Big companies like Merck and Microsoft have been laying off thousands of sales reps. Even Harvard Business Review has carried articles titled “How to Downsize Your Sales Force.” Merck has let go circa 2,000 US sales reps in the last 18 months, following a cross-industry sales downsizing trend. The pharma smaller sales force trend is often attributed to the growth of digital communication channels plus reduced access to doctors who prefer to get information online. Recently ABInbev said it would eliminate 300 sales jobs from its craft beer business in the US. The goal being to simplify the sales organization following multiple acquisitions and to give customers a single point of contact. So, there’s a lot of it about! Let’s take a close look at how to re-design a 21st Century sales force for the digital age.
Analytics and AI help the “new” breed of sales rep, and support their productivity, e.g.: AI algorithms tell the rep what the ideal product configuration and discount rate should be for a proposal by looking at features of each past deal that was won or lost for similar customers. How should their up-sell and x-sell the customer, using a Netflix style recommendation engine?
The sales manager (perhaps and area manager or looking after a customer segment) can use an AI algorithm to predict sales figures and required discount rates.
So it’s a brave new world, or to completely mis-quote Brave New World "Mending is better than ending. Stitches makes riches." Let’s not throw the baby out with the bathwater, as there’s not more mileage yet in a correctly designed 21st Century Sales Force.
After years’ of growth for sales teams, especially with the emergence of digital sales channels, sales force sizes are beginning to shrink again. With smaller sales teams it is always important to see sales force costs as an investment to be optimised, and not as one to be minimised. Even when you have a big sales force, sales growth and positive ROI can only be generated if it is allocated optimally. What is then the right approach towards sales force sizing and allocation to provide product information, e-detailing, e-CRM, and online ordering, in an age of AI-powered chatbots?
Customers increasingly prefer to conduct their own pre-sales research online, instead of having a face-to-face conversation with a sales rep. They are also more likely to use digital channels for non-strategic and repeat purchases. But there is still a role for the sales rep in the customers’ eyes for high consideration purchases, and those requiring detailed evaluation. Engaging customers in the future will require a multichannel sales strategy powered by smart digital investments, which can cater to the different needs of first-time and repeat customers.
In a digital world, renewals, cross selling, and upselling have more value after the first sales has happened. Digital opportunities, where sophisticated CRM tools can help with order reminders etc., are not suitable for sales reps anymore from a time and efficiency perspective. In sum, sales reps in the digital world need to be more focused on hunting (acquisition) than farming (retention).
As we start thinking about setting up a sales force, there are some important calculations that you need to get right:
· Size and allocation of the sales force: Optimising the allocation of your sales force (i.e. across audiences, channels, products) increases effectiveness, allowing you to support a large sales force
· Customer segments: Targeting the customer segments where sales response is the highest can dramatically improve sales force ROI. Aligning sales reps with appropriate customer segments can improve ROI by up to 2X
· Defining coverage of segments: Some segments are more important than others. For important customers 100% coverage may be required. For less important customers 20% coverage might be enough, for example the ones with greatest potential, or easiest to service (procurement and department management co-located in a hospital)
· Call frequency: Not every customer call or visit will be as effective as the last. Different segments may require different call frequencies
· Territory design: Sales force territories are generally sub-optimally designed and allocated, prohibiting maximisation of sales force potential. By optimising territory design and allocation, ROI by sales rep can go up by almost 30%
· Carry over effects: For a growing business, more than 70% of revenues can be generated by carry over sales from previous years. This means a bigger sales force can generate strong returns
Increasingly embedding digital capabilities into a sales force plan has become a strategic decision for organisations. The key question to ask is whether you need a large number of sales reps. For sales professionals and leaders, digital technologies have opened up new ways of connecting with and influencing prospects without the need for face to face calls. As customer segments are created, the defining characteristics of these segments have become E-detailing, web ordering, and availability of product specs online or via chatbots.
The next stage of the process is converting these critical factors into a step-by-step plan for optimising sales force size, design, and allocation. We propose an 8-step process:
Step 1: Mapping the current sales structure
Re-optimising your sales teams for the future requires an initial ‘as is’ assessment of your sales organisation. We scan a host of internal and external data sources (e.g. sales team, target audience, P&L) and define key metrics to map out the current size, structure and allocation of your sales efforts.
Mapping the ‘as is’ state helps us understand:
· Is too little or too much rep effort allocated against each customer segment?
· What is the minimum call frequency that will change behaviour?
· Is customer segmentation optimised to maximise rep ROI?
Our proprietary sales force analytics suite of applications takes a detailed approach to mapping ‘as is’ sales efforts by channel, geography, product, and account, allowing us to optimise your sales at each level. We create sales data cubes, e.g. accounts by category, size, territory, current % penetration and call frequency. We then measure sales performance by establishing account profitability, by looking into costs to serve and profiling account differences (for example, by territory).
