Common questions we hear from CEOs regarding sales investments include:

 

  • Do we have enough feet on the street?
  • Are my existing reps producing enough?
  • Are the tools we’ve invested in generating a return?

     

You are ready to write the check. You just don’t know where to spend and why. Start by defining the current state of your sales organization. Use the Expense to Revenue Reality Check tool to do this.

 

The Problem

Maybe you’ve tried hiring more sales heads in the past. It didn’t work because you didn’t have enough leads to feed the new reps.

 

Perhaps you raised quotas and incentives to get more rep productivity. In the end, you ended up paying more for the same performance. Or worse, you spent more for lower results.

 

Maybe you increased the marketing budget. The lead funnel grew, but they never made it to the deal funnel.

 

You can’t continue to throw good money after bad. The board is growing antsy. It’s time to dig in and find out where to place your bet.

 

The Solution

Conduct a thorough assessment of you sales expense across the following 3 categories:

 

1. Expense to Revenue

2. Productivity Cost per Rep

3. Infrastructure Costs

 

Expense to Revenue

The first thing you want to benchmark is called expense to revenue. Expense to revenue is typically defined as total sales expense as a percent of total revenue. In the below example, you have sample benchmark numbers indicated in dark blue. A “Mid-Cap” software company’s numbers are in light blue.  The company is spending 18% of revenue on sales expense and the benchmark is 20%.

 

There are two ways to look at this:

 

1. Success – From a financial perspective, this is fantastic. You are spending less than the benchmark.

 

2. Opportunity – If your market is expanding rapidly, you may want to reconsider. You might be under-investing based on your peer group. You may be leaving opportunity on the table.

 

Key Takeaway: If you aren’t sure about increasing or decreasing headcount, this is a great place to start. You’ll also have a sound case to take to the board.

 

Productivity Cost per Rep resized 600

 

Productivity Cost per Rep

The below is known as the “Cost-per-Rep” method, expressed in thousands. Again, you have the benchmark in dark blue. This time, $450M medical devices company is being measured. Across the bottom are the categories that make up the productivity section.

 

They are spending 133% more per rep on content and creative. They are also spending 19% less than the channels benchmark.

 

In this case, channel revenues were actually growing significantly. Rather than add more heads, they decided to increase spend in channel enablement. The reps weren’t producing enough, so they spent elsewhere.  

 

Key Takeaway: If it’s not making a difference to your organization today, those dollars should go elsewhere. No need to throw good money after bad.  

 

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Infrastructure Costs

Using the same “Cost-per-Rep” method, you have components that make up infrastructure. In this example, the comparison is for a $2.3B services company.

 

The company made a huge investment in marketing automation. This took the investment category up 255% for this category alone. Conversely, there was a reduction of 20% in travel and entertainment. The automation investment didn’t get a 2.5X increase in leads. The lack of onsite visits upset the customers.

 

The investments didn’t work.

 

It’s okay to have sales enablement tools. Many of our clients have purchased marketing automation software in recent years. But, the tools have to work, or why bother? You can use those dollars elsewhere to build on successful investments.

 

Key Takeaway: If you’ve ever bought a bad stock, you did your best to minimize your losses. The same applies here. Infrastructure costs need to yield results. It’s not always a people problem.

 

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Call to Action

There are few worse feelings than making investments with unknown returns. Before committing yourself to the unknown, get some perspective.

 

  • Start by giving yourself a Reality Check.
  • Then, obtain benchmarks to help define the gaps in your investments.
  • Lastly, trim the fat and spend money that delivers topline results

 

If you have questions on how to accomplish this, feel free to email me directly.

 

 

ABOUT THE AUTHOR

Ryan Tognazzini

Works closely with B2B companies to solve strategic business problems so that they will make their number.
Learn more about Ryan Tognazzini >

Ryan joined SBI in 2010 as a Senior Consultant. Since then, he has worked extensively with emerging growth technology companies, including SaaS, enterprise software, systems integrators and OEMs. Additionally, Ryan works alongside numerous private equity investors, performing both sales and marketing due diligence and organic growth initiatives inside their portfolio companies.

 

Among a long list of accomplishments, he developed and implemented a sales and marketing strategy that resulted in the turnaround of a $1B IT integration clients. He executed organic growth initiatives to help a $100M software company achieve 40%+ year-over-year growth in preparation for an IPO. And he worked with a $1B enterprise software client to transform their sales and marketing go-to-market strategy for their cloud and SaaS offerings. Not surprisingly, in 2014 he was voted SBI Employee of the Year by his peers.

 

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