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  1. 1. A ChAllenging eConomy: FinAnCiAl ConsiderAtions For go-to-mArket exeCutives Copyright © 2009 PipeAlign, LLC. The reader may reprint and distribute this work, subject to the Terms and Conditions posted on www.pipealign.com. The B2B Refinery® Copyright © 2004 by J. David Green and Michael C. Saylor. All rights reserved. www.PipeAlign.com | (877) 575-5515 FinancialCase_20090318
  2. 2. A Challenging Economy: Financial Considerations for Go-to-Market Executives ExEcutivE Summary During a recession, market leaders often feast on weaker competitors. Against this onslaught, mere cost-cutting is an insufficient defense. Instead, companies with winning products or services should look for real leverage. One area of significant potential leverage is go-to-market investment. Duplicate and ineffective processes and systems often abound. Expensive sales channels waste scarce capacity on low yield activities, like cold calling and opportunity nurturing. These and other go-to-market problems occur because far too many companies lack end-to- end financial and operational metrics to clearly identify and correct problematic areas. Instead, management must rely on anecdotes and feelings, poor tools in a bear economy. The stakes are high. The sales and marketing investments typically represent 20 to 40 percent of company-wide spending. Moreover, that spending directly affects revenue production. As such, modest improvements in go-to-market efficiency can increase profits materially. thE challEngE Identifying go-to-market inefficiency is not easy, unfortunately. Cause and effect are often blurry. Part of the challenge is that sales and marketing each invest considerable resources generating demand and then educating and qualifying prospective customers. Even post-sales operations participates in these activities. As a result, the potential for uncoordinated cross-functional redundancy and waste are high. The complexity of organizational buying behavior and the constantly expanding go-to-market capabilities only compound the problem. Fortunately, an objective yardstick exists to help B2B companies identify areas of potential go-to-market inefficiency. That yardstick is the Business Buying Cycle. Looking at sales and marketing investments against this universal organizational buying behavior can illuminate areas ripe for resource reallocation and process improvement and result in much more scalable go-to-market operations. thE BuSinESS Buying cyclE and go-to-markEt rESourcE allocation and EfficiEncy Figure 1: The The Business Buying Cycle is Business Buying predictable. This predictability Cycle is a universal is important to understand and yardstick for to leverage. The most critical measuring go-to- aspect of this predictability is market resource allocation and the probability of purchase. At resource efficiency. any given point in time, there are far, far more prospects in the early stages of the Business Buying Cycle than in the final stage when they are making a purchase. Some prospects investigate a solution and realize the fit is not good. Others postpone the decision for internal reasons. Still 2 (877) 575-5515 | www.PipeAlign.com
  3. 3. A Challenging Economy: Financial Considerations for Go-to-Market Executives others in the market “just like to keep up” with products and services in a category “just in case.” Understanding this probability in the market can provide a framework for improving go-to-market efficiency through more effective resource allocation. In short, the volume and probability factors in the first two stages of the Business Buying Cycle make the use there of high cost and scarce sales resources problematic. This buying behavior also provides a framework for end-to-end metrics of complex and cross- functional go-to-market operations, making continuous improvements possible. uncovEring currEnt ExpEnditurES Because sales and marketing both generate demand and then educate and qualify prospective buyers, the first step in improving efficiency is determining how much money a B2B company already spends in these areas. The answer is often eye-opening. Of course, a large portion of the marketing budget addresses these functions. But so does a significant portion of the sales budget. Even post-sales operations invest resources in these areas. Quantifying this investment should be a critical component of go-to-market planning and budget allocations. Arguably, a B2B company uses the entire marketing budget to generate demand and to educate and qualify prospective buyers. Brand advertising, promotional advertising, the corporate website, event marketing, PR, and collateral all serve this purpose. Even market research and channel marketing indirectly support these objectives. In sales, representatives typically cold call and network to generate demand and to identify companies planning to purchase something in the category. In fact, the less effective marketing is at generating demand, the more direct salespeople must pick up the slack. It’s a sort of teeter-totter effect. Salespeople also qualify and nurture prospects. Qualifying and nurturing prospects is a critical component of lead management. If even five percent of the sales budget is allocated to this demand generation and lead management activity, a lot of money is involved. And in many companies, the percentage is much higher. There are generally two key scenarios in post-sales affecting demand generation and lead management: • Often, especially early on in their investigations, customers and prospects may not want to speak to a “high pressure” salesperson and so attempt to gather information from customer service or product support representatives; • In the course of servicing a legitimate post-sales need, customer service and (especially) product support personnel can educate and qualify customers enough to generate interest or simply identify an existing level of interest that may not have come to the attention of the sales channels. Those are both “presales” activities in a post-sales world. The existence of this demand generation and lead management activity in sales, marketing and post-sales should prompt B2B executives to ask four key questions: www.PipeAlign.com | (877) 575-5515 3
