Wholesale Change hosts Ian Heller and Jonathan Bein, Ph.D., recently spoke with Mark Peck – who has decades of experience helping distributors drive greater profitability through smarter sales strategies – about how distributors can build and sustain a profitable inside sales program.
The key: Stop viewing inside sales as a customer service function.
They discuss the six elements of managing proactive outbound sales, how to measure sales performance and the importance of developing a coverage model for sustained growth.
Peck is the Vice President of Analytics for Distribution Strategy Group.
Ian Heller: You have provided us with so many lessons over the years on how to integrate inside sales, outside sales and customer service. In all your years of consulting, where do you begin when helping your customers look at inside sales differently?
Mark Peck: Most distributors have an existing inside sales team, whether it’s just a few people or many. They always seem to struggle with trying to understand the metrics. They ask, “How do I measure this, and how do I use those metrics to manage this as a business?” What happens is they end up measuring what’s convenient and easy to measure or what they understand – things like the number of calls made by inside sales reps.
It’s not that those are bad measurements. However, optimizing talk time or getting on the phone a lot doesn’t equate to selling time. That’s the issue most distributors I’ve worked with experience. What do they measure and how do they measure it in a way that’s productive and helps them manage that part of their business?
Distributors need a system of measurements to manage outbound proactive inside sales whether they have an existing inside sales function in place or are implementing a new team. Those are the tools that will help them notch up performance and turn their inside sales team into home run hitters.
Heller: Some distributors have a function they call inside sales, which is more customer service as opposed to traditional outside sales. It’s an important function and customers have great loyalty to their inside salesperson. But they aren’t salespeople in the sense that they manage accounts and proactively generate sales.
Distributors need to accept upfront that their inside salespeople are never going to be effective outbound sellers. In most cases, you can’t blend the roles. But once you are ready to create an outbound calling group that is proactively generating sales, it’s at that point you can start talking about how to turn them into home run hitters.
What are your thoughts on that?
Peck: Absolutely. Some people move from customer service, or the inbound group, to the outbound group and are successful. However, they are often the exception. I have seen many people try to move, not make it and end up back in customer service.
Inside sales can sell. They react to the customer, sense the customer’s needs and can cross-sell and upsell. However, to have them be outbound, prospecting and pushing new opportunities is not typically a good behavioral fit. When you try to convert a big team of those people into outbound sellers, they gravitate toward inbound tactics, toward being reactive and solving the customer’s problems. There’s nothing wrong with that, it’s very important for the business. It just doesn’t drive the same productivity model that you want in an outbound salesperson.
Heller: That’s been my experience. There’s about 10% of people who can do both. What happens is that sales leadership starts believing that if a handful of people can do it, then everyone can do it.
Peck: I’d like to walk through a productivity and coaching model. It’s a simple model made up of six elements or steps that result in an equation. The result of the equation is how much revenue a person or a team generates. The revenue equation is:
It’s important to note that I define contact as a substantive dialogue with a decision-maker, which means you dialed a phone number and engaged in a conversation with a decision-maker. Dialing the phone and leaving a voicemail is not a contact.
When a distributor factors these elements, the model tells you what each salesperson does well and what they don’t do well. It also shows revenue performance.
Heller: Can you put metrics around each of the six elements?
Peck: To some degree, you can have metrics for each step and there will be a lot of variation. You’ll see some salespeople are good at timing and scheduling calls or getting through screeners to get to the decision-maker. Then, how good is that inside salesperson at listening to the prospect to identify the needs of the potential customer? How good are they at closing? What’s their average order size? You can begin to take these metrics and begin to use them as coaching tools and identify your stars and what they are doing to make a difference in this model. But when you see a team of good salespeople, it’s important to remember they each sell a bit differently. They are not clones of each other.
Heller: I’ve worked around inside sales models for years. I’ve never seen this before, but it’s so holistic. This data allows people to leverage where they’re strong and then work on areas where they’re not. For instance, “I don’t make as many dials per hour but I’m better at getting through because I’m more thoughtful about how I do it” or “I don’t make as many contacts but the ones I do turn into bigger orders with a better close rate”.
Peck: If you give them a metric, your good people will find a way to hit it and perform.
Jonathan Bein: What occurs to me when I look at these metrics is that calling hours and dials-per-hour don’t have anything to do with skill. It’s just showing up. The selling ability comes in the subsequent metrics.
Heller: How do you measure each of these steps in the equation?
Peck: I would hope most people running an inside sales program have a CRM system in place. If you do, you can integrate it with your phone system to obtain metrics on dials-per-hour. Other metrics will be self-reported by the inside sales team and tracked in the CRM.
