Sales Performance Management Your Way to Smarter Market Investments

Transcription

1 Sales Performance Management Your Way to Smarter Market Investments Our project experience shows: Sales Performance Management (SPM) can improve EBITDA margin by 6% to 9% and return on market investment (ROMI) by 9% to 12%. Our latest SPM Maturity study, which surveyed more than 20 international mobile operators, reveals that most operators miss out on profits and value. 85% of participating operators do not steer their sales organizations according to competitive requirements. In this paper, we describe a three-step approach on how to improve sales performance: assess sales management maturity, calculate profit/value potential, implement SPM and harness profit/value potential. In Q2 of 2011, Detecon will continue the SPM maturity study in which operators can assess their sales management approach and benchmark against market peers. We make ICT strategies work

2 Introduction to Sales Performance Management (SPM) Profit-based SPM or Value-based SPM? Depending on the competition intensity of their markets, companies can create a competitive advantage by pursuing a course of either profit or value orientation. In an international study, Detecon examined the orientation to profit and value of sales organizations in relation to competition intensity. More than 20 mobile operators from the private customer segment participated. Most sales organizations miss out on the opportunity to increase profits or corporate value respectively which could be achieved if they selected the right sales management approach. This untapped potential can be determined and exploited with the aid of Profit or Value-based SPM respectively. SPM Maturity V IV III II 4. Cost-burning Growth Blocker Revenue- Profit- 3. Short- Sighted 1. Best-in-Class Performer Value- 2. Value- Burner 1. Best-in-class Performer Decisions and resource allocation based on customer lifetime value. KPIs are accessible on channel and PoS level. 2. Value Burner Market requires smart market investments in order to generate value and stay competitive. Need to increase SPM efforts towards a valuebased approach. 3. Short-Sighted SPM Maturity is not ready for market requirements. Need to invest in SPM towards profit- and value-oriented KPIs. I low medium high Intensity of Competition 4. Cost Burning Growth Blocker Investment in SPM is too high compared to market requirements. Focus on value-driven KPIs neglects market share and growth. Need to decrease SPM investment and focus on revenue enabled growth. Figure 1: Results of SPM Maturity Study 2010 This entails an adjustment of the sales channel management framework. In many cases, sales budgets covering subscriber acquisition costs (SAC) and subscriber retention costs (SRC) are distributed by volume parameters (e.g. number of subscribers). This can lead to inefficient market investments. An improvement can be achieved by allocating sales budgets according to the sustained profit or value of the customers, products and channels. Our project experience has shown that the implementation of the appropriate Profit or Valuebased SPM can increase the return on market investment (ROMI) by 9% to 12% and result in an EBITDA margin improvement of 6% to 9%. Profit-based SPM (medium competition intensity) Companies in markets with medium competition intensity should focus primarily on profit when managing their sales organization. The important performance indicators here include average revenue per user (ARPU), subscriber acquisition/retention costs (SAC/SRC), contribution margin and sales operating profit (SOP). Value-based sales management (high competition intensity) If competition intensity is high, concentration on value-generating customers, products and distribution channels is mandatory. In this case, the customer lifetime value (CLV), return on market investment (ROMI) and customer cash flow (CCF) are the key performance indicators. Detecon International GmbH 02/

3 The following offers a way for operators to enhance their sales management approach and achieve similar impact on sales performance results. Step 1 - Assess Sales Management Maturity In our SPM maturity, we ask participants which key performance indicators (KPI) they apply in steering their sales organizations. Volume-based KPIs Examples: gross adds, churn rate, customer migrations, customer retention. Revenue and profit KPIs Examples: average revenue per user (ARPU), subscriber acquisition/retention costs (SAC/SRC), contribution margin, sales operating profit (SOP). Value-based KPIs Examples: customer lifetime value (CLV), return on market investment (ROMI), customer cash flow (CCF), customer equity. All KPIs within these three categories are assessed according to four different criteria to gain transparency over their application and anchoring in the sales performance management approach. Relevance Are the primary performance indicators in the company measured, and to what extent do they influence strategic and operational decisions? Availability At what organizational level e.g., total company, segments, sales channels, or point of sale are these KPIs available ad hoc? Incentive Scheme How are the KPIs anchored in the commission system for sales employees and partners? Processes and IT How is sales performance management supported by IT services and processes (e.g. on-demand availability of sales reports)? SPM Maturity Study - Findings: In mature markets there are substantial differences in KPIs on which decisions are based. Short-term thinking still persists. A long-term, value-based perspective is not discernible. The analysis shows that most providers do not yet integrate long-term value KPIs into the relevant decision-making processes. There are some providers who do not generate valuebased performance indicators at all. Best-in-class providers already base their decisions on the expected growth in value, whereby performance indicators such as customer equity, customer lifetime value, or return on market investment are the most significant parameters for making decisions. Detecon International GmbH 02/

