Continuing the series of postings about the future of sales that I started 2-3 weeks ago. This time I start to look at the cost of sales and how that is going to change over time.
The next place for the axe to fall
Cost reduction, or whatever the current euphemism is, has been a fact of business life since the outset of the recession in 2008. First we saw the cuts in spending on staff training and a clamp down on travel and general expenses. Close behind was a reduction in contingent labor, with contractors being let go.
Developments such as the use of shared services centers and the introduction of self-services finance, accounting and human resources software have all been part of a more general back office cost reduction. Consolidation of systems, standardization and simplification of processes has also driven down costs. Property and facilities consolidation is another part of the picture, as is the increased support for homeworking arrangements.
Of course, cost reduction of a more structural nature has been going on for much longer. We’ve been using low-cost offshore development and support resources for decades – all contributing to reducing the cost of product development and the ongoing support for those products. We’ve seen products being delivered electronically, by software download, cutting the cost of that process.
In marketing the use of digital marketing has increased as well. While it doesn’t necessarily mean that you should spend less on marketing, there is general association between cost reduction and the more electronic marketing techniques.
Apart from sales, most elements of business have been through several rounds of tactical cost reduction and at least one round of more structural cost reduction program. Sales, while not totally immune from cost reduction, has been relatively lightly touched – with many executive being simply frightened to touch “the third rail”. That immunity cannot continue…
Inside sales – a lower cost approach
We’ve been predicting for some time that Inside Sales will be a more important part of the sales mix in the future, driven by its lower cost structure but also by the increased coverage that it can deliver. In the research note Predicts 2012: Marketers Must Adapt to a World That Rewards Speed we predicted that we’d see a 50% in the volume of inside sales capability available in the industry.
I’m now beginning to wonder if that prediction was simply too conservative. I see continued growth in inside sales capabilities in sales teams around the world, and no sign that is going to slow down. I’m also seeing more vendors appearing in the market that offer different types of outsourced sales services – with cost reduction and improved effectiveness being at the core of their proposition.
Inside sales have traditionally been paid less than their field sales colleagues, with those colleagues being paid approximately 15% more in total compensation – according to some of still to be published research from a recent study on sales operations. The more cost effective inside sales staff are also predicted to generate a higher proportion of company revenue by 2015, especially in EMEA where 51% thought agreed with this idea – compared to 25% who disagreed.
A move to inside sales, to help reduce the overall cost of sale, is clearly one element of a structural change in the cost of the sales function. The move to eCommerce and online sales is another.
Online commerce for software
In a recent survey (to be published later in the year) it was surprising to see that 49% of software providers (from a sample of nearly 200 software vendors) are generating revenue through eCommerce or online sales channels. Although these channels are generating only 12% of the total software revenue this figure is rising, and it is a high margin channel. I can only see the proportion of revenue deliver by the channel increasing, as a reflection of customer preferences and the desire to use the most cost effective channels possible.
While there may be some doubts about whether online transactions are preferred or wanted by customer they’re still sure to happen. Just like eCommerce grew because of supplier costs structure issues, rather than by an unmet set of needs in the B2C retail industry…. so a move towards more B2B IT transactions being made through eCommerce will be driven by cost structure issues in the suppliers, and not by a change in business buying preferences.
More to come…
Over the next few weeks I’ll continue the analysis about how the sales function in the ICT industry is changing… Clearly there is significant pressure for the sales function to deliver results at a lower cost but that’s not the only structural change…