Can a Small Business Outsource Its Sales?

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1 Can a Small Business Outsource Its Sales? Overview We wrote this white paper to help small business owners deal with a very real, very frequent issue that occurs today. We have all heard the statistic that 50% of new businesses fail within the first five years. Failure to create the revenue required to allow the business to thrive is one of the major reasons these businesses fail. We thinc there is a better way for small businesses to launch a way to keep costs in line with revenues and at the same time build a solid foundation for future sales growth. What should the small business owner do when their product or service is showing early signs of success? They face the complex decision of how to best use the available resources to continue to grow profitably. Outsourcing to experts is a common solution for many small businesses to manage other areas such as accounting, legal services, skilled trades, etc. The question is, Can small businesses effectively outsource sales? Business owners at the critical early growth stage have many challenges that need to be dealt with effectively and efficiently. Common priorities include managing finances (including investor relations) product development and revenue generation. Unfortunately, small business owners that try to manage all of these priorities are rarely successful (or burn out). Of these priorities, the ability to generate revenue early, is a hot topic with investors and the business owner, who understand its importance to the viability of their business. So what alternatives exist to help the small business owner deal with this problem? The three most common alternatives available to the business owner: 1. Takes on the role of sales leader him or herself 2. Hire a full time employee 3. Outsource the sales function Each of these alternatives have pros and cons, and they will be reviewed here, in detail, to help small business owners determine what is best for their business. The Real Problem Before reviewing the alternatives to solve the problem, we need to get to the real problem. In today s economy, many business owners are starting their ventures using a technique called bootstrapping. Bootstrapping refers to a method of launching using extremely tight budgets with minimal investment capital. Early product (or service) viability is crucial because the company needs to drive revenue to survive and provide confidence to its investors. So what is lacking in today s bootstrapping environment for small business owners? They seek the catalysts to removing the pain points that exist in any business. They are time, money and expertise. Just about any business problem can be overcome if you have enough of all three. But who has all three? How does the business owner find the mix that will solve their problems? There is not one easy answer, but reviewing the alternatives below may help the business owner find a solution that works best for their company. Thinc Business Development Solutions Inc. Can a Small Business Outsource Its Sales? Page 1

2 UNDERSTANDING THE SALES REQUIREMENTS Does the business require a simple sale, complex sale or something in between? Below are some additional factors to consider that will help clarify the business owner s selling requirements. What type of product is being sold? Is the company selling a product in a limited market involving longer sales cycles, or are they selling in a more competitive market with relatively short sales cycles? Is the product ready to sell in the marketplace? Timing in delivering the product to market is important, as is feedback from experienced sales people who possess relevant market knowledge. Developing good communication from the sales team to the development team is paramount and can save valuable time and money. Who is your target buyer? How accessible are they? Is the decision maker a senior executive or junior manager? Professionals like to deal with professionals. Senior people are often more difficult to gain access to and have an effect on the length of the sales cycle. How much time can be devoted to leading, supervising and managing a sales person? Having experienced sales professionals affords the business owner more time to spend on other priorities within their company. How does the sales cycle effect compensation? Longer sales cycles often require business owners to consider more complicated compensation plans such as retainers, draws against commissions or bonus plans. What type of compensation plan will attract the best candidates? What are the post-sell expectations? (hunters versus farmers) Hunters are just that. They bring in sales and move to the next deal. With hunters, businesses need farmers to nurture its customers. Will the business owners need to build strategies and structure to transition their customers to farmers within the organization? Is the business owner ready for this or should they consider a model that makes the sales person responsible for total account management (hunting and farming). The compensation model should reflect this. With a clear idea of the selling requirements, the small business owner can review the alternatives that best fit their specific needs. Thinc Business Development Solutions Inc. Can a Small Business Outsource Its Sales? Page 2