  4. 4. A Challenging Economy: Financial Considerations for Go-to-Market Executives • How much does a B2B company really invest in demand generation and lead management? • What is the return on these resources? • Is there a more efficient use of these resources? • What kind of return would a more efficient deployment of resources yield? In aggregate, the dollars invested by sales, marketing, and post-sales operations represent a significant percentage of expenditures. Moreover, these investments can increase or decrease sales production. Assessing these costs and their effect on revenue warrants periodic, cross-functional executive analysis and ongoing executive oversight. go-to-markEt inEfficiEncy After assessing the cross-functional investment levels in demand generation and lead management, B2B companies should identify areas of potential inefficiency in sales, post-sales, and marketing. Sales Channel Inefficiencies Most companies ask direct or indirect sales channels to generate demand and nurture opportunities. How efficient is this investment of this scarce, expensive, and hard-to- scale set of resources? Inefficiencies with Corporate Sales Teams Anyone who has read the leading books on selling to businesses knows that those tomes spend a great deal of time teaching salespeople how to cold call to generate demand. Those books also teach salespeople how to ask questions that help prospects connect their problems to whatever the salesperson is selling. Clearly, setting up appointments and using various questioning techniques to generate interest are mission-critical skills. The question is how much time salespeople should invest in these demand-generation activities. Cold calling can be very demoralizing and counterproductive. It takes a lot of time to reach decision makers, and, no matter how skilled the representative, the percentage of these decision makers who buy in the near term is generally low. Motivating salespeople to face this barrage Figure 2: Looking at of rejection and resource allocation even rudeness is a in your sales key aspect of sales channels through management. the lens of customer buying behavior can One by-product clarify inefficient of this activity is deployments of sales resources. that even good salespeople will set up calls with marginal prospects rather than spend more time cold calling. So some sales calls are 4 (877) 575-5515 | www.PipeAlign.com
  5. 5. A Challenging Economy: Financial Considerations for Go-to-Market Executives with prospects who are a long way from a decision. Others are with prospects with a low probability of purchase. Others still will place small orders that an inside sales representative could handle more efficiently. Sure, sales occur as a result but at what cost? The questions executives must ask are how much of this low-yield activity exists and how much of it the company can replace with higher yield activity? Looked at in this light, the potential for business sales channels to increase revenue production is almost always considerable. Even in highly efficient sales channels, a five or ten percent increase in production is often possible if the channel receives a sufficient volume of qualified leads. Inefficiency with Indirect Sales Channels Many people believe that a company “pays” for indirect channels to create demand through margin discounts. While indirect channels will generate demand, there certainly needs to be a critical mass of demand that the manufacturer brings to the table. That’s the ante for getting into the game. Without these table stakes, B2B companies must overinvest in channel management. The reason is simple. Unlike Figure 3. Insufficient a corporate sales team, demand increases most indirect channels the cost of channel have choices. They can management in focus on other solution indirect channels. areas or even competitive solutions. So, when a B2B company does not generate sufficient demand to support indirect channels, the sales organization must invest in more channel recruitment (due to attrition and low partner conversion rates), more training, more joint sales calls, and more post-sales support. Summary of Inefficiencies in the Sales Organization Determining the true sales capacity of both direct and indirect channels, then, should be a fundamental objective of enterprise go-to-market planning and resource allocation. Post-Sales Inefficiencies There are really two key areas of inefficiency relative to post-sales: • Post-sales operations rightly identify prospects for sales channels who then ignore the prospect; • Post-sales doesn’t solicit or even identify existing customers on behalf of sales and marketing. Customer service and product support people often complain bitterly about salespeople not following up with prospects handed off by post-sales. The reasons for this behavior by sales channels, however, are actually not that mysterious. www.PipeAlign.com | (877) 575-5515 5
