Distributors often use the term, “Inside Sales” to refer to their customer service teams. Certainly, people who answer customer calls can do sales activities like cross-selling and upselling, but proactive inside sales is very different. Proactive inside sales reps can manage accounts just like outside reps do – without the car or travel. Instead, they manage accounts over the phone.
When done correctly, proactive inside sales can:
- Grow midsize accounts 15% to 20%
- Increase gross profit through revenue in higher-margin accounts
- Reduce sales compensation for midsize accounts by 30% to 40%
- Increase customer retention
In this Wholesale Change conversation, hosts Jonathan Bein and Ian Heller discussed six keys to creating a successful proactive inside sales program, including organization design, management support, compensation, account selection, selecting the right people and technology support.
Jonathan Bein: Let’s start by discussing the definition of inside sales. Why don’t you share what you’ve observed with the use of that term, then I’ll go into a more specific definition?
Ian Heller: Most distributors call their customer service people “inside salespeople.” If you ask how many salespeople they have, they may say 100, with 20 being outside sellers and 80 answering the phone. Customer service people are essential to your company, but they’re typically not wired to be salespeople; they’re customer service people. They avoid confrontation, which is one of the reasons they discount so much. They’re not good at proactive outside sales management. I understand why distributors call them inside salespeople, but they aren’t account managers.
Bein: The confusion or conflation of terms is a good launching point for this discussion. Let’s look at four different categories of inside sales. As you mentioned, there are customer service reps who are reactive only. They handle service and order activities. Then there are people called “inside sales,” who are also typically reactive. They may have an assigned customer base and do some selling on inbound calls. A third category would be outbound telemarketing, which is often used for appointment setting or campaign drives.
What we want to focus on today is what we call proactive inside sales. As the name indicates, it’s proactive calling only. It’s outbound. There’s an assigned account base, and their job is about relationship building like a field sales rep would. The main difference between your proactive inside sales rep and field sales rep is one gets in a car, and one doesn’t.
Heller: It’s funny, that’s such a simple difference, but it seems confusing to people when we talk to them. I think that’s mostly because there’s a paradigm that the people who sit on phones and in branches are inside salespeople. People have a hard time getting there when you try to recast what that means in terms of actual work activity.
People think that salespeople, by definition, get in their cars and drive to accounts while people who sit in the branch provide outstanding and essential service to customers. So when you try to get people to think of this account manager as someone who looks like their customer service people, they have a hard time getting there mentally.
Bein: When we’re talking about this notion of proactive inside sales, there’s a particular kind of scenario we’re talking about, and that is taking roughly the second decile of your customers by revenue. So if you have 10,000 customers, the top thousand are part of your first decile. The second decile is your next thousand customers.
If there are 1,000 customers in your second decile, we may assign 200 to 300 of them to a proactive inside sales rep. Each proactive sales rep can make 20 to 25 contacts daily. I don’t mean calls; I mean actually reaching 20 to 25 people daily. The cost per contact is much lower than with field sales. A field sales rep may get to four or five customers daily, but that will be an unusually good day.
Heller: If you go by research, on average, most outside reps get to two and a half or three per day. I know that sounds low, but if you think about the time a sales rep spends in the office just sorting out paperwork, fixing problems, attending meetings, training or going on vacation, the numbers end up at two and a half or three per day. So even if you’re optimistic and think your reps can get to four in a day, that’s still a small fraction of what an inside sales rep can do because they’re not driving; they’re just picking up the phone.
Bein: That’s exactly right. You’re also looking at different kinds of opportunities. A field sales rep might look at $50,000 opportunities (at a minimum), whereas the proactive inside sales rep may look at $10,000 to $50,000 opportunities. Inside sales reps also generate higher gross margins.
As it turns out, what’s good for the goose is good for the gander. Sales calls in a proactive scenario can be done in five to 15 minutes instead of 30 to 60. Your customers like that, you like that, and you can reach more people in a day.
We’ve done a lot of research about how people like to shop and buy, and as it turns out, a large portion of customers don’t want to see a sales rep. Only 30% to 40% want to see a sales rep either once a year or not at all, and that trend is increasing. These numbers are roughly pre-COVID, but as we know, there’s even less of a desire to interact in person in this hybrid world we now live in.
As a bonus, you can extend sales coverage to midsize accounts that outside reps are probably not interested in. We’ve seen typical growth in those midsize accounts at 15% to 20%. Those customers are probably not getting much attention from your competitors, so when you show them some love and attention, they’ll start buying from you more.
Heller: As you pointed out, there’s less competition for those midsized accounts. Everybody has outside sales reps, but very few have a proactive inside sales effort. So that means that if you’re calling those customers, even though it’s just over the phone, you’re not competing with people who only use outside reps because they’re too small for your competitors’ outside reps too.
