Direct Sales Channel Management

Transcription

1 UCLA Anderson 2006 Global Access Program Direct Sales Channel Management Prof. Bob Foster September 5,

2 Direct Sales Channel Overview Cost of direct sales representative Direct sales economics Sales compensation programs Sales cycle model Sales lead generation Sales cycle model 2

3 Costs of Direct Sales Representative Recruiting Training (both sales & product) Direct sales representative compensation Benefits & related payroll expenses Sales rep support costs Sales rep turnover costs Sales management overhead 3

4 Recruiting cost Direct Sales Costs 25% first year s targeted annual earnings (TAE) = salary + quota Training costs Product training Sales training U.S. average 4 months before on quota 4

5 U.S. Sales Rep turnover cost All industrial products average = 9%/yr Electronics = 11% Software = about 20-25% Employee benefits & payroll expenses U.S. average about 20%to 30% of annual compensation Varies by U.S. state 5

6 Local travel, meals, phone, & computer costs Business-to-business sales reps U.S. average about $2,000 /mo Air travel is extra Sales manager costs One manager can manage 5 to 7 salesmen 6

7 Sales Rep Compensation TAE = Targeted Annual Earnings $ salary plus $ sales commission or Annual sales performance $ quota Assigned a specific sales territory Sell specific products Written sales compensation plan Sales rep signs written agreement 7

8 Sales Commissions Variety of structures Generally a % of actual sales booked Graph & sales performance versus $ commission Typical 5% up to 100% quota Plus additional 2% over 100% quota 8

9 U.S. Business-to to-business Sales Rep Compensation Median income = $77,179/yr Travel & direct costs = $24,000 20% benefits & taxes= $15,436 Total direct cost = $116,615/yr Source: Sales and Marketing Management magazine, May

10 In 2004 U.S. mid-level sales professional Base salary = $59,389 Bonuses & commissions = $34,110 Total in 2004 = $93, 499 Source: Sales & Marketing magazine survey in May 2005 issue They changed their definitions after

11 Computer Software Sales Representatives 2002 U.S. intermediate sales representative Salary, average = $40,300 quota = $47,900 Targeted annual earnings = $88,200 Related payroll $18,000 Travel, computer, phone = $24,000 Total direct cost/yr = $130,200 Total cost/2080 hours/yr = $70/hour 11

12 U.S. Salary Data Resources

13 Compensation Surveys Report several different ways: Average Mean= 50% percentile = ½ population above & ½below 75%, and 95% Goal = 75% = better than 75% population Less than 75% increases turnover 13

14 Find salary data by: Position title sales representative Years experience Location city & state 50% (median) and 75% percentile salaries Base salary, bonus, commission Job descriptions Small business membership $249 - $499/yr 14

15 www. careerbuilder.com Similar to Can enter detailed profile: IBM sales representative living in Los Angeles with 8 years selling experience and BS degree in Electrical Engineering Will calculate salary for above Annual subscription fee 15

16 Software compensation consulting firm Publishes Sales & Field Operations Survey Startup companies under 50 employees pay $495/ year per country Publishes U.S. Sales Pay report 130 job positions $155 with above subscription 16

17 In High Technology Sales You Must Plan for Turnover Software has a 20-25%+ turnover rate Have to hire 5 sales reps to generate the sales revenue planned from 4 reps One of them will leave during the year Better have the replacement budgeted and already hired & trained Important financial implications 17

18 Software Sales Rep Total Burdened Cost Total direct cost = $130,000 Plus sales manager cost Mgr s TAE = 5 sales reps/mgr = $22,000 Plus turnover adjustment 25% of sales rep direct cost = $33,000 Total cost/yr/sales rep = $185,000 18

19 Software Sales Rep s Cost as % Sales Sales 100% quota plan/rep $1,100,000 Actual sales/rep/yr = $988,000 Average % quota attained = 89.8% Average commission paid rate (= $47.9 k commission/$988 k ) = 4.8% of sales Total direct salesman cost ($88.2 k /$988 k) = 8.9% of sales 19

20 Total Burdened Cost of Sales Rep as % of Sales Total burdened cost $185,000 Actual sales = $988,000 % of sales for sales rep = 18.7% This is for sales rep only: Not include marketing, brochures, web site development, trade shows, conventions 20

21 Sales Rep Productivity Avg. # personal sales calls per day for business-to-business sales reps = 4.5 Less for high tech sales reps 3 Avg. selling weeks/yr = 43 Avg. selling days/ yr = 215 Total sales calls/yr for high tech 3 calls/day x 215 = 645 calls/yr 21

