There are many ways to deliver your software and hardware products to the market. For example, one and two step distribution through third party channels, direct marketing/sales over the Internet, OEM relationships, even retail for B2C products and many variations of these, as well as many 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 via face time. 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 considerations in this discussion are the complexity of your product offerings and the corresponding typical length of your sales cycle. Simple, easy-to-use products –particularly traditionally licensed software or SaaS since they are easy to demo over the Internet– 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 LIFE CYCLE
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 initial market penetration. The more established brand and company might be able to get by with a lower-cost inside telesales approach, in these 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. The higher the price the more “high touch” your sales approach will most likely need to be, especially once you get to price points above what can be approved at the department level and move into enterprise-level committee selling. Low priced products, unless sold in high volumes, often just won’t profitably support the use of an outside sales organization on their own.
TARGET CUSTOMER PROFILE
Is the target company large or small, is the prospect you’re selling to young or old, progressive or traditional? It’s important to understand your customer profile and buying style in deciding how to sell to them most effectively. This is often decided on a case-by-case basis for individual customers. But when making this decision on how to structure your direct sales force, it’s important to characterize your target market profile 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 should strongly consider building an outside sales force. Some of these customers still come from the old “Glass House” era that was dominated by IBM and are accustomed to having sales people physically call on them. On the other hand, your prime prospects may fit in a younger SMB market segment with prospects who are more comfortable with remote/digital communications methods. These folks also usually 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: OUTSIDE & INSIDE SALES
In some cases a mix of inside telesales and outside reps works best. Here is an example of when this might be optimal:
A product with a low sales price that lends itself to an inside sales force for the bulk of prospects, but the product is something that major accounts can also use and 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–supporting the reps with as much outbound marketing as you can muster. There are many ways to compensate for the lack of an outside sales force 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 “bankrupting” scenario occur more than once in my high tech career.
SUMMARY
Like any other key structural decision that senior management faces in developing a software, SaaS or hardware company, it’s important to carefully consider the details of your particular circumstances when designing your sales force. Unfortunately, senior managers will often 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 sales strategy and sales force and you are likely to be rewarded with optimal push in your chosen market segment.
What do you think? Give us your ideas on the optimal approach to structuring your sales force.
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Hi Phil, interesting article. I like the approach of prior strategy design. What I miss here is the cultural side effects of selling in other regions. Let me explain that: I´ve been sales manager in Latam for European vendors -an “outside sales” in your terms. And it´s very difficult to fine tune the right message, accept some pricing schemes, manage long cycles (one year!) for very complex almost boutique services in the TMT field.
Best,
Daniel
Hi Phil, a very inspiring article and explaining step wise about the outside sales force and an inside telesales group. Please keep posting such informative articles.