Inside TeleSales versus Outside Sales in Software and High Tech Companies

There are many ways to deliver your software and technology products to the market. For example, one and two step distribution through third party channels, direct marketing/sales over the Internet, OEM relationships and many variations of these, as well as other methods.

One classic method of delivering products to the marketplace is by using a direct sales force. Within the direct sales methodology, two of the most popular variations are an outside sales force and an inside telesales group.

Inside sales forces utilizing telesales are cheaper per rep, so your cost of sales is reduced, and you can potentially afford more reps. Outside sales forces can provide additional credibility and stronger relationship with the account. How do you choose between the two methods? Does it sometimes make sense to use both? Let's take a look at some of the key aspects to consider when making this decision:

PRODUCT COMPLEXITY AND LENGTH OF SALES CYCLE
Probably the most important consideration in this discussion is the complexity of your product offerings, and the corresponding typical length of your sales cycle. Simple products with shorter sales cycles obviously lend themselves to the less expensive telesales approach. If you have a complex product that requires more in the way of hands-on demos, application engineering and other high-touch sales support, an outside sales force may be warranted.

BRAND STRENGTH AND STAGE OF COMPANY LIFECYCLE
Another important factor is the position of your company in the marketplace. Take an example of two companies selling the same product, to the same market. The newer company with less market presence and a weaker brand may require an outside sales force to maximize its market penetration. The more established brand and company might be able to get by with a lower cost inside telesales approach in similar circumstances.

PRODUCT PRICING
Product price is another important element in this discussion. All things being equal, higher priced products are more likely to require outside sales, while more modestly priced ones may be able to be sold effectively with only an inside sales force. Low price products, unless sold in high volumes, may just not profitably support the use of an outside sales organization.

TARGET CUSTOMER PROFILE
Is the target company large or small, is the prospect themselves young or old, progressive or traditional? It's important to understand your customer profile and buying style in deciding how best it will be to sell to them. This is of course often decided on a case-by-case basis for individual customers. But in making this decision on how to structure your direct sales force, it's important to characterize your target market in aggregate. For example, if the bulk of your target market is older, traditional companies and you are trying to sell to their IT departments, you'd better strongly consider building an outside sales force. Many of these customers come from the old "Glass House" era that was dominated by IBM, and are used to having sales people physically call on them. On the other hand, your prime prospects may be in a newer, SMB market segment that has prospects who are more comfortable with remote communications methods. These folks also have less staff, and less corresponding time to meet with outside reps. These targets may be well-served by a competent inside sales force.

HYBRID SALES STRUCTURE
In some cases a mix of inside telesales and outside reps works best. Here are two examples of when this might be optimal: 1) Outside reps for Major Accounts, Inside reps for the rest of the territory and 2) a product with a low sales price that lends itself to an inside sales force, but the product is something that major accounts can use in great quantities, justifying an outside sales force to call specifically on these accounts.

COMPANY CAPITALIZATION
How much money does the company have? Sometimes, there just isn't enough capital to initially invest in an outside sales force, even if the situation ideally calls for it. In these cases, it makes sense to start with an inside sales force, and do the best you can. There are many ways to compensate in this situation, even if it's not ideal. We'll cover the details of this scenario in another article. Suffice it to say that it's preferable to get by with a sales structure that may not be optimal, rather than bankrupt the company with an outside sales force that it can't yet afford. I've seen this occur more than once in my practice at PJM Consulting.


SUMMARY
Like any other key structural decision that senior management faces in developing a software or technology company, it's important to carefully consider the details of your particular circumstances. Many times managers will quickly settle on replicating what they know, and are comfortable with from their past experience, or simply attempt to copy what the market leader does. Both of these approaches leave you vulnerable to a potential critical strategic mistake. Be thoughtful upfront in your approach to how to structure your direct sales force, and you are likely to be rewarded with optimal push in your chosen market segment.

Phil Morettini
PJM Consulting
www.pjmconsult.com

Structuring a High Tech Sales Force

There are many ways to organize a sales force. In my opinion, there is no one "right" way. There is only the BEST way for unique circumstances of your current company.

Like most aspects of developing a software or technology company, there are guidelines, but no exact roadmap to building a successful sales force. In my practice at PJM Consulting, I often suggest that a management exercise like structuring a sales force should begin with a series of questions:

What stage of development is your company in?
This important, because an early stage company may not have the resources to fully fund the outside sales force that may be ideal for its situation. Or the company may want to sell primarily via an inside sales force, but hasn't had enough early success or nailed down the sales process sufficiently, to sell effectively through this less "high touch" method. Stage of development can be as important as what the ideal "steady state" organization would look like--don't over shoot your development stage in designing your sales organization.