22 Cost per Personal Sales Call Total burdened cost/yr/rep = $185,000 Total sales calls per year = 645 Cost per sales call = $287 This is before other marketing costs are included for advertising, pre-sale technical support, telemarketing, trade shows, direct mail, sales administrative, etc. 22

23 Sales Lead Generation Where the rubber meets the road & acid test The Achilles heel of almost all businesses How are you going to generate leads? Repeatable, predictable process to find leads How much is it going to cost? How many leads per month? 23

24 Sales Lead Follow Up Salesman or others make first contact? How are going to qualify these leads? What questions do you ask? How to decide to make a personal sales visit? How many leads turn into sales calls? 24

25 Qualifying Questions Does the person have: Recognized need? Can they articulate their problem, why they need to solve it and it s value to do so? Authority to buy? Budget for the purchase? Experience buying similar products? 25

26 Lead Generation Alternatives Direct cold calling Tele-prospecting not telemarketing ) Direct advertising Direct mail Trade shows Seminars Internet viral marketing 26

27 Tele-Prospecting Call centers Dedicated group of professional callers Objective: Appointments for sales rep Not trying to close sale Sales reps focus on closing sales Better management control; lower cost 27

28 High Tech Tele-prospecting Business-to-business Client defines lead qualifications: Example: Talk w/it mgr & CFO, budgeted project, bought product before Test phase to determine costs & results Clients: IBM, Oracle, Cisco Leads cost from $300 to $800 each 28

29 Tele-prospecting Example Industrial machinery sales: 6 callers + manager + administrator 8 Sun workstations Total U.S. coverage program 7 sales presentations/hr/rep = 35/day 5 dials per completed call 50,000 total completed calls per year $7 per call with a sales presentation 29

30 12,000 completed sales presentations 5,600 new prospects = 47% Re-called prospects every four months 517 sales leads or 1 per 23 prospects = 4.3% Cost per lead = $ % leads became sales Led to 14 $124 k/sale = $1.7 mil 30

31 Direct Mail Can be effective; also a waste of $ 1-2% response rates normal Overused today, lots of mail spam Synergistic effect when used with teleprospecting program...4-6% response Good names cost cents each Test mail lists for accuracy 31

32 Sales Seminars Groups of prospects Prospects called, sent direct mail, or both 2 hours: 50% educational & 50% product Product demos presented Provides a sales event focus for sales reps Good way to qualify prospects Can be cost effective 32

33 Trade Shows Expensive in $ and time Hard to calculate benefits Many people look, but few buyers Not necessary for selling new technology products Great place to learn about U.S. industry and meet people 33

34 Personal Selling Selling products over $1,000 is different Many sales models of how to sell Focus should be on helping the customer to buy a solution to their problem or need 34

35 Recommend two books on consultative selling: Spin Selling, by Neil Rackham, 1988, McGraw-Hill, ISBN Solution Selling: Creating Buyers in Difficult Selling Markets by Mike Bosworth, 1995, Irwin Professional Publishing, ISBN

36 Personal Sales Calls What do you need to find out? Is person really a qualified lead? Who s your competition? How many real qualified prospects? 1 out of 3 sales calls?, 1 out of 4? What s the next step in the sales process? 36

37 Internet Viral Marketing Sales offers transmitted along with primary vehicle sent to friends & associates Friends telling friends Good book Permission Marketing by Seth Godin 37

38 You Must Build a Sales Cycle Model Model the typical sales cycle to determine number of direct sales reps needed to meet revenue targets Must include: Lead generation: source & volumes Number of sales calls to close a sale Proposals, demos, etc 38

39 An Example: Sell 1 of every 3 written proposals Must do 2 demonstrations for each proposal 1 of every 3 first sales calls results in a demonstration 1 of 4 sales leads results in a first sales call One sales lead per 8 telemarketing presentations 39

40 Needed for One Sale: 3 proposals 6 demos 18 first sales calls 72 leads 576 telemarketing presentations 40

41 576 TM Calls 72 Leads Foster s Funnel 18 1 st Sales Calls 6 Demos 3 Proposals 1 Sale 41

42 Foster s s Funnel Defines sales cycle process Identifies events for sales management Identifies resources required to meet sales revenue goals: # sales reps # pre-sale technical support for demos # administrative support for proposals # telemarketing personnel 42

43 Foster s s Funnel Spreadsheet Columns = Time Can be days, weeks eventually want months to relate to expenses & revenue/mo Rows = Steps in sales cycle Cells = Performance goals Example: Need 275 telemarketing calls each month to close one sale, need staff to write 3 proposals/month 43

44 Go To Funnel Spreadsheet Slide 44

45 Always Remember: The sales event is the most important activity of every business venture!!! 45