Q-Bits: Articles

Reducing B2B Sales Costs - Cutting the Hand That Feeds You

In search of cost reductions, most B2B companies traditionally look first to supply chain optimization, strategic buying efficiencies and headcount reductions. Because of revenue risk, sales costs, including labour, discounts and sales operations have typically been left alone. In the past, there were good reasons to do this: the sales teams generated the vast majority of the revenue; sales usually owned the client relationship and; the sales force were often the richest source of customer and competitive feedback. This approach has been successful during previous downturns. However, the recent economic turmoil has forced senior management to scrutinize and optimize every cost center, including sales, for their contribution to significant cost reduction.

Based on Quanta results, optimizing the sales model has demonstrated the potential to reduce sales costs by up to 25% while improving working capital and without jeopardizing revenue. Cost savings can take the form of reduced frequency and depth of client discounting, lower labour costs and decreased sales operations spend. What's needed is a sales-focused initiative that is equal parts revenue & cost analysis, strategy refinement and, most importantly, change management. Step one is understanding customer behavior and profitability as well as the firm's cost to service them.

Understand your Clients and Costs

All too often, Companies target their sales resources in a haphazard way or base their spending against client revenues that do not reflect profitability or market growth. Significant labour savings can be generated, not to mention improved targeting and client satisfaction, when firms deploy the right sales strategy, with the right resources, sales tools and practices against the specific needs and profitability of customers. For example, clients often do not want visits by senior (read: expensive) or non-technical sales people, preferring instead for the convenience of online purchases or technical phone support. Having said that, getting the right sales & support mix is not simple. Sales management needs rich insights into how buyers think and act; a deep knowledge of client & segment profitability; as well as a solid understanding of internal costs and best sales practices.

Customize your Sales Strategy

Having the right external and internal information enables executives to match the right sales resources, spending and tactics to the appropriate client or segment in the least expensive fashion that does not risk revenue. Quanta experience at a software firm demonstrated that costs could be reduced on average by 12-15% and revenue's increased 5-7% through customizing the sales channel by client profitability and growth. There are many types of tailored sales strategies that both reduce cost and increase effectiveness. For example, with small or less strategic clients, direct sales people could be redeployed away to higher priority clients leaving smaller accounts for a distributor channel or telephone sales. For large and complex accounts, firms could increase the number of direct and technical sales people in order to better serve the client and foster cross-selling and up-selling. New, strategic prospects can be targeted by an experienced "pitch team" with new business-focused sales tools.
Reducing sales costs and driving cross-selling can also be enabled by diffusing productivity-enhancing sales strategies throughout the enterprise. These include: capturing and disseminating best practices, minimizing non-selling time of the sales force and "packaging" simple support activities or products so they can be delivered through self-serve vehicles like the Web. Like other business initiatives, having the perfect strategy means nothing without total quality implementation and compliance.

Courage and Fortitude Needed - Apply Inside

Our experience teaches us that optimizing the sales force is often about refining the unique sales culture. Like other politically sensitive initiatives, change requires a powerful personal and business value proposition, departmental alignment and lots of communication. Getting sales buy-in is a critical and important first step. Virtually every senior executive, Sales Managers included, will willingly acknowledge the importance of minimizing sales costs and rogue discounting. Overcoming the resistance around revenue risk or ingrained practices is another story. For example, the drive to "make your numbers" (and bonus) often leads well-intentioned sales people to easily retreat back to bad pricing habits.

Secondly, bringing discipline to a complex and often poorly understood sales process should not be underestimated. Even in disciplined organizations, there are often a myriad of account strategies, volume discounts, exceptions and selling terms. Often, better results can only occur when sales metrics like revenue and retention, and the accompanying reward systems, are linked with the firm's latest profit objectives. Finally, day-to-day business pressures as well as unexpected competitive moves can often cause the derailment of best laid plans or result in a lax implementation of important policies. Even so, in today's difficult economic climate, reducing the cost of B2B sales is too important to ignore when other savings opportunities have been exhausted.

Copyright 2009 Quanta Consulting Inc.

For additional strategic planning insights and a discussion of our relevant client experience, please contact us-

Mitchell Osak
Managing Director
Quanta Consulting Inc.
99 Bideford Ave
Toronto, ON
M3H 1K5
(416) 937 2106