  6. 6. A Challenging Economy: Financial Considerations for Go-to-Market Executives First of all, too many of the prospects identified by post-sales are not sufficiently qualified to warrant sales engagement. Some are a long way from making a decision. Others are not even in the market. Others still are a bad fit for the products or services in question. Second of all, post-sales routes a high percentage of the prospects to the wrong salesperson. Sales organizations in larger B2B companies are very complex and dynamic, and getting a prospect to the proper salesperson is not simple. Prospects routed to the wrong sales representative are ignored or otherwise mishandled because the salesperson has no incentive to route leads or because the salesperson doesn’t know who should handle the prospect. Additionally, because many companies who rely on indirect channels do not know where all their customers are, these operations can help greatly with this ongoing customer identification, both in terms of sites and the contacts at those sites. Marketing Inefficiencies In theory, marketing can generate demand and educate and qualify customers much more cheaply than sales channels can. After all, marketing has scalable methods of mass-customized contact. Moreover, because of the improvements in technology, these methods are improving every day. In practice, these investments do not always yield the revenue and profit that is reasonably possible. As a first step then, look for duplicate process and systems. The duplication can involve internal or outsourced functions: multiple telemarketing functions, multiple direct response agencies, multiple repositories of disconnected marketing data, duplicate marketing automation functions, and so on. While some duplication may be warranted, generally this overlap simply raises overhead costs and prevents true scale. Plus, the uncoordinated results are almost always suboptimal for many reasons. After identifying duplicate processes and systems, examine the current operational and financial metrics. The truth is few companies can accurately quantify the impact of marketing expenditures on revenue or sales productivity. This problem occurs because marketing lacks the proper end-to-end pipeline metrics. Without those metrics, identifying many critical sales and marketing pipeline inefficiencies is almost impossible. For that reason, creating a go-to-market pipeline that maps to the Business Buying Cycle and measures a few key milestones along the way can really clarify where inefficiencies are. In this context, then, there are six key areas of measurement, with the last two involving the sales Figure 4: A go-to- organization: market pipeline that maps key sales • Solicitations (or and marketing impressions) aligned milestones to the with market yields; Business Buying • The conversion of Cycle will help clarify areas for marketing solicitations improvement. (regardless of medium) into expressions of interest (i.e., inquiries); • The conversion of 6 (877) 575-5515 | www.PipeAlign.com
  7. 7. A Challenging Economy: Financial Considerations for Go-to-Market Executives those who express interest into those who are willing to have a live conversation (typically with a well-trained telemarketing representative); • The conversion of those telemarketing opportunities into qualified leads; • The conversion of qualified leads into a quantifiable revenue stream; and • Sales production. A low yield at any stage will result in suboptimal results overall. Solicitation Coverage Some segments of the market will yield a better return than others. Customers yield more than prospects. Larger accounts yield more than smaller accounts. Certain verticals yield more than other verticals. Without a media strategy that hones in on these factors, the resulting sales pipeline will suffer. In this context, the most lucrative segments should receive the greatest level of proportional investment. Solicitation Conversion Ratios Until customers and prospects identify themselves as having some interest in investigating a solution, there is no chance of a sale. So, measuring the conversion of solicitations into expressions of interest is the second key pipeline metric. There are two aspects to this challenge. One is to motivate customers and prospects to take an action. The other is to identify them when they do. Interest Conversion Ratios As every salesperson knows, Figure 5. This there is a big difference simplified sales and between an expression of marketing contact interest and a qualified lead. strategy divides market opportunities While the odds are low that in a way that avoids these customers or prospects duplication of effort. are ready to buy, the long- term probability of purchase is still much, much higher than those in the marketplace who have expressed no interest. So investing marketing resources to educate and qualify prospects offers a better return than soliciting similar customers and prospects with no expressed interest. The goal here should be to cost-effectively convert inquiries into prospects willing to speak to a well-trained telemarketing representative who can function as a lower cost proxy for the sales organization. Low-cost methods of contact like email/web, personalized digital printing, and one-to-many vehicles like webinars and seminars can all play a major role in this conversion process. Telemarketing Conversion Ratios As prospects move down the Business Buying Cycle, the actions upstream and downstream can affect the efficiency of a given function. For example, if too many unqualified prospects enter the telemarketing operation, then the conversion of those opportunities into leads might be very low and the cost of telemarketing too high. Likewise, if sales people do not follow up on the leads from telemarketing, the www.PipeAlign.com | (877) 575-5515 7
  8. 8. A Challenging Economy: Financial Considerations for Go-to-Market Executives conversion will also be low. But by measuring and benchmarking key milestones, B2B companies narrow the range of possible factors if the yield is too low. Lead Conversion Ratios Closing the loop is never easy. Doing so requires ongoing executive commitment and a “contract” between sales and marketing. In return for following up and reporting on leads, the sales organization will want marketing to deliver a quantity of truly qualified leads, a quantity that will measurably improve sales productivity profitably. This critical element of the go-to-market pipeline, however, ultimately will enable marketers not only to measure pipeline conversion ratios but expense-to-revenue ratios at each stage. With the right end- to-end pipeline metrics in place, B2B companies can identify and correct inefficiencies and embark on a path of continuous, incremental improvement in go-to-market operations. Sales Production Of course, the ultimate goal of these investments should be to reduce the expense-to- revenue ratio of sales and marketing. To that end, these investments should improve sales productivity and managers must view any modification of the resulting lead system through this ultimate lens. 8 (877) 575-5515 | www.PipeAlign.com