Step 2: Segmenting your customers
For the last 20 years sales force optimisation has been around products, but the emphasis has shifted recently to meeting specific needs of different customer segments – all through the lens of an Omni channel approach, which includes digital.
A typical segmentation will include the following dimensions:
· Company attributes: To address who the customer is, for example SIC codes, site of company, and catchment area of that business (retail outlet, coffee shop etc.)
· Customer behaviour: To address what the customer buys,, for example products they bought before by analysing sell-in or shipments data
· Customer needs: To address what the customer needs, for example how often they want to see a sales rep vs. speak to a call centre vs. using digital detailing. This is now an important dimension because a lot of sales reps tasks have been substituted by customers doing their own research online, or using digital configuration tools
This segmentation is then used to develop a more customised go-to-market strategy built around different customer types. This go-to-market strategy will have the following characteristics:
· Efficient deployment against most attractive segments, for example greater reach and call frequency
· Segment specific selling tools across relevant platforms
· A system for quickly identifying and distinguishing target customers in sales calls
· Segment specific profiling plan, for example segment penetration, call frequency, cycle plans, implications for sales force sizing, structure, allocation, territory re-design, span of control, manager allocations etc.
In a digital world, the ways of serving customers becomes the most important question. Customers are more likely to use digital capabilities for their non-strategic and repeat purchases. Engaging customers in the future will require a multichannel sales strategy powered by smart digital investments, which caters to different needs of first-time and repeat customers. The economic dimension continues to play a strong role in deciding the optimum way of serving different types of customers. For smaller value customers, pure digital may make the most sense. For medium value customers, it could be a mix of digital and the sales rep, and for larger clients it could continue to be a classic sales rep.
In addition to the dimensions outlined above, integrating where customers are in their buying journey can create a more effective segmentation. The role of the sales rep is no longer defined by the type of customer, but increasingly by where a customer is in the purchase journey. A repeat purchase now can be a complete digital exercise, and pre-sales is often digitally conducted research, resulting in the role of the sales rep to sit at a sweet spot in the customer journey.
But what we observe in our work at OC&C is that these boundaries are fuzzy. As customers move from initial research into the evaluation and consideration phase, digital tools that provide information such as a comparison tool or online configurator can be combined with face-to-face interactions with a sales rep or telesales. Often during a sales call, a customer is also simultaneously online using a configuration or customisation tool. After the sale, renewal, cross selling, and upselling are now likely to be more digital opportunities, where sophisticated CRM tools can help with order reminders, and it becomes inefficient to deploy sales reps to these tasks.
Step 3: Defining the sales team structure
Sales forces typically provide the least efficient (i.e. highest cost per exposure), yet the most effective (i.e. highest sales) way to connect with customers. The team structure and types of roles will depend on the balance between efficiency and effectiveness, as well specific industry requirements. For example, telesales is a more efficient way to reach customers as it generates a higher level of call activity for a lower level of investment. This would be quite common in an industry such as office supplies, unlike an industry such as medical supplies where F2F detailing is the norm.
When considering alternatives we assess the need for product, market or activity specialisations across the sales process, as well as how the structure will fit into an Omni channel sales ecosystem, for example:
· Can only one person sell all the products / services the company offers?
· Are special skills / experiences required to understand the company’s portfolio?
· Are there effectiveness gains to be obtained through product specialisation?
· Are there differences in the selling process or industry expertise across customer segments?
· Are some activities complex and in need of a specialist to sell them effectively?
Is the role of the sales rep now different with the availability of digital channels and different modes of reaching customers for more basic product information and ordering? In a digital world, the sales rep becomes a specialist and expert in the pre-sales and product demonstration process.
Step 4: Sizing the sales force
The size of a sales team can vary dramatically depending on the measure of profitability we use (1 year versus 3 years) and the amount of marginal profit required to be added by each additional rep. Companies generally use sales per salesperson as a key performance metric – as it’s a direct sign of sales productivity. Yet this does not capture the marginal return of adding more sales reps or reducing sales force size. We use advanced analytics to estimate sales response curves by channel, segment, and product to determine incremental sales impact of increasing or decreasing a sales team. In doing so, we also incorporate the carry over effect of prior year sales efforts. This means we measure the true incremental impact of both more and fewer sales reps.
Advanced analytics and machine learning (which we use a lot at OC&C) have given sales executives useful access to unprecedented amounts of data and computing power – we can now answer the question of what does adding more call frequency does to sales in a particular customer segment. Is it better to switch “sales rep equivalent” effort to hunting new accounts rather than farming existing ones, which can perhaps be better served by digital channels? Is it better to have higher penetration of new accounts or increased frequency of sales from existing accounts?
