Yesterday´s sales methods equal inferior results

If your B2B sales continuously moves brilliantly forward, do not waste your time reading this blog. But at least I, who started my B2B career by selling electronics to various industries and continued with mobile networks, sit constantly at school. Many of the traditional truths, such as importance of customer business and purchasing process understanding, are still valid. But many things have changed and are changing. Customers are looking for information on websites and social media, buyers are becoming better informed than sellers. Sales efficiency is going down, although costs go up.

As a result, a straightforward addition of sales efforts seldom leads to company growth and profitability. Instead of just replicating old way-of-working, you should reconsider your sales methods and reinvent customer acquisition approach - also in the business world, winners take it all. This blog will focus on, in particular, why reducing sales complexity is vital for B2B firms and how this is done in practise. After reading you will have fresh ideas to boost your sales efficiency and tackle new customer segments.

Sales methods

Sales efforts required to get B2B deals vary enormously depending on sold products or services. Tens or even hundreds of selling company persons are involved in the selling process of nuclear power plants, mobile networks or luxury cruisers, the process will take months or years of calendar time and the cost can be easily millions or tens of millions of euros. Some products, again, can be sold online with self-service, without direct involvement of seller.

Sales methods can be roughly divided into three categories, according to new customer acquisition costs (CAC):

1. Self-service: Customers are attracted to company's web sites, by making use of, for example, search engine marketing and optimisation, content marketing and e-mails. Deals will be closed automatically, seller personnel do not have to participate, because the product is easy to understand and the value for customers is clear. Customer acquisition costs are mainly digital marketing costs, typically 30 to 200 € per new customer.
2. Inside sales: This model is built on top of the self-service model. Customers are nurtured towards deals by responding to queries and questions by e-mail, telephone and video chats, as well as by showing demos over the network and by using other digital tools. Besides dedicated sales persons, also technical experts may be involved to clarify the details of the product or its use. Typical CAC is 600 to 6000 € per new customer.
3. Field Sales: Applied in case of the most complicated purchasing processes, where the decision-making process involves several or even dozens of buyer representatives. Customers are met face to face, often numerous times. Sales will involve technical and other experts, and various customer pilots and other tools decreasing buyers´ uncertainty are common. New customer acquisition costs are typically more than ten thousand euros, and there is actually no upper limit for them.

Costs of selling through channel partners are between inside and field sales, but we are not going to discuss this further.

Sales method applicability

Organising and expansion of sales activities often fail, because it is forgotten that lifetime customer contribution need to exceed customer acquisition costs. And even this is not enough. The total contribution, i.e. total sales margin euros need to cover not only customer acquisition-related costs, but in addition R & D and administrative costs, depreciation, amortisation, interest expenses and income taxes - and, hopefully, there will be some profits left after that.

At sufficient level of accuracy, it is possible to define for each of the three sales methods required minimum customer contribution in euros, see the picture above. In each method, the green area shows acceptable contribution per customer, in the red area operations are not profitable. The line between green and red area is not carved in stone, as illustrated by the yellow zone between green and red areas.

At this stage, many people may raise their hands and say, that the above does not apply in their business, because the revenues are accumulated over a long period, and the first deal is only a spearhead. This is true, total customer contribution must include entire customer relationship lifecycle - in  a similar manner as customer acquisition costs need to cover costs over the entire lifecycle. But in case of business logic, where the profitability of a company is not so important, you may be able to ignore these laws. This often happens, for example, in startups; the idea is to make potential takeover candidates, with different kind of monetisation logic, more interested.

Sales development

In developing its sales activities a company thus has two basic recipes for success: to get more revenues from customers or reduce sales complexity, see the picture on the right. It is possible to get more revenues from customers by bringing more value to their business, by differentiating from competition and by avoiding tough competitive tendering. Although getting more revenues from customers is the ultimate must for sustainable long-term competitiveness, growth and profitability, it will not be discussed on more detail in this post.

By reducing sales complexity it is possible to switch to lower-cost ways to acquire customers; in practise face-to-face selling is replaced with inside selling, and self-service is used instead of inside sales. Some factors, however, make the simplification more challenging, e.g.:

• Evaluating of the product or service is difficult and it involves a lot of buyer's representatives
• The product or service is of vital importance; for example, if the selected product does not work, it may result in major economic or health loss
• The product or service is expensive, requires major changes in buying company practises or other systems
• The specification or contract of the product or service to be delivered is complex

If a company does not constantly seek to simplify its sales, it is not able to take advantage of the entire sales potential and it faces a serious threat to be outpaced by competitors. There are, however, a number of ways how companies willing to grow and renew can aim for a better market position through simplification:

• Building easiness to sell in product or service already in development phase: for example, by implementing product configuration so that it is supporting customers' processes
• Creating a business model that makes selling easier: for example, free or very low-cost pilots, or more cost-effective execution of field sales through channel partners
• Improvement of sales and marketing machinery: e.g. aggressively using digital marketing methods and tools for demand creation, utilisation of self-service and inside selling for deal-making, whenever possible

Utilisation of various selling methods and tools is not a simple yes / no decision. In practise, you should consider using the available options by product or service, by various stages of sales process, by market segment or as an internationalisation tool. For example, when one of my cooperation partners made a transition from using field sales to self-service enriched by light inside sales, it was able to target also SMEs, besides earlier served major corporation accounts. Similarly, mental barriers to internationalise have several times been decreased by making the first steps through inside sales, instead of building immediately own local presence.

