The New B-to-B Fundamentals (1,907 words)
By John M. Coe
... Or How to Sell More by Spending Less
For decades, sales and marketing communications groups coexisted as complementary but separate silos in most B-to-B companies. Marketing was responsible for advertising, collateral, public relations and trade shows. Sales was responsible for following up on leads generated by marketing, and selling the product or service to prospects and customers. The twain rarely met.
In the 1990s companies began to qualify leads more aggressively, deploy outbound telemarketing, build marketing databases, and install sales and marketing software systems. Since sales revenues continued to grow and grow, we assumed that real progress was occurring in the integration of marketing and sales.
Boy, were we wrong! While some progress in productivity was being made, what actually happened was the boom times of the 1990s covered up the lack of real progress in improving sales and marketing efficiencies.
The boom times are over and so are the false assumptions of how much integration actually occurred between sales and marketing. Here are the hard facts of today's B-to-B landscape:
1. For most companies, sales revenue is not growing, but sales and marketing costs are. The net result is that the percentage of revenue devoted to sales and marketing costs is increasing, often in the range of 20 percent to 25 percent of total revenue. Generally, companies have responded by cutting the marketing budget and decreasing the sales headcount, thus further limiting the capacity to generate top-line growth.
2. Sales efficiency, as measured by the number of sales calls per day, has dropped significantly over the last 10 years. Sales & Marketing Management magazine reported several years ago that the average number of calls per day had fallen from the old standard of four down to three. Many estimates now place this average even lower, largely due to the increasing resistance of buyers to see salespeople. It's no wonder that the average cost per sales call has skyrocketed to well over $500. In fact, a major chemical company reported recently that its cost per call was $3,000.
3. Marketing efficiencies also have decreased, evidenced by declining response rates for direct mail, e-mail and advertising. On the telemarketing side, connect rates have dropped. Business people are too busy today to respond to or even hear marketing messages.
4. Therefore, the cost of acquiring customers has increased at a faster rate than price. These trends and pressures will not disappear and, in fact, are just a continuation of what has been occurring all along—you just didn't notice. The big question is: What can you do to stem the tide, and improve sales and marketing productivity? How can you sell more and spend less?
A New Sales Coverage Model
Cutting-edge companies are moving toward a "new sales coverage model." Instead of organizing sales and marketing separately, forward-looking companies are fully integrating them in a much more productive and accountable way. The primary media for this sales coverage model are the four targetable contact media of e-mail, mail, telephone and face-to-face, which are now deployed across all customer life-cycle phases.
I purposefully have not mentioned advertising, since most B-to-B companies cannot afford to get their message to their target market using general advertising. And I'm also not ignoring activities such as trade shows and public relations. However, these tactics mostly are "surround sound" and can't reach specific individuals in targeted companies with relevant messages and offers. Only the four primary direct media can deliver on this objective.
Marketing Will Become Part of Sales
To suggest that marketing should report to sales is a strong statement, but to meet the demands on revenue growth and profitability, more activities need to be measured by their affect on sales. Marketing departments largely have been given a free pass in accountability for sales results, but I think those days are coming to a close.
Therefore, the focus of most marketing activities (and budgets) should be to measurably acquire customers, grow the customer base and retain customers. Marketing increasingly will share these goals with the sales group, thus for many companies, marketing will become part of sales.
This is particularly true for small- to medium-size B-to-B companies. But even large companies need to rethink the role of marketing to achieve substantial productivity gains. Large firms, with salesforce headcounts numbering in the hundreds if not thousands, cannot continue to afford the cost associated with fielding such a large number of salespeople whose efficiencies are fast declining.
Mind the Gap
The gap between marketing and sales is best exemplified when it comes to the area of sales leads. Marketer's say, "We sent good leads to the sales force, and they went into a 'black hole'—we have no idea of what happened." Salespeople will retort, "We got another bunch of lousy leads from marketing—I picked out the ones that looked promising and tossed the rest." This gap and resulting inefficiencies in the inquiry-to-sales process cannot continue for companies to meet revenue projections.
Closing the Gap
Now that we're aware of the gap between marketing and sales, and that it needs to be bridged, the real issue is how to do it. There are many entrenched processes and traditional views of how sales are made. The assumptions need to be squarely addressed and clarified for marketing and sales to combine forces effectively. Here's a five-step approach that not only will close the gap, but also identify specific activities required for success. This process is critical because there are many different B-to-B market situations. No one solution will fit all of the product and service value propositions, so any new sales coverage model must be customized to a company's unique market situation and business model.
