According to market research firm IDC, the cloud services market will grow to more than $127 billion in 2018 from $56.6 billion in 2014, and enter the “innovation” stage with an explosion of new solutions and unprecedented competition. Given the cloud business dynamics – higher upfront acquisition cost, delayed revenue recognition, evolving customer buying habits – how are cloud sales leaders adapting to capture their share of this market and grow sales at reasonable cost? Answer: start inside, then go out.
Alexander Group analysis estimates that the cost of sales (COS – sales expense divided by revenue) for pure-play cloud companies averages 46 percent. Mind you, that’s the average. Some cloud companies experience COS as high as 75-80 percent, particularly when quickly ramping an expensive sales force. Add to this the fact that less than 40 percent of cloud sales reps achieved quota last year. So how can cloud sales leaders scale and evolve while managing a desired cost of sales? Leveraging an inside sales model – as far as you possibly can – is a big part of the answer, and the focus of this post.
Inside Out
Traditional software companies deploy field sales first and then later consider how to “support the field” with various inside roles. Successful cloud companies have turned this model on its head. They deploy inside roles first … and only when absolutely necessary do they deploy field sales roles. Most cloud companies evolve their routes to market as they grow and gain traction, beginning with a focus on new customer acquisition. The nature of many cloud applications and offerings lend themselves to phone sales. This is definitely true for SMB and mid-market customers, but also holds true for Enterprise customers when deploying a “land and expand” approach. As a cloud company grows and scales, eventually there is a need for field sales resources. But rather than sending out field resources to “work their territory,” smart cloud companies are pairing and flanking field sales with inside roles including lead gen, inside sales engineers (to run online demos), inside product specialists, and customer success and retention roles. Keeping as many of these roles inside helps drive a consistent sales process, rep accountability, and of course, helps manage costs. Below is a depiction of the prevalence of inside roles across eight common Cloud Sales roles.
Table 1: Prevalence of Inside Cloud Sales Roles
Source: Alexander Group Cloud Sales Index
Outdoor Hunters, Indoor Generalists
The nature of selling cloud services also lends itself in many cases to a “hunter” and “farmer” split model, where the hunter role prospects and closes new customers and then “hands off” the account to a “farmer” role that maintains and grows the customer’s business. But to manage sales efficiency and costs, cloud companies should start with inside generalists, eventually evolving to a model with dedicated hunters (can be inside or outside), farmers of existing business (generally an inside role), customer success for adoption (always inside), and renewals for up/cross in addition to renewals (also inside).
Deployment Ratio Reversal
Diversifying sales roles can get expensive quite quickly. Yet role specialization when done correctly absolutely drives higher efficiency. Per the table above, it also allows for specializing roles around tasks that can be handled entirely or primarily from an inside team. And in some cases, a reversal of the traditional deployment ratios where there may be one inside person supporting three to four field, to the opposite in some cases – one field rep paired with three to four inside reps. In this reversed model, the field rep essentially covers only the largest and most complex deals that require a face to face sale. With customers getting more comfortable with cloud platform and digital collaboration, inside-based sellers and overlays often can be just as effective. As an example, we recently transformed a software business unit of one of the world’s largest high tech companies to an inside model to both increase breadth of market coverage and reduce overall cost.
Action Steps
How well does your sales model leverage the full range of inside roles? To ensure you are fully leveraging the capabilities of inside sales, consider these three actions steps:
- Examine each customer segment and determine what inside roles are possible. Consider the four main elements of the sales process: 1) lead generation, 2) acquisition, 3) adoption, and 4) retention/management. Where can inside roles apply?
- Evaluate your deployment ratios. Determine sales time and workload by phase in the sales process, and determine the right ratio of roles. Don’t get stuck in the traditional mindset that you must start with field roles or have more field than inside. Do the opposite, and start from the inside and go out.
- Develop an Inside Sales Road Map. Whether seeking to tweak or transform the sales organization, develop a future-state blueprint and execution road map based on where you can further leverage inside sales roles to achieve your desired cost of sales and ROI.
Learn more about how the Alexander Group has helped other clients evolve their cloud sales organizations.
Original author: Alan Chi