What are you asking your sales force to do?
Are you using your sales force primarily as closers, supported by strong marketing, etc -- or will your sales force be doing a lot of cold calling, handling the customer "cradle to grave"? In general the more you are asking your sales force to do, the more "high touch" the structure needs to be.

What markets are you targeting?
In some markets (such as many enterprise IT market segments) an outside rep knocking on the customer's door is absolutely expected, and essential. In other markets (like many SMB markets), this type of attention would be considered a nuisance, not a service. It's important to understand what the target customers want and are expecting in a sales interface.

What are your product price points?
The implications of this question are usually well understood. High priced products can support a more expensive outside sales force, and may require one to make the sale. Lower priced products can't usually be sold profitably this way, and an inbound or outbound telesales operation is often the optimal structure.

Is your product more of a commodity sale, or is there a longer, more complex sales cycle?
Commodities lend themselves to lower cost inside sales, as well as a higher mix of channels. The more complex your sales cycle, the more likely your company will need a captive, outside direct sales force.


This is just a sample of key questions to ask yourself as you design your sales function. There are many more relevant questions that should be asked, depending upon the specific situation. I won't attempt to cover them all, or this article will become a book. Once you've done a good job of asking and answering the relevant questions, it's time to actually start designing your organization. Below are some of the personnel types and organizational structure that a software or tech company would typically consider as part of its sales organization:

SALES REP TYPES

Outside Reps
This is the classic sales rep style that has been around since the beginning of time. In the "old days" even consumer products were often sold this way (those of a certain age can remember the "door to door" Fuller Brush Salesmen). But this is the most expensive form of sales person, and depending upon the market, products and other factors, is not always the most efficient or even effective. There are still a lot of companies that sell almost exclusively through outside direct sales forces. But in companies where they direct outside sales reps do exist, they are often used more sparingly, in combination with other types of reps and channels.

Inside Reps
This is a favorite form of rep for commodity products, companies that sell heavily through third party channels, and inexpensive, higher volume products. Inside reps can also be used effectively in a "teamed" approach with outside reps, helping to optimize a territory. They may source or qualify leads for the outside reps, handle smaller accounts in the territory or generally act as a "junior sales rep" to the more senior outside reps.

Hybrid Reps
This rep type is own invention (the term is at least). This rep is part outside rep, part inside rep. A rep of this type would be appropriate for those "tweener" products and markets, which don't fit neatly into a pure inside or outside model. For example, software products with an average sales price of $5-10,000--too low cost to be sold strictly through an outside sales force, but maybe too complex or expensive for a pure phone sale. Hybrid reps spend most of their time in the office on the phone, but also travel modestly, approximately one trip/month. Example trips might be to staff trade shows, visit channel partners and call on major accounts. This type of rep may be very appropriate for early stage companies that can't yet afford to build out full inside and outside sales organizations.

Sales Managers
This is pretty self-explanatory, but not every tech company can afford a classical, full-time sales manager. Often you will see individual reps reporting to a manager of another function in startups, and occasionally you will see the concept of a "producing manager", who has line sales responsibilities in addition to management. This personnel type is very important to setting the tone for your sales organization, and is applicable to managing all rep types within any organizational structure.

Sales Administrator
A specialist that you tend to see in larger sales organizations, or at least those that have a lot of complexity (a lot of return activity, inventory management, repairs, rep splits, etc.)

SALE ORGANIZATION TYPES

All of the organizational types listed below can be commonly found as the dominant sales organizational type in many companies, as well as in combination with each other in larger, more complex companies:

Region-specific organizations
This is probably the most common organizational structure, which may include any of the sales reps types, who are assigned to specific territories. In many cases I favor this arrangement, as it tends to be the most unambiguous to measure and manage. The downside is that certain regions can prove to be much more naturally fertile than others, which can make the management process more difficult to do fairly. You also may lose the advantages that certain reps may have in terms of contacts or vertical market knowledge which lies outside of their geographic region.

Channel-Specific organizations
This is the second most common sale organizational type, which of course tends to be found in companies which make strong use of third-party sales channels. There may be a direct sales force, a VAR or retail sales force, an OEM sales force, and so on. Sometime there is an "intermixing of these organizations, for example, an "overlay" VAR channel rep as part of a direct sales force.

Industry-specific organizations
Likely the least common of organization types, but one which is very appropriate in certain circumstances. For example, a tech company which has very different value propositions in a number of vertical industries, where "insider status" in important to selling into a particular vertical market, or the product offerings are arranged by vertical market.


SUMMARY
There are many possible sales organization types and styles for software and tech companies. Many different ways of organizing can work--and the people you have are always more important than organizational structure to your ultimate success. But by carefully considering your company's specific situation, and matching your organizational structure to your market, products and available resources, your company will have the best chance of achieving sales optimal results.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/