4 Dimension Hebel Wertpotential Generelle Verbesserungsideen Vertriebskanal Produkt/Tarif Endgerät 1. Kanal-Mix optimieren 2. Added Vaue per Gross Add / Retention erhöhen 3. Produkt-Kanal-Mix optimieren 2. CLV per Gross Add / Retention erhöhen 5. Endgerät-Kanal-Mix optimieren Total Volumen von schlechten in gute Kanäle lenken Direkte Kanäle stärken, da diese of tmals die beste CLV Performance zeigen Kanalgetriebene Betrugsf älle vermindern SAC/SRC nach Kanal-CLV differenzieren Incentives für Rotations-Churn verringern SIM-only Tarife zeigen gute Ergebnisse aufgrund geringer SAC und akzepatblem ARPU Markengetriebene Produkte über Kanäle mit konsistent hohem Kundenwert vertrieiben Vom subventionierten Endgerät getriebene konsumf reudige Kunden haben trotz hohem ARPU nur geringe Prof itabilität, da hohe SAC/SRC und Churnquote, d.h. SAC/SRC verringern Endgeräte mit den besten Kundenqualitätswerten (z.b. geringer Forced Churn, hoher CLV) stärker vermarkten Endgeräte mit schlechten Kundenqualitätswerten aus Vertriebskanal bzw. Sortiment nehmen Detecon Executive Briefing Step 2 - Calculate Profit/Value Potential Are You Missing Out on Profits or Value? In highly competitive markets, management decisions based exclusively on volume and revenue KPIs might not lead to optimal control of the distribution channels. Oftentimes the tight budget for sales measures evaporates without effect. In some cases the steering approach even reinforces negative impacts brought about by low-performing channels. This is the case if revenues do not cover the initial investments (SAC/SRC), direct costs and channel operating expenditures. Profit and value-based SPM establishes KPI systems which account for both acquired revenues and costs over the customer s expected lifetime. It can help management in making the right decisions on how to distribute limited budgets to sales channels in order to generate the most profits/value out of sales budgets. Our analysis shows how market investments can be distributed to increase the effects they have on profits and generated value. This is the potential which has been missed out on until now. Furthermore, it can be used to answer a number of performance-related questions: Optimal sales channel mix What channels should be selected in order to improve the overall performance of the sales organization. How can the channel mix be improved, e.g. with regards to the share of direct and indirect distribution channels? Strategic growth What effects do management decisions have on future development when applying conventional KPIs, i.e. indicators purely related to sales volume, versus profit or value-based KPI frameworks? Step 3 - Implement SPM and harness profit/value potential Based on the insights gained in maturity and potential analyses, the efforts to implement a profit or value-based SPM are determined. Scoping of contents and coordination of the implementation schedule depends on the identified gaps and can vary from developing new KPIs to developing profit or value-enhancing measures. Below, the general routine for implementing value-based SPM is discussed in more detail: 1. Value Driver Analysis 2. Performance Overview 3. Sensitivity Analyses 4. Implementation of Measures 5. Controlling System Value driver tree definitions Quantification of value drivers Value-based performance cockpits Product/Channel s value contribution Value driver elasticity's Lever prioritization Measure toolbox Value-based incentive scheme Value reporting system Benchmarking platform $$$ KPIs Added Value CLV EUR EUR Kanal 1 Kanal 2 Kanal 3 Kanal 4 Volume ROMI Payback Gross Adds Churn Retent % Monate # % # echannel Total SOLL IST Δ Delta März März % KPIs Added Value TEUR % Added Value Akquisition TEUR % Added Value Retention TEUR % Lost Value (Churn) TEUR % CLV EUR % CLV Akquisition EUR % CLV Retention EUR % CLV Lost (Churn) EUR % ROMI % 1,5 1,4 7% ROMI Akquisition % 1,3 1,2 8% ROMI Retention % 1,7 1,6 6% Payback Monate % Trend Figure 2: Implementation of Value-based SPM Detecon International GmbH 02/

5 1. Value Driver Analysis Value Driver Tree Definitions Elaboration of clear definitions of all value-based KPIs and its underlying performance levers. Quantification of Value Drivers Consolidation of existing sales performance data and calculation of the historic and projected added value per product-channelproposition. 2. Performance Overview Value-based Performance Cockpits Provide initial transparency on product and channel value contribution. Product/Channel s Value Contribution Point out key value levers per productchannel-mix and customer segment. 3. Sensitivity Analyses Value Driver Elasticities Determination of those levers with the highest impact on value creation for each product-channel-mix. Lever Prioritization Discussion of realistic optimization potential and lever prioritization together with management and the respective channel representative. 4. Implementation of Measures Measure Toolbox Effective action lines can be selected and implemented out of a large tool chest of profit and/or value enhancing measures. Incentive Scheme Linkage of staff incentives and third party commissions to profit and value targets. 5. Controlling System Profit/Value Reporting System Integration of profit or value-based KPIs into existing reporting processes to ensure continuous tracking of the most important parameters. Benchmarking Platform Best practice insights to provide full transparency within the sales organization and as a basis for future target agreements. Taking the First Step SPM Maturity Assessment In today s markets the sales performance management approach should factor in competitive forces and intensity. Detecon continues its research in this field with the SPM maturity study in Q2 of Take the opportunity to participate and receive valuable insights regarding the current steering of your sales organization. The Authors Daniel Joisten Daniel.Joisten@detecon.com Marco Krebs Marco.Krebs@detecon.com Holger Biermann Holger.Biermann@detecon.com Detecon International GmbH 02/