Medical device organizations are transforming their value proposition, account targets, resource mix and cost profiles. Why? To reinvigorate sales growth. In doing so, they are taking some risks to be sure. But client after client tells us they are more willing to accept risk and change when they have credible benchmarks available — data they can trust, and the type of data that leads to insight. Where can they find this data? Look no further than the Alexander Group’s 2015 Medical Device Sales Index.
The Index is an in-depth study covering a range of helpful medical sales metrics. Participants receive a complimentary report benchmarking their results against the other company averages in the study. First, we’ll assemble customer coverage and cost data. Leading medical sales organizations have carefully managed their sales costs over the past few years. We expect the overall industry sales expense-to-revenue (E/R) ratio to improve and fall below the 16.4 percent average we observed a few years ago. In particular, we expect to see E/R improvements in the surgical devices segment. The chart below shows E/R ratios from our past benchmarking work. The chart shows E/R broken out by industry segment and by four key cost buckets: (1) sales rep compensation; (2) sales management compensation; (3) productivity-related sales “investments;” and (4) infrastructure (overhead costs).
We expect to see significant growth in non-traditional headcount and much less growth in core territory sales heads. Our previous research indicated that traditional field territory sales reps accounted for 77 percent, or the vast majority of sales head count. Sales costs should shift accordingly. The study will collect all the sales headcount data, capturing expected changes in how leading companies are building more nuanced organizations with new customer-facing roles. As companies continue to reallocate resources, we expect to see a material change in the headcount mix. The table below lists the full range of sales jobs covered in the study.
Historically rep-centric medical sales organizations have typically invested a comparative pittance on field support, sales operations and demand stimulation. See below, at left, the gap in spending on these categories on a per-rep basis relative to enterprise technology sales. Our recent observations suggest medical sales organizations have finally begun investing more in these long-neglected functions. For example, our recent Sales Operations Study shows how medical companies have taken the lead in transforming sales operations from an execution arm to a valuable source of insight.
Our clients tell us that benchmarks help them identify opportunities to improve productivity and lower sales costs. The study will also gather a slew of sales productivity benchmarks. We’ll collect “classic” productivity metrics such as revenue per head, gross margin percentage and quota size. In addition, we’ll collect the percentage of sales from new products, quota attainment and turnover data.
We’ll also update all of the key sales compensation benchmarks, on a job by job basis, from legacy territory sales reps to emerging specialist job roles to sales management. Legacy medical sales comp plans were highly leveraged, with a typical pay mix of 40/60 base salary/variable target, and even more variable in some segments. See below the field rep pay mix by industry segment from our last study. Legacy medical sales organizations generally pay commissions on net sales from dollar one. More recently, however, we are seeing medical leaders shift the pay mix to higher base salaries, especially companies with high market share. These companies recognize one key to growth involves capturing incremental penetration of previously converted accounts. We also see high market share companies inserting minimum performance thresholds, below which no incentive pay is earned. Or, less drastically, commission rates are ramped to deliver less pay until reps get closer to reaching their full quota. We expect to see these trends continue.
The table below provides the full list of medical sales metrics included in the 2015 Medical Sales Index. If you are interested in learning more about participating in the 2015 Medical Sales Index (free of charge), please contact Kahla Cooper at firstname.lastname@example.org.
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