3 ALTERNATIVE #1 SMALL BUSINESS OWNER TAKES ON THE ROLE OF SALES LEADER CONS 1. Lack of Expertise - Most small business owners did not start their company to get into a sales role. If that was the case, they would have started a company that provided sales as a service. Most start companies so that they can perform a specific task that they enjoy doing or see an opportunity in the marketplace that is exploitable. Neither of these has a base rooted in sales. 2. Time It is not a secret that most business owners are stretched for time. There is only so much, and you can t make more, so it is imperative that they makes the most of what they have. It may be more beneficial to the company if the owner is focused on other areas of their business rather than sales; areas such as product development or team development, especially if they don t have professional sales experience. The question is, Where does their expertise lie and how can the company best benefit from using it? If it is not sales why would the owner spend their time trying to sell? PROS 1. Direct Customer Interaction -Taking on the responsibility of sales can be very good for the company if the owner has experience or a natural aptitude for it. Meeting with potential clients gives them great product feedback, and buyers love to deal with the passionate visionary behind the company. 2. Cost Effective Sales generally require many dedicated hours to be put in in order to be successful. Many of those hours are considered unpaid hours. If sales are slow, it is the owner that will spend their own time prospecting and loading the sales funnel. ALTERNATIVE #2 HIRE AN EMPLOYEE CONS 1. The Cost Experienced sales professionals demand significant money, especially in today s economy. If the owner has the budget to hire at this level, they should strongly consider it. Compensation packages can vary widely across industries but a general rule is that the cost for sales staff (compensation, benefits and expenses) should not exceed 33% of the company s gross revenues. The chart below shows the direct and indirect costs of hiring employees. It also estimates the amount of gross revenue the hire needs to generate in order to fit the 33% rule. For most industries, typical annual compensation ranges from K depending on the expertise and sales process requirement. Compensation packages are a major commitment for companies and it takes significant resources to onboard a new hire. For this reason, many business owners are attracted to a 100% commission model because it directly aligns commissions with sales. The problem with this model is that it does not attract the best candidates. Most commonly, people with little or no experience that are looking to gain experience will be attracted to a 100% commission model, then they will make some mistakes and move on to a more stable position elsewhere. Consider the fact, You never get a second chance to make a first impression. Putting inexperienced or unprofessional sales people in direct contact with customers can result in poor sales performance and have long term implications.100% commission plans produce the highest turnover rates resulting in many wasted hours interviewing, hiring, training and supervising. While Thinc Business Development Solutions Inc. Can a Small Business Outsource Its Sales? Page 3

4 PROS this seems foreseeable, business owners continue to make this mistake, because they feel they do not have an affordable alternative. It should be noted that while success is rare with 100% commission models, it could work when certain conditions are met: i. The business provides the majority of the sales collateral, initial training and business leads (limited or no cold calling) ii. The leads provided tend to be prequalified and have high acquisition potential iii. The sales cycle is short: a. Typically one to two sales calls over a 3-4 week period b. Limited customer follow-up and/or relationship management 1. Hired Expertise - Hiring expertise is the widely preferred way to accelerate performance in any facet of a company, sales included. Professional sales expertise at an early stage of a company or product launch can help it grow faster and set the company up for long term sales success. Additionally, a sales professional will implement procedures and processes that will save money in the long run through reduced turnover, accurate forecasts and efficient margin management. 2. Reduced Training and Supervision Hiring someone with experience will save money, because the sales professional will not require training other than product knowledge and a company orientation. Less experienced hires will need more of the owner s time to manage, support and supervise their performance and behaviours or require the small business to hire a sales coach or mentor if the there is a major experience gap. ALTERNATIVE #3 HIRE AN OUTSOURCE COMPANY CONS 1. Loss of Control Owners feel disconnected from the sales process. They may be concerned that sales presentation is not being followed or, have all opportunities been followed up on? Are matters being attended to promptly? Are they selling competitive products? Shouldn t the business owner be in contact with his/her customers? 2. Lack of Focus outsource companies have multiple clients. How much focus is devoted to each client? 3. Lack of In-depth Product Knowledge Outsource sales people don t or cannot invest as much time as they should in product knowledge. PROS 1. Cost Efficient Expertise Outsourcing the sales function should provide a manageable cost structure for the owner and instill professional sales standards and processes to support profitable growth. Engaging with an outsource company frees up much needed capital and lowers overhead. An outsource company is able to charge a fraction of the cost of a full time employee by providing multiple clients with part-time services. The chart below shows a comparison that contrasts the fixed costs of hiring an employee versus working with an outsource company. The chart contains an area entitled the Savings Gap. We believe business perfromance can accerlate dramatically if this Savings is invested in marketing communication activities, specifically in developing professional sales collateral, lead sourcing and creation. Providing these crucial types of sales support through effective marketing communications should accelerate revenue generation and overall enterprise performance. This will also benefit the entrpreneur as it creates an employment environment that is condusive to providing a low-base/high-commission structure. Thinc Business Development Solutions Inc. Can a Small Business Outsource Its Sales? Page 4

