You've done your analysis and decided upon the best coverage model to make your number in 2020, but what does that choice mean for your CAC? Examine the pros and cons of each coverage model and how their respective CAC might affect your bottom line.

If you’ve spent the last quarter preparing for the remainder of the year by overhauling your Go-To-Market function and redesigning your coverage plan, you’re not alone. But how do you make sure your optimal coverage plan serves the needs of customers and optimizes your Customer Acquisition Cost?

 

For an objective view into which markets, segments, verticals, etc. will provide the greatest return for your sales team, download SBI’s LTV:CAC Tool and increase the productivity per sales head.

 

Download the LTV:CAC Tool Here

 

While there are a variety of models to choose from, in this article, we will walk through the pros and cons of each plan and how their respective CAC might affect your bottom line.

 

Stratification

 

Almost all companies have some level of stratification to their coverage model – you want to serve your top customers with your top talent and devote your time to where it matters most. But how does stratification affect CAC?

 

Stratification can help bring your CAC down. For one, it’s an efficient use of resources with your most expensive accounts to acquire being served by your best resources and returning the highest LTV. The stratification also lets lower-cost resources cover the long-tail with conventionally cheaper routes-to-market like Inside Sales or E-Commerce solutions. 

 

Pros

  • The best people are aligned to the best accounts 
  • Strategic customers get required attention
  • Maximize revenue per head in limited-resource environments
  • Generalists can incorporate SMEs where necessary
  • Drives customer engagement at the highest levels
  • Selling expenses are aligned with opportunities

     

Cons

  • Prospects/Customers are not managed equally
  • Generalists at lower levels may struggle to sell all products
  • A feeling of ‘elite’ vs. ‘regular’ sales reps
  • Territories may exhibit large geo dispersion
  • Balancing a mix of current and potential is difficult without proper segmentation

     

Geography

 

A geographic coverage model puts sales reps where the buyers are. If you chose this coverage model based on your analysis, it’s likely your business relies heavily on distribution, and your reps have strong relationships with the individuals they serve. Typically, reps in this model spend time stopping by to see their customers, help with product troubles, or check in on accounts. Given the current economic conditions, now is an excellent time to read up on what virtual selling means for your ‘field sellers.’

 

A geographic model is one of the best for overall customer acquisition costs. Typically, reps in a geographic model act as generalists, making them a lower-cost resource, and the geographic territories keep T&E lower than specialist models.

 

Pros

  • Plays to customers’ desire for generalists
  • Provides customers with local/state knowledge
  • Cost containment (keeps T&E expenses low)

     

Cons

  • Doesn’t align the best sales resources against the best opportunities
  • Each geography needs committed resources
  • Smaller accounts can inadvertently consume resources
  • As product set grows, it becomes more difficult for reps to have expertise
  • Talent pool potentially reduced by being location-specific

     

Hunter Farmer

 

In a Hunter-Farmer model, you have a hunter team aligned to selling new business, and a farmer team focused on cultivating the install base. A Hunter-Farmer model typically works best in fast-growing companies with vast whitespace opportunities, but splitting your sales teams around these roles can affect the CAC and LTV.

 

A Hunter-Farmer model can be an ideal way to drive a high growth company towards a best practice 3-4:1 CAC to LTV Ratio. Investing in specialized roles, building out sales management, and actively spending to grow new accounts will all affect CAC, but will drive revenue growth as well.

 

Pros

  • The salesforce develops an in-depth knowledge of how to perform sales activities
  • Efficiency is achieved through assigning specific tasks to reps (role clarity)
  • Hiring to specific roles is often easier
  • Recurring revenue is protected with focused resources
  • Enables a focused acquisition of top prospects

     

Cons

  • De-emphasizes customer focus and relationships built during the initial campaign
  • Increased coordination effort when handing off accounts
  • When to hand off accounts can be challenging
  • Time to results can take longer
  • Increased Management headcount raises selling expense

     

Industry

 

If your company sells different products to different industries with little overlap, you will need industry experts working to sell those products. While costly, your buyers need a rep who knows the problems they face and how your product will help solve them.

 

Though often necessary to best serve your customers, Industry based selling leads to some of the highest average CAC across all models. Reps are typically highly specialized, experienced, and paid. But with the rising CAC, Industry based selling can also lead to improved LTV with bigger deals, premium pricing, and long-term customers.

 

Pros

  • The salesforce develops an in-depth knowledge of how to sell into specific industries
  • Potential to leverage referral networks via industry-specific groups
  • Can obtain premium pricing based on the need for expertise
  • No need for SME support

     

Cons

  • Selling expense becomes very high
  • Reps require larger geographies to make the number
  • T&E expense can escalate 
  • Increased Management headcount raises selling expense

     

Product

 

Companies that have been highly acquisitive and now sell a multitude of products with different use cases are good candidates for a Product / Solution model.

 

Product selling can help to drive CAC down by reducing sales cycles and driving value to the end consumer faster, but with a negative effect on LTV. For product sellers, the difficulty of cross-selling and upselling has an adverse effect on the lifetime value of your customers. Consider both when designing around a product-based model.

 

Pros

  • Customers understand the value the product delivers
  • Customers need to comprehend implementation requirements to be successful
  • Ensures faster results for new products
  • Reduces the sales cycle for new products

     

Cons

  • Customers may become confused with multiple sales representatives calling the same accounts
  • Limited Cross-sell/Up-sell opportunities due to silo-ing
  • Product sales teams become over-resourced as market saturation is reached

     

Persona

 

A persona-based selling motion makes the most sense where the audience of potential buyers is highly varied, and specialized knowledge of persona job function is required.

 

A persona-based model can, in many cases, lead to higher customer acquisition costs. Like industry models, persona-based selling requires specialized reps that know the problems their respective personas run into. Having these teams can lead to multiple people selling into one account and increased T&E costs driving CAC up. 

 

Pros

  • Reps can target messaging to specific persona evaluation criteria and objectives
  • Reps gain credibility with the specifically targeted persona
  • Opportunities can be created through strong referral networks
  • Sales able to bring key insights specific to well-known buyer community

     

Cons

  • Customers may become confused with multiple sales representatives calling the same accounts
  • Potentially larger territories can increase the selling expense
  • Reps need to be product/industry generalists

     

You’ve done your analysis and decided upon the best coverage model to make your number in 2020, but what does that choice mean for your CAC? Download our LTV:CAC tool to start your evaluation and make sure you know the effects to stay one step ahead of the competition.

 

Download the LTV:CAC Tool Here

 

Additional Resources

 

Over the last few months, SBI has created a number of resources for Sales Leaders as they rethink their coverage strategy for the remainder of 2020. For more information, watch our webinar discussing Revising Your Sales Coverage Strategy During COVID-19, or view this blog on how to leverage data when making coverage-related decisions.

 

 

 

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ABOUT THE AUTHOR

Patrick Hulse

Leverages clients’ data to drive actionable insights and help the executive team make their number.

Prior to joining SBI, Patrick worked in the media and advertising worlds at Maple Media where he was involved with a variety of functions including financial valuation, marketing, and product development. Patrick brings these experiences coupled with an ability to transform data into valuable, actionable insights to the consulting team at SBI. Patrick has extensive experience working with executives to drive meaningful solutions and outcomes from complex problems using his analytical skillset.

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