My friend, Anthony Iannarino wrote an interesting post, A Cheap Sales Force Is An Expensive Problem. He hits on a critical issue and mistake–one that I see too many entrepreneurs and small business owners make, often with devastating results.
Too many entrepreneurs and small business owners don’t have an appreciation for the value of sales and marketing, probably because they don’t understand the functions. All the investments made in product development, manufacturing, services, infrastructure are wasted if the company fails to acquire paying customers! It’s kind of like buying a Ferrari, but then equipping it with the cheapest possible tires you can possibly get. The car simply won’t perform.
Just as developing and delivering new products and services require investments, sales and marketing require investment. There is no such thing as doing these “on the cheap.” There are issues of affordability, but we have to spend money to make money.
How much do we spend on sales and marketing? It’s a very tough question. As usual the answer is, “It depends.” A starting point is to look at similar companies or industries. What do they invest in sales and marketing relative to sales? It’s a good starting point. But if you are brand new on the market, you may have to invest more. If you have a very new technology or solutions, you may need to invest more. If you are spending dramatically less, as a percent of expected revenues, than others, then you are very unlikely to achieve results.
As Anthony mentions, many small business people or entrepreneurs choose a deployment strategy because of perceived cost. “I can hire very inexperienced sales people cheaply.” “I can hire an independent sales person and pay them after they get the order?” “I’m going to leverage web-based sales because it’s really cheap?”
Making decisions about sales deployment for these reasons is just dead wrong!
We choose a certain deployment strategy or certain routes to market because of how our customers prefer to buy! Do they buy through retail stores, do they buy from company sales people, do they buy through distribution, do they buy through channels? There are many alternatives, but our choice is governed by how our customers prefer to buy.
I disagree with Anthony, independent sales agents, channels or other indirect forms of sales can be very effective. Large organizations like Microsoft and Cisco use channels as their primary routes to market. Likewise, the independent sales channel is very powerful and very well established. Small and large companies, alike, use them with great success.
Like your own sales people, you want to recruit quality channel partners or independent sales reps. Bad sales people don’t work, bad channel partners don’t work—no magic here. If you choose a channel or independent agent channels (because that’s the way your customers buy), you want to build a quality sales organization.
Building a quality channel or independent sales organization is neither cheap or free. Just because you don’t compensate these partners until and order is generated, doesn’t mean you aren’t spending money.
The channel won’t produce results unless you invest in them! Training, tools, systems, marketing and sales programs, channel/partner managers, partner portals, and so forth. You want to equip your channels to be successful. Too many organizations don’t make these investments—and the results or lack of results shouldn’t be surprising.
If your own sales organization is the most effective way to enable your customers to buy, then like the channels, you have to make sure you have a quality sales organization that produces results. You have to understand the skills, competencies, experiences and capabilities needed to be successful. Hiring a sales person because he’s cheap is a waste if he doesn’t have the capability to be effective in front of the customer. You might as well shred your money then burn it—that us much cheaper and will produce the same result at far less frustration to you.
You have to get the right sales person to do the job. It’s unlikely a $50K sales person has the same skills, capabilities and expertise that a $150K sales person has. If you need the skills of the $150K sales person to achieve the expected results, then that’s what you have to invest in. Again, this is based on understanding what is required to be successful with the target customers.
The issue of 100% commission, highly leveraged plans, or whatever is a distraction. It’s a game owners play with themselves, making them think they are “saving money.” I encounter some business owners who are obsessed with this. In reality, they are betting against themselves.
However, it’s not the core issue. You can build very effective teams of people on 100% commission or highly leveraged plans. Likewise you can build teams of people who are highly effective, quota and goal oriented who are on straight salary. The compensation plan should be driven by what you want the person to be doing, the behaviors you want to drive.
Like channels and independent sales agents, the investments you make in paying people is just a part of the investment you need to make them successful. Again, they need training, systems, tools, materials, marketing and sales programs, and more. They need coaching and development. All of these require investments, but they are investments in making them successful.
Unfortunately, I encounter too many entrepreneurs and small business owners who try to do things “on the cheap,” rather than maximizing what they get from the investments they make. It’s an important distinction.
As Anthony points out, doing things “on the cheap” is always very expensive—not because of the money you spend, but because of the orders, business, and revenues you fail to achieve.
Sales and marketing is a critical investment—just as product development, manufacturing or other areas. Bad investments in any areas produce bad results. There is no magic.
A very thoughtful and measured Post, Dave.
Seeing the wood from the trees is one of the biggest Challenges in Selling today!
I agree with your:
“I disagree with Anthony, independent sales agents, channels or other indirect forms of sales can be very effective. Large organizations like Microsoft and Cisco use channels as their primary routes to market. Likewise, the independent sales channel is very powerful and very well established. Small and large companies, alike, use them with great success.”
You could have added IBM, to that illustrious list, and most Small and Medium Businesses will HAVE to make these changes, to survive and thrive!
It’s a new day, it’s a new way to sell.
It compliments the old ways, we have to learn new skills, in Sales, Selling, Recruitment, Development, Retention and Channels.
Don’t fear it, embrace it!
Thanks for the comment Brian. Channels, independent agents, partnerships have always been very powerful for large and small organizations alike. The challenge is not using them, but how to use them with maximum impact.
Good to refresh our thinking now and then. Thanks Dave. I to have seen the painful costs and opportunities lost by “hiring on the cheap”.It’s unfortunate but very prevalent in small businesses. kr
Thanks Keith, I think it is rooted in a deep lack of understanding of the importance of sales and marketing.
While I do not disagree with anything said above, I think it is a mistake to lump sales and marketing together. The correct balance of spending between sales and marketing varies from company to company, industry to industry and significantly where a business is in its evolutionary cycle.
Generalisation on this matter will typically produce a mediocre result.
Great point Phil. I didn’t intend to lump them together, rather I wanted to make sure both were addressed. It’s critical that we look at marketing and sales (and customer service for that matter), making sure we invest appropriately in each.
Forming a sales strategy around the lowest common denominator will always lead to trouble. If anything, that’s one of the areas that you should invest in the most as it is likely to yield the highest gains when all is said and done.
Ben, thanks for the great observation.