5 Fixed Cost of Employee vs. Variable Cost of Outsourced Services Variable Cost Of Outsourced Service Savings Gap Succession Planning Professional outsource companies may aid in succession planning (planned obsolescence). That is to say, an outsource company should offer forecasting services to show the business owner a plan to grow revenues to a level where they can afford to hire the right qualified sales professional, if they choose to. The outsource partner should notify the business owner when it is time to start the succession planning phase, e.g., when the business is in a positive growth trend and the pre-set goals are within sight. Fixed Cost of Employee vs. Variable Cost of Outsourced Succession Planning Variable Cost Of Outsourced Service Savings Gap Thinc Business Development Solutions Inc. Can a Small Business Outsource Its Sales? Page 5

6 2. Flexible Usage Outsource companies provide flexible scheduling to accommodate their client s needs. Owners that require part-time services to fit their budget or fulfillment goals can receive outsourced services at a fraction of the cost of hiring. And as the business owner s company grows, an outsource company can provide service levels to match. 3. Managed Information and Involvement Outsource companies provide their clients with regular performance reports and ensure they are involved in key meetings or important decisions that are outside of a company s traditional sales process. Some critics cite that one of the major reasons not to hire an outsourced sales service is that the business owner will loose control over the sales process. It should be common practice for the outsource company to involve the business owner to aid in successful closes. A key part of the value any professional brings, whether a hired employee or outsourced, is to provide a reliable and repeatable sales process that involves the small business owner at the right stages. The diagram below illustrates a typical sales process that intentionally involves the entrepreneur throughout the process but not every stage of the process. We believe that the business owner is better served by focusing on product development and resource management than being involved in every single step of the process. Additionally, an outsource company is able to provide objective feedback from prospects back to the entrepreneur, who may not be open to hearing criticism of their product or service. The graphic below is an example of a typical sales process and required steps used for software sales. Note that of the 24 steps only 9 of them may require the business owner s guidance or collaboration. Red arrows denote the steps that may involve the business owner. As you can see, even a relatively simple sales process (like the one above) has a significant number of steps. But not all the steps need to involve the owner freeing them up to perform other more crucial tasks with in their company. There are many steps that the owner can require he/she be included into ensure they are always connected to the process. Summary Is one alternative better than the rest? It depends on each small business owner s situation. Each alternative has its merits. Outsourcing sales for a small business can be done and offers a flexible solution to keep costs down in the early stages of a company or new product launch when funds are limited. Many business owners hire outsource companies an as interim solution to grow their revenues to a level where they can afford to hire properly and some continue to engage their outsource partners because they are delivering incredible value and long term success. Thinc Business Development Solutions Inc. Can a Small Business Outsource Its Sales? Page 6

7 A Message From Thinc We hope you have found this whitepaper to be of value and trust it has given you, the small business owner, a fresh set of options, or new ideas, to think about non-traditional models to grow your revenues. We would love discuss the sales needs of interested small business owners. More information about Thinc Business Development Solutions is contained below or on our website Thinc Business Development Solutions Inc. Can a Small Business Outsource Its Sales? Page 7