every customer you make, you have some options:
- Cross-sell more products in every transaction, and to existing customers. Invent yourself your own cross-selling opportunities and build a strategy to create your own catalogue. Initially, if you are a single product company, expand through services and trainings. Can you sell add-ons separately? Look at your ecosystem. Are there any products that your end customer uses together with your product that you could resell with your own product?
- New product editions that allow a higher price. If your current product has an entry level and a premium level, add more levels for a higher priced platform, such as an enterprise edition or super-premium.
- Increase your footprint in existing customers. Add more seats, sites, or whatever your pricing model is based on. Penetrate deeper into your customer and sell into more departments. The best reference to use when you sell to one division in a corporation will be other divisions in the same company.
To cross-sell, upsell, and discount less, you need to provide value to your customer in every interaction and contact surface. Visit our value sales sections to learn more about value-based sales technique, and how you as the sales manager can work this with your team.