Conclusions

Many companies and industries have already taken the path of continuous sales renewal, at the forefront are ICT and such successful companies as Oracle. Also, necessary tools for change and successful references can be found in plenty. For example, for B2B inside sales, both dedicated service platforms for building own operations and special companies offering inside sales as a service are available.

Because you've got this far, you might want to get better sales results. Do you find answers to your specific business situation by renewing your sales strategies or sales models, or do you have challenges with your sales process?

Try to avoid competitive tendering

In business to business (B2B) trade companies are looking for - and, in most cases are also achieving - undeniable advantages through competitive tendering. It makes it possible to systematically choose suppliers, get information about the options available in the market, evaluate supplier candidates' ability to understand client's requirements and make estimates of potential cooperation fluency. And the icing on the cake, competitive tendering also provides a quite reliable picture of the value of various options in relation to their price.

But ill-advised and performed tendering can be detrimental not only to the buyer and the selling company, but also to our entire economy.

Buyers or sellers do not need to powerlessly follow the challenges of competitive tendering world - with the right strategies it is even possible to improve competitiveness of a firm.

Buyer shall not get renewal impulses

Narrow-minded tendering easily solidifies buyer's development activities to focus on marginal product improvements and extensions. Instead of keeping eyes and ears open for new external ideas and solutions to make bolder innovation leaps, strict requirement definitions reduce the role of supplier partners as an implementer of buyer´s prevailing worldview.

A system integrator, for example, believed to know the future software needs so well that the implementation of major components could be effectively outsourced through competitive tendering. As a result, hourly charges of acquired work fell, but on the other hand, the life-cycle cost savings were not achieved. At the same time, the existing vendor partnerships, producing continuously new insights and innovations, were destroyed, affecting negatively company's competitiveness.

In particular in Finland, there is a pressing need for cooperation with supplier companies, instead of the rigid tendering principles. According to a research paper, companies in the country rely too heavily on internal know how and resources in generating new product ideas. Similarly, the companies invest more lazily than their international benchmarks in projects, which generate new businesses or entirely new, genuine innovations. And since customer experience improvement and customer engagement often occur with new business models, achieving higher margins often remains a dream.

Seller's growth and profitability challenges

In principle, competitive tendering gives a selling company an equal footing to compete with other sellers, and in general, competition makes tougher and stronger. The problem is that participation in competitive tendering is shaping a company in a way, that makes opportunities for profitable growth narrower and narrower:

• Detailed definition of the solution to be acquired, to make a comparison of the proposals easy, leads to price emphasis on the selection criteria
• For sellers, this means, in addition to thinning margins, also collapsing opportunities to stand out from the competition through innovation
• In the longer term, the development of competitiveness thus focuses on marginal product improvements, increasing operational efficiency and continuous cost-hunt 

The company gets stuck, therefore, in the vicious cycle of competitive tendering, see the picture below.

Vicious cycle of competitive tendering will destroy company growth and profitability. 

There are many companies in this vicious cycle, just now, small to large. A story of a component supplier, based on my own experiences, is illustrative: Customers complained about the prices and through competitive tendering compared them and the characteristics of our products with those of the competitors. As a result, we focused on adding new features to our products based on customer requirements. The competitors did the same, so customers did not see big differences in the solutions, and prices came under increasing pressure. We had to shave our cost structures. The story did not have a happy end...

Boost for the economy and companies

The vitality of Finland's economy and its enterprises is dependent on the diversity, dynamism and innovation capabilities of the ecosystem. One of the main drivers are new products, services and business models. But this is not enough, innovations also need customers. Especially for SMEs and startups it may be difficult to acquire far-away reference customers. And if you can not find nearby customers, who have the courage to look over the tendering practices to new innovations, you are missing another important growth driver. 

But there are a lot of things that can be done to improve the situation:

• Buyers can enhance the role of suppliers from being a mere implementer to becoming a true, active innovation partner
• Sellers can, through their own actions, affect buyers´ views before decisions on competitive tendering have been made, thereby increasing the weight of their own strengths in purchasing decisions - or thus even been able to completely avoid competitive tendering
• With targeted public incentives and measures in place in our domestic markets, there is a possibility to create more willingness to acquire and deploy innovations.