The effectiveness of a companies go to market strategy will be directly correlated to a company’s success. Although the sales function is a critical component of the go to market strategy and the lifeblood of any business, most direct sales people spend precious little time actually selling, even though the annual cost of a direct sales representative is very high. Incremental changes in the amount of time a direct sales rep spends on core selling activities will have a positive impact on the business. One way to increase the direct selling time for sales reps is to first understand the problem and then craft a solution.
Go to Market Strategy – The Math Behind Direct Selling
The fully loaded cost of a direct sales rep selling B2B is approximately $380K per year or $1.9K per business day worked.
Granted, the base and bonus will vary by company. However, a typical B2B sales rep with a sound track record is expensive. Below is a guideline of how to derive a meaningful number for a company’s specific situation:
- Base is assumed to be $125K – $150K annually
- Variable compensation at quota is approximately $150K annually
- Overhead (benefits, office, taxes, phone, etc.) is estimated at 20% of total on target earnings
- Travel and entertainment is estimated at $50K annually
Tip, tax and out the door this total approximates $380K annually. In addition, this estimate does not take into account any equity awards, spot bonuses or car allowances.
Go to Market Strategy – Calculating the Cost per Working Day and Working Hour
As we all know, there are 365 days in a year. However, any full-time employee does not work that many days. The number of working days in the year is approximately 200 (based upon 20 work days per month * 12 months = 240. But, the 240 needs to be reduced by:
- 15 vacation days
- 10 national holidays
- 2 floating days
- 12 sick days
While the above number is also impacted by Club, Sales Kickoff and other non-selling days, a good working number for the actual number of working days per year is 200. A good assumption for the number of hours worked in a day is 10 (this includes lunch as many meals are business-related) and that yields 2,000 workable hours a year.
The fully loaded cost of a direct sales rep ($380K/year) divided by the number of working days (200) yields a cost of $1.9K per business ,day.
Go to Market Strategy – The Cost of a B2B Sale
The typical cost of a direct sales rep in a B2B technology sale is in the neighborhood of $380K, with a quota associated with that compensation package at approximately $2M annually. Based upon an average sales cycle of 6-12 months and an average sales price of $250K, the number of deals required to make quota are eight per year or one every month and a half–there are elephants but when you look at the median for all sales rep it will approximate 8 deals per year. Granted, SaaS models alter the absolute numbers, but from a relative point of view the analysis holds true.
Note that the cost of the direct sales rep above does not include the cost (direct or variable) of a sales consultant, sales management or executive management participation in a deal. Also, there is considerable cost in losing deals as well. Another good resource to review is ho to Leverage Marketing, Sales Development, Sales Enablement & Executives to Sell.
The amount of effort to bring a deal to closed/won, and many to closed/lost is significant. In the model below, the average sales cycle is assumed to be eight months (from the qualified opportunity state). The average sales price is assumed to be $250K and only the direct sales rep costs are included. Here’s a summary of the effort that is typically required from a direct sales rep to win a deal:
Qualifying – ½ day of effort is required to find a prospect that fits the target account profile and agrees to a meeting via a conference call
Meetings – to close a $250K deal over eight months, it is conservatively estimated that five meetings will be required, each consuming ½ a day (round-trip travel and the meeting itself)
Meeting Preparation – assuming that at a minimum,1/2 day preparation will be required to prepare for each meeting
Meeting Follow-up – assuming that at a minimum, 1/2 day preparation will be required to follow-up on each meeting
RFP – Three days have been allocated for responding to the RFP
Proposal – Three days have been allocated for developing the proposal
Contract – Two days have been allocated for managing the contract process
Emails – to close a $250K deal over eight months, it is conservatively estimated that ten emails per month will be sent, requiring 30 minutes each to craft
Voicemails – it is conservatively estimated that 12 phone calls per month will be made, each requiring 30 minutes of time
The net is that pricing out the cost of a direct sales reps’ time approaches $58K for the deal—and hopefully it results in a closed/won status. Again, note that the cost of other resources reqired to close the deal have not been factored into the equation.