1. Quantitatively benchmark the existing sales and marketing process. Determine the following basic metrics:
* cost of inquiries (from each outbound media)
* conversion rate of inquiries to qualified leads (from each media)
* cost of a qualified lead (by media)
* number of leads required for one sale
* average number of sales calls per day/week/month
* type of sales calls made by percentage (prospecting, closing, service, etc.)
* cost of a sales call (include sales management expense)
* number of calls required to close a sale
* cost of a sale (include sales management expense)
* win rate of proposals to sales
* customer decay rate
* percent of revenue devoted to sales and marketing
While there may be other criteria appropriate to a specific company's market situation, these will be a great starting point. Few, if any, companies know many of these basic measurements.
2. Establish gaps between the current benchmarks, best practices and company goals.
Once the basic sales and marketing benchmarks are established, the areas that need improvement quickly will become apparent. In addition, best practices in B-to-B should be known and coupled with any industry measurements specific to the company's business segment. In the end, the gaps set the priorities for developing the new sales coverage model.
For example, marketing frequently measures the cost of an inquiry as its benchmark for success. A cost of $70 to $80 is not unusual. But, when the measurement is extended to measure the cost of a qualified lead, a dramatic gap usually appears. As a baseline in B-to-B—given solid response advertising or direct mail and reasonable lead criteria—one out of 10 inquiries converts to a qualified lead. So the average cost of a sales lead should be between $700 and $800 using this ratio. Unfortunately, when actually measured, this lead cost can soar well above this. I've seen lead costs in the $2,000 to $3,000 range. Frequently this is a result of an offer that is too personal.
3. Develop required capabilities to close the gaps and educate everyone.
To close the gaps, improved or new capabilities will be needed. For example, many companies use telemarketing, but most have done so sparingly. Under the new sales coverage model, telemarketing will assume a more important role in such applications as lead qualification, lead development, telesales and sales coverage. Building the outside and inside telemarketing resources quickly will become a priority.
Other capabilities also will be required. An obvious one is building a marketing database that not only is descriptive of the market, but is accurate as well. Finally, education and training will be required to introduce these new sales and marketing methods, and spread the knowledge to all (in particular to sales—this group will be the most resistant to change).
4. Engineer the new sales coverage model.
The new sales coverage model blends the four primary contact media across the entire customer life cycle. To effectively determine the contact strategy, a profiling, targeting and segmentation process must be completed to focus the efforts on the best prospect and customer groups. Once this has been accomplished, the typical buying process of each key market segment should be established. Then the sales process should be matched to the buying process—a big change for most companies.
This effort then will call out when each of the four primary contact media should be deployed. The goal is to direct the limited and expensive face-to-face sales calls toward more "golden moments" and away from calls that could be handled by other contact media. The salespeople initially will resist this type of direction and loss of control. But once they realize they will be relieved of low productivity calls and given more time for key sales calls, their resistance will fade—provided they are kept informed of other customer contacts.
This is particularly true when contacts are made with active customers. No salesperson feels comfortable with others in the company contacting "my customer," as they have a high sense of proprietary responsibility for all customer contact. On the other hand, they know that many decision influencers and users within customer companies haven't been called upon in some time. So, in the interest of building better customer relationships, non-salesperson contacts should be made. However, there must be a communication to the salesperson regarding the substance of the contact so that they are not caught off guard when making future calls.
Overall, a game plan will emerge for how marketing and sales will share the responsibility of acquiring and retaining customers.
5. Execute, measure and adjust.
Now comes the hard part: execution. Deploying a new sales coverage model will not be easy—or painless. Resistance will come from many who are tied to the old methods that, of course, are not working anymore. It will take the firm resolve of senior management and senior sales and marketing executives to execute the plan. (A product or market group could be used as a beta test, but that means it will take longer to achieve the improved results and increased productivity, and many companies can't afford to wait that long.)
Changing the basic sales and marketing processes within any company may, in fact, take several years. Whether it's a group or the whole company, it will be critical to institute a measurement system to ensure progress is being achieved. No doubt adjustments will be needed along the way, or in golf terms—play nine and adjust.
Only by real integration of the sales and marketing functions across the entire customer life cycle can B-to-B firms achieve the goal of selling more by spending less. At that point, real sales and marketing productivity improvements will be seen, with those improvements dropping directly to the profit line.
John M. Coe is president and founder of the Sales & Marketing Institute. His new book, "The Fundamentals of Business-to-Business Sales & Marketing" published by McGraw-Hill, will be in bookstores this month. He can be reached at John.Coe@B2Bmarketing.com.