Heller: If distributors are reluctant because they had trouble introducing a CRM to the outside sales force, they shouldn’t let that color their impression. In my experience, a CRM is often enthusiastically adopted by inside sales even in those distribution businesses that had a hard time implementing one with their outside sales force. It flips the reluctance factor on its head because outbound callers need information like contact data, proposal history and previous transactions to work efficiently.
Mark, what’s next?
Peck: I’d like to talk about building a coverage model. The tendency is to overload inside salespeople with many accounts, hundreds even. When you do the math, there are situations where the inside salesperson never spoke to a third of their assigned accounts.
If we don’t build a coverage model that covers those accounts, the wallet share is already small. If we put an account in inside sales and no one ever speaks to that account, now we’re getting the smallest percentage of wallet share. That’s why it’s important to look at the numbers and decide how frequently we need to talk to customers and calculate just how many contacts an inside salesperson can make in a year.
Heller: I think this is part of a broader issue. Most distributors don’t have a plan for how frequently they’re going to contact each customer. We know that there’s some correlation between the frequency of contact and the frequency of purchase. And yet, distributors have thousands, sometimes tens of thousands of accounts and contacts in their system, and there’s no structured plan to reach out.
This is something we learned from you early on, Mark. There needs to be a plan to multiply the number of outbound contacts. Not only to remain relevant and top of mind to the customer but also because customers segment their distributors according to their needs. To overcome that, you have to constantly educate and remind them of what you sell. If you doubt that, walk through a branch with a customer and you’ll hear them say at one point, “When did you start carrying that?”
Peck: Right. If you start an inside sales program with a set of customers and hand them off to an inside salesperson, they often tend to follow the path of least resistance. They’ll talk to the customers that seem to want to talk to the salesperson.
They’ll focus on the large customers that order every week, but they won’t find time for the bottom half. The bottom half are typically smaller buyers, but probably have some diamonds in the rough. With the right coverage strategy, those accounts can grow. I like to have a coverage model that varies the coverage for inside sales based on what the account is worth today and what the account could be worth tomorrow.
It’s important to grade those customers according to frequency and volume of purchase and speak to them at a frequency that’s meaningful for that customer level. If we don’t have a coverage model, some of those accounts get lost in the equation. A coverage model helps to set expectations with your salespeople as well as calculate the appropriate territory size. This all impacts the cost of selling and how well you balance economic investments in the top level of customers as well as bottom levels and prospects.
I caution distributors to not underestimate the value of customer accounts. They’re always more than you expect. Of course, you need to know where your “break-even” is, but don’t set your expectations too low. That’s why I think it’s helpful to get outside data to validate your estimations.
Heller: What does compensation look like for inside sales versus outside sales?
Peck: Depends on how you have it structured. I like to see it portion-variable and a significant portion based on performance. If you have an integrated team, you won’t get what you want out of the team unless the variable portion is based on team revenue. I’ve seen goal setting based on previous year sales to be effective when they get a percentage of the total and a percentage of growth above historical performance, maybe even a stretch goal that offers a higher percentage.
Heller: Generally speaking, outbound callers make less than outside salespeople, right?
Peck: Yes. Inside sales compensation is about 60-70% of outside sales. Outbound calling is a bit lower risk than outside sales and less demanding.
Bein: And those numbers will vary by geography. What you’re paying for a proactive inside sales rep in New York is going to be different than what you pay for one in Texas, right?
Peck: I think what’s more effective is if you have a stable base and a variable, you let the variable drive the difference. I like to see people have a living wage base with a variable that allows them to get significantly above that. The variables should be economically justified based on their performance within the company.
Bein: Do you have a preference for attaching bonuses versus commission to inside sales performance?
Peck: I like commission better. Depending on how you structure it, they can work similarly. However, with a commission, you get those smaller incremental improvements and people are rewarded for that. With bonuses, they are more stepped. They are rewarded for the big improvements but not rewarded for the smaller incremental changes that get them there. I think they are more motivated by commission.
Heller: It’s easy to underestimate the power of proactive inside sellers. Most distributors have an outside sales force that is competing with other distributors, and there is tremendous competition for these big customers. There are relatively lower margins because these are big customers and have big potential for every distributor.
The most natural progression to expand your demand generation is to move into mid-market with outbound sellers because you already know how to manage your salesforce. Of course, there are some things you have to adapt and learn. But it is still managing a salesforce, and it’s not like installing a capability that distributors have no background in.
There are two big advantages in doing this. One, there is typically less selling competition. And two, mid-market goes at significantly higher margins than big customers. If you cultivate this model, you’re dealing with less competition and higher margins.
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