Bein: You can grow midsize accounts by 15% to 20%. You can also increase your gross profit through higher margin accounts and reduce sales compensation on midsize accounts by 30% to 40%.
Heller: You also save on other costs because these people aren’t driving around taking people to lunch. They don’t have a car allowance and make less money overall. They also make 10 times as many calls per day. Even if you’re pessimistic about it and say that they only make five or six times as many calls per day, the math still works out. It works on the cost and productivity sides, which justifies the sales coverage for these midsize accounts, because it’s so much cheaper to call on them.
Bein: If we look at the keys to outbound success, the first is getting the right accounts for the proactive inside sales reps. If you try to give them accounts that are doing $5,000 or less, the numbers probably won’t work. So, it’s really important to figure out what the right size, or the Goldilocks zone, is for the accounts they should handle.
I’ve seen $10,000 to $50,000 as a range. I’ve even seen some companies try to go higher than $50,000, meaning they’re starting to take from the bottom part of that top decile. One way to look at the accounts you give is how they performed. Another factor is potential. If you want to build a model for sales potential, you can give 80% of the accounts based on actual performance and sign 20% of accounts based on potential.
Two of the most profitable distributors I’ve seen had only proactive inside sales. One had 25% EBITDA, and the other had 21%. I’m not by any means promising that if you do this right, you’ll get to 20% or 25% EBITDA, but it is worth mentioning that the companies who do proactive inside sales really well are also incredibly profitable.
Now, let’s talk about the next key to success: finding people with the right skill sets. Some people are sales-oriented, while others are service-oriented. What are some of the things you’ve seen service people do that salespeople don’t do and vice versa?
Heller: The people who are great at proactive inside selling can manage accounts and grow them like an account manager. Even though they look exactly like your inside sales reps or customer service people, on the inside, they’re different.
The psychographics of someone who is a great proactive seller over the phone is similar to that of an outside sales rep. They’re by nature hungry to grow sales. They’re profit and money-driven and don’t want to take calls, expedite orders or solve problems – they want to grow sales and talk about deals, upcoming projects and growing customers. So you have to do some testing and personality profiling to understand who is likely to be good at this and who’s not.
Bein: One common mistake we see is when people decentralize inside sales and move them into individual branches. Proactive inside sales works best when you have a centralized group. Reps benefit from working together; there are learned skills they develop for success, and there is healthy competition when salespeople are sitting in the same place together.
Heller: If you put them in a branch, they will get sucked into branch work when that branch is busy. If you’ve got someone making outbound calls that are not time critical or on a deadline, the branch manager may turn to them for help with inbound calls. When proactive inside salespeople get drawn into branch work, that really kills their effort.
Bein: Having devoted resources to the program and having support from senior management are also crucial for success. At some point, there will have to be a discussion with field sales about moving accounts to your proactive inside sales team. You may have to have a hard discussion about adjusting territories and moving accounts that aren’t being actively worked on. Getting the senior management’s support is critical to success.
Another key to success is having a good incentive and recognition program. The total compensation for proactive inside sales reps can be 30% to 40% lower than for field sales. What does that look like? There are a couple of ways to go about this. For instance, you could do a commission or a bonus model. Obviously, your base compensation will be higher than it is for your customer service reps and will vary by geography. Your base compensation may be in the $50,000 range and, if reps are hitting their numbers, may get up to $70,000 to $80,000 altogether.
Heller: If an inside sales rep grows an account quickly, you may be able to hand it off to an outside rep. But you should pay an incentive to the rep when an account gets flipped to field sales. You want to reduce the friction between outside sellers and proactive inside sellers by incentivizing everyone to grow customers all the time.
Bein: The final piece is making sure you have the infrastructure to support the proactive inside sales group. You can’t manage 250 accounts in Excel. You’ve got to have a minimum CRM to support all of the contacts you’re supposed to make and track opportunities, follow-up tasks and activities.
Depending on the size of your company, you could start with one or two inside sales reps. You don’t have to have a massive call center. Two reps would be a reasonable place to start if you’re a smaller distributor.
Ian Heller is the Founder and Chief Strategist for Distribution Strategy Group. He has more than 30 years of experience executing marketing and e-business strategy in the wholesale distribution industry, starting as a truck unloader at a Grainger branch while in college. He’s since held executive roles at GE Capital, Corporate Express, Newark Electronics and HD Supply. Ian has written and spoken extensively on the impact of digital disruption on distributors, and would love to start that conversation with you, your team or group. Reach out today at iheller@distributionstrategy.com.