  9. 9. A Challenging Economy: Financial Considerations for Go-to-Market Executives Summary: kEy QuEStionS for go-to-markEt ExEcutivES Without a cross-functional commitment to enterprise-wide coordination and optimization of go-to-market resources, the chance for suboptimal results is very high. This effort should start with a company-wide assessment and benchmarking of the current situation. • Finance Figure 6: Efficient - What improvement in B2B dialogue the combined sales and occurs when the marketing expense-to- quality of marketing revenue ratio is possible output balances the capacity of business each quarter? sales channels to - What reallocations are produce revenue. required to achieve this improvement? • Channel Capacity and Mindshare - What percentage of the existing sales channel budget does the company currently use for demand generation and lead management and what is the yield from this investment? - What revenue capacity exists in each business channel if optimized with a sufficient flow of qualified leads? • Marketing Efficiency - Are the marketing investments in solicitations in proportion to the expected yield from each segment? - What percentage of the current annual solicitations converts into expressions of interest and how do these percentages compare with industry benchmarks? - What percentage of these opportunities converts into leads and sales and at what revenue yield and how do these percentages and yields compare with industry benchmarks? - How do the existing capabilities for demand generation and lead management compare with best practices? • Post-Sales - What percentage of the post-sales budget does the company currently use for demand generation and lead management? - What yield exists from this investment today? - What pipeline potential exists from post-sales operations? With the answers to these questions, a B2B company can build a roadmap for better go-to-market ROI, even in a challenging economy. www.PipeAlign.com | (877) 575-5515 9
  10. 10. A Challenging Economy: Financial Considerations for Go-to-Market Executives aBout pipEalign Who We Are The name “PipeAlign” combines the idea of a business-to-business (B2B) sales pipeline with the concept of go-to-market alignment. A pipeline also suggests the metaphor of our B2B Refinery® marketing methodology. What We Do PipeAlign and its Partner Network help large B2B companies improve results from lead generation and lead management investments. Why We’re Different • We have a unique, proven lead generation methodology (see the Avaya case study, for example) that lowers the overall expense-to-revenue (E-to-R) ratio in sales and marketing; • We’re very fast, whether you need us to assess your existing situation or deploy turnkey solutions; and • We’ve structured our business model to minimize fees you pay for planning and design, to maximize investment in implementation, and to make you self-sufficient rapidly. How We Can Help • Assessment of your current lead generation and lead management practices and capabilities and recommendations for improving what you are doing; • Implementation of direct response campaigns, lead nurturing campaigns, telemarketing operations, lead assignment and tracking systems, and database marketing systems; and • Improvement of your existing practices through training, quarterly or annual budgeting sessions, and/or vendor management. 10 (877) 575-5515 | www.PipeAlign.com
  11. 11. A Challenging Economy: Financial Considerations for Go-to-Market Executives Resources For Go-To-Market Professionals The following resources are available at www.pipealign.com: Free Brains! • The B2B Refinery®, our book describing a cross-functional methodology for better go-to-market efficiency; To learn more about or • A case study on a Fortune 500 client that generated a access our book, white billion dollar pipeline in twenty months using the B2B papers, the case study, or Refinery® Methodology; our modeling tool, go to • Various white papers: the library section of our − In a challenging economy, financial considerations for web site: go-to-market executives; − Critical success factors in closing the loop; http://www.pipealign.com/library.asp?default − Best practices in B2B telemarketing operations; − Message and offer alignment with organizational buying behavior; − The use of email and responder websites to engage customers and prospects in a “Digital Dialogue” to generate demand and to educate and further qualify inquiries; − Key factors for gaining executive support for lead generation and lead management initiatives; • A web-based modeling tool that you can use to identify areas of potential financial opportunity within your current go-to-market operations; and • PowerPoint slides that illustrate essential concepts of our B2B Refinery® Methodology. About The President: J. David Green Dave Green has over 25 years of experience in all facets of lead generation and lead management. Clients include Microsoft, Lucent, Avaya, Iomega, ADP, Symantec, Computer Associates, and Novell. For two of those clients, Dave designed telesales operations that significantly exceeded first-year quota by more than 30 and 60 percent, respectively. He also wrote the business plan and helped secure the funding for a department focused on demand generation and global lead management for a Fortune 500 firm. He then helped recruit the staff, select the vendors, and assisted with operational implementation that drove over a billion dollars in pipeline in the first 20 months. In 2001 Dave teamed with Michael Saylor to co-author The B2B Refinery®. That book outlines the value of organizational alignment to business buying behavior and go-to- market economics to maximize ROI on sales and marketing resources. He has also written or co-authored numerous white papers. www.PipeAlign.com | (877) 575-5515 11