Blog post

Managing the Cost of Sales

By Dave Egloff | September 26, 2019 | 1 Comment

Sales OperationsSales Strategy and Design

Last week, Gartner hosted their annual CSO & Sales Leader Conference in Las Vegas.  In my experience, it was the most impressive gathering of Chief Sales Officers, sales operations leaders, enablement leaders, and other senior executives looking to improve commercial outcomes.

During the event, the one-on-one sessions are my favorite activity.  These sessions are where clients and other attendees get to speak with experts on any topic of their choosing.  This year, a common theme (at least for my 1:1s) was managing the costs of sales.

Many sales leaders lean on a few common strategies to control costs:

  • Freeze open headcount
  • Limit discretionary travel and expense
  • Reduce special incentives

Before jumping to a solution, sales leaders should assess each sales cost reduction strategy across a varied lens — ease of execution, immediacy of benefit, potential levels of disruption and challenges to recovery.

Sales Cost Reduction Assessment Criteria

Organizations can be split into those that:

  • Need to immediately reduce costs due to external pressures
  • Want to proactively control costs because of internal concerns

Undoubtedly, it is best to avoid being in the first camp.  Sales leaders forced to immediately reduce costs must prioritize immediacy over all other elements.  Often, these approaches are extremely disruptive with challenging roads to recovery.

As a case in point, many sales leaders reduce the size of their sales force as a means to trim expenses.  While this has an immediate benefit, it’s clearly a disruptive action that is emotionally draining.  Notably, the disruption spans the entire organization — sellers, sales managers, HR, Finance, Operations, Legal, etc. — plus impacts customer relationships.  Down the road, recovery is also challenging as many sales leaders struggle with both:

  1. Hiring competent sellers
  2. Onboarding sellers quickly

The best defense is a good offense

So what are sales leaders to do?  For most organizations, managing the costs of sales should be an always-on strategy — it’s should not only be thought about when you are uncertain about the future.

Progressive sales leaders manage sales costs in an ongoing, multifaceted strategy that spans sales force design, compensation, and operations.  This doesn’t mean they are constantly making cuts. Instead, they are being thoughtful about mitigating:

  • High cost to serve customers and territories
  • Excessive redundancy in sales coverage
  • Misaligned compensation strategies
  • Poor quota setting
  • Overly complex business requirements

Not a minimalist strategy

Managing sales costs requires a thoughtful and holistic approach that balances sales results with sales investments.  Ideally, the sales organization performs efficiently, effectively and productively.  Moreover, they need to be set up for success.  Unfortunately, cutting expenses today may penalize the success of tomorrow.  It’s far more sustainable to continually manage costs and make small tweaks as opposed to taking more blunt and extreme actions.

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1 Comment

  • Dave, a thoughtful and important piece – thank you.
    Let me add one thought to the mix.

    The subject is often clouded by looking solely at directly attributable ‘costs of sales.’ By going out one more holistic level, let’s not forget the power of repeat business – driven by loyalty, trust, whatever.

    A couple of decades ago, Bain and HBS, mainly Fred Reichheld, established the huge power of repeat business; depending on the industry, it costs roughly 4-7 times more to generate a dollar of new business than it does a dollar of repeat business.

    That is a massive number, radically affecting the bottom line. Too often discussions of ‘cost of sales’ forget this point, which IMHO is arguably the single biggest factor.