Advanced analytics make it much easier now to draw out a response curve for more / less sales rep effort against different customer segments (for example, more or less penetration of that segment, more or less frequency of sales in that segment). This allows us to size the sales team for optimal 1 year, 3 year ROI etc.. Advanced machine learning techniques at OC&C help us unravel the effect of the sales rep working in combination with digital channels. We now have much more data to measure the true impact of e-CRM activity, and we know if customers are re-ordering, allowing us to calculate customer lifetime value (CLTV). This helps us understand the multi-year profitability of more or less every sales rep effort against different account profiles (i.e., customer segments).
Step 5: Designing the sales territory structure
There are several important factors to consider when designing sales territories, all of which create the foundation for stronger sales:
· Workload balance: Better coverage of clients and prospects, and better market penetration
· Sales potential balance: Fairer evaluation of salespeople, improved morale, and maximised sales potential
· Travel efficiency: More face-to-face selling time and reduced costs
· Minimised disruption: Acceptance by salespeople and customers and lower transition costs
· Efficient alignment process: Efficiency in matching the right salespeople with the right customers
The right geographic allocation of sales teams is just as important as sizing. An optimised alignment keeps travel time and costs under control and maximises sales potential.
Step 6: Capabilities and Enablers
Technology-driven enablement is crucial for building a next generation sales force. Automation tools like sales force pricing workflow, permissions management, segmentation, e2e profitability, visualisation tools (e.g. Tableau), customer databases for pipeline planning and staging e-CRM tools (e.g. Salesforce, Marketo) are all examples of impactful technology enablers. Sales teams use technology to gauge whether the information they are sharing with a buyer is hitting the mark or not. Tools like email tracking and PointDrive allow sales reps to see what a buyer investigates and what he ignores, creating an informative feedback loop. Sales reps can then use this information to tailor future interactions.
Step 7: Sales and marketing alignment
In the past, products, services and solutions were sold either by traditional face-to-face interactions or via a telesales team. The B2B sales force comprising of sales reps, telesales teams and key account managers have traditionally been integral to buying decisions, and thereby complementing the structured and formalised style of buying.
In the current digital-first channel-agnostic age, many companies are struggling to fit their sales force in this new world order. Salespeople were seen as the single gateway and go-to experts before, during, and after any sale took place. But now in a digitally connected world, when customers can learn almost anything they want about a product or service with just a few clicks of a mouse, and can order highly customised products online, the value of sales experts have declined.
The capabilities and enablers of the “new” sales force post the digital big bang are very different. Now the sales rep and the sales team need to integrate effectively with digital marketing. Digital marketing encompasses all marketing efforts that use an electronic device or the internet. Sales teams can leverage digital channels such as search engines, social media, email, and their websites to connect with current and prospective customers. This means sales and marketing need to be more aligned in a digital world.
Step 8: Building a sales force analytics capability
A successful sales force analytics capability requires having the right strategic imperatives for the long term. The biggest challenge is establishing effective governance processes, and initiating the cultural change needed to support the new analytical capabilities.
By working closely with your senior leadership, OC&C helps you build a successful sales force analytics capability by:
· Assessing your organisation’s current level of analytical maturity
Identifying use cases and developing proofs of concept
· Defining team structure and ways of working
· Defining the roadmap, enablers and success criteria
· Creating and articulating the vision and deploying it across the organisation
New and powerful customer analytics empower sales teams with features (in products and services) that need to be emphasised, effective bundling scenarios, and price recommendations based on analysis of deals closed with the same customer in the recent past (customer look-a-like analysis).
Digital tools like e-CRM and recommendation engines make the after-sales stages more effective. For example, “best-next-product-to-sell” algorithms can send customers relevant recommendations of complementary products based on their purchase history and/or customer profile.
CEOs should emphasise the building of required capabilities crucial to the sales force optimisation process. As they look towards maximising their sales teams’ efficiencies, the following questions should be paramount in their minds:
· Am I organising my sales teams in the most effective way possible to meet my customers’ needs?
· Which products, segments and sales activities should I be assigning to different members of my team?
· What should be the optimum size of my sales team to achieve critical business objectives?
· Is there an opportunity to redesign my sales teams, and territories to improve efficiency?
· Has my organisation adopted the right processes for effective sales management?
· Are my sales and marketing functions more integrated and aligned with the new digital world?
· Am I serving my customers with full digital capabilities and my sales reps are working in harmony with this?
James Walker is a partner at OC&C Strategy Consultants, and Global Head of Analytics. James is London-based but works globally addressing Sales, Marketing and Customer topics with our clients. James.Walker@occstrategy.com