This article originally appeared on Forbes.com.
For decades, scale economies ran like clockwork in the world of sales. Companies in business-to-business (B2B) markets consistently grew their revenues faster than their sales and marketing expenses. But over the past decade or so, that trend has stalled and in some cases reversed. The sales models for many large companies have become more complex and less efficient, putting pressure on profit margins.
How big is the problem? Bain & Company analyzed the 2003-2011 income statements of roughly 200 large US-based companies in healthcare, technology and financial services. Just over half of those companies had increasing sales and marketing expenses as a percentage of revenues over that period or failed to demonstrate the benefits of scale that one would expect from their growing size.
A few factors account for this reversal. Business customers increasingly want their vendors to have real expertise in their specific industry or function, such as finance or marketing. They expect vendors to help solve business problems, not just sell widgets. In turn, B2B vendors have expanded their product lines, and many have added solutions that knit together disparate products or services into an integrated offering.
Achieving growth targets profitably requires a scalable, high-return model. That means knowing where and how to invest in sales resources. As B2B providers restructure their sales model for these new realities, four actions can help them keep on track with greater certainty and pace.
1. Identify customer sweet spots and define the appropriate offering, then put a repeatable process in place to expand to other segments. Suppliers can identify the sweet spots for investment by using two criteria: segments with the most attractive lifetime economics and those where a company’s distinctive offerings win consistently.
Infor, a US-based firm that sells software solutions mostly to small businesses, identified roughly 2,000 micro-verticals, such as brewers and hospitals, where it had more specific and relevant offerings than competitors. By identifying standard building blocks of functionality that can be readily adapted for different geographies or micro-verticals, Infor has created a repeatable process.
2. Get the right people in front of the customer at the right time. It’s critical to get right the mix and sequence of industry or functional sales specialists. Too few could jeopardize a sale because an expert may not be available to cover an area the customer considers crucial. Too many may make the cost of the sales effort uneconomic relative to the revenues accrued.
Investment in specialists thus can be “perishable” as a solution moves through its life cycle. Deploy specialists early in the cycle to gain a foothold, and expand to build expertise ahead of the competition. Once sales increase, make sure the customer relationship executive learns the basics from the specialists, in order to independently generate and qualify leads. When sales have ramped up sufficiently, reserve use of specialists only for the biggest, most complex deals, and redeploy them to other potential high-growth areas.
AutoTrader, a US media and software solutions provider to automotive dealers, decided to untangle its myriad go-to-market organizations after making four acquisitions in two years. To boost productivity, AutoTrader realigned specialist roles for some mature products and began to move administrative functions from the generalist account managers to the inside service team so they could generate leads across a broader portfolio. At the same time, the company added specialist roles for complementary products in the software portfolio, such as a customer relationship management product. Early results are promising: The cross-selling pipeline is growing, and account planning across generalists and specialists is working well.
3. Design compensation to promote behaviors that support your business goals. It’s critical that everyone in the sales organization focuses on attaining defined, well-communicated business goals and growth targets. Incentives should motivate individuals to reach those goals rather than falling back on traditional measures such as “last year plus 10%.”
One food company, for instance, struggled to raise prices in part because salespeople were measured strictly by their sales volume, with a bonus for their tenure. By changing the performance metric to give equal weight to volume and maximizing price, the company moved prices from slightly below market to nearly 2% above in just two years. That move alone yielded a $50 million increase in pre-tax earnings.
4. Equip the back office to allow sales representatives to spend more time selling. The back office can take on most of the lead qualification, proposal development, pricing approval, contract management and billing management—adding back 20% to 30% productivity to a sales representative’s day. Making sure billing errors get fixed, for instance, consumes a lot of time for some reps who want to protect their customers’ loyalty. With a concerted effort, a company can apply serious process improvement to the billing unit, hire select skilled analysts and look to attain a zero-defect operation.
Some complexity in B2B markets is inevitable, but not to the extent that it stalls growth. Cutting through complexity requires a simpler, disciplined sales model that can work in one segment after another.
Dianne Ledingham is a Boston-based partner and Mark Kovac is a Dallas-based partner in the Customer Strategy & Marketing practice at Bain & Company.