Go to Market Strategy – Where Does a B2B Direct Rep Spends Their Time
According to many studies, sales reps only spend 20% – 40% of their time selling, and that includes supporting existing customers. So the question is, where does a sales rep spend their time?
Depending upon the study, the classifications and percentages vary. In general, it can be said that based on a 50-hour work week, a direct sales rep spends:
- Researching/prospecting, 22%
- Direct selling, 21%
- Administration, 18%
- Account management, 12%
- Travel, 13%
- Quotes/Configuration/Order Processing, 9%
- Planning, 5%
One thing for certain is that the percentages in each category are not 100% accurate and the categories may not match exactly to your particular organization. However, there is a high level of confidence that the estimate for the amount of time a sales rep spends on direct selling is within 10% – 20%. In other words, a $1.9K a day resource that is built to sell is spending the majority of their time in non-selling activities.
Go to Market Strategy – How to Increase the Amount of B2B Direct Selling Time
Every organization should decide on the core selling activities and non-core selling activities. Some sales leaders believe that a sales rep should own everything (prospecting to close) and this model can produce results if all sales reps are hunters, have a laser focus on prospecting and experience incredibly high conversion rates between sales stages. If not, this is a very expensive sales model, and incorporating less expensive resources that have specific skills should be considered in order to decrease costs and increase effectiveness.
On the other hand, there are those sales leaders that believe that core selling activities are the only activities that a sales rep should focus on and the goal is to optimize the amount of time a sales rep spends on core selling. In this scenario, a critical step is to determine the actual core selling activities.
For example, core selling activities may include:
- Account research and planning for meetings
- Meetings with prospects and customers
- Meeting follow-up
- Responses to proposals
- Proof of concept
- Orchestration of internal resources
- Communications with prospects currently in the sales pipeline
- Account planning
- Account reviews
- Expense reports
- Communications to existing customers
- Responding to administrative requests
- Set-up and tear down at events
- Internal emails
- Internal meetings
- Post-sales requests
- Sending collateral
- Searching for content (pricing, collateral, references, research notes, white papers, etc.)
- Building a database of companies and contacts
- Scheduling meetings
- Scheduling internal executives
The tasks underneath each list will change with each organization. The point is that the lists be developed and a line drawn as to the tasks a direct sales rep will focus on and those tasks that should be delegated. To make this model work well, an organization will have to invest in demand creation planning and execution. Such a focus will align scarce resources to the right companies, with the right message and the right offers. The result will be qualified leads that fit the target account profile. Next, an organization will need to invest in the demand management function so that qualified leads can then be converted into qualified opportunities in the sales funnel. It is at this point that the leads are passed from marketing to a direct sales person.
In addition to lead generation, marketing can provide the right sales tools, processes, systems and resources to set the sales rep up for success at bat, resulting in advancing the opportunity forward in the sales funnel. Specifically, some organizations have been able to increase direct sales time by reducing the time a direct sales rep spends:
- Developing quotation entries
- Crafting external emails
- Reducing or eliminating post sales support
- Responding to internal emails
- Searching for content
- Scheduling executives
- Visit prep and customer visit set-up
- Preparing customer data updates
- Fulfilling ad-hoc requests
- Searching for references
- Sending collateral
- Preparing RFP responses
- Creating presentations
Many of the non-selling activities can be delegated to marketing as long as there is a partnership that aligns at revenue and is solidified with terminology, processes, systems, reporting, metrics, communication and bidirectional feedback. If a marketing function is structured so that it has a market development, demand creation and demand management function, it is a good sign that the marketing person “gets it” and the focus is correlating to revenue.
Go to Market Strategy – The Net of B2B Direct Selling
If the goal is to optimize the amount of direct selling for a sales team, then one step may be to conduct an assessment to understand the core selling vs non-core selling activities of the sales organization. Once this baseline is established, a desired state can be constructed and an incremental plan can be developed and executed to move the needle.
In the end, it is all about placing the most efficient and effective resources to each task as possible. It is often better to have a person dedicated to a specific task rather than the same task be performed a very small portion of the time by a large group of people at a more expensive pay grade.
Increase capacity by reallocating and rationalizing tasks. The usual options are to eliminate, automate, offload or increase efficiency.