So the Head of Sales says that she needs more salespeople and Head of Channels says you need more channels. Who’s right and who’s wrong?
What I’m going to show you today is how to choose the absolute best channel for your chosen target market. You remember Geoffery Moore’s Market Maturity Model, in which we learned you need to set your strategy according to what most of your buyers are ready for.
I want to talk more about sales channel. Imagine the very early part of the market. The market doesn’t yet know how you can use this new thing and you probably don’t know either. You’re both learning. The buyer’s going to insist on getting as close to the innovator as they possibly can. If you’re the innovator, you don’t want to put too many steps between you and the innovative buyer. In fact, you don’t want that either because you want to hear from them directly, so you and the buyer want to have a direct relationship, through your best, most innovative salespeople.
Now imagine the next group buyers, once we’ve run out of early adopters and you’re starting to get into the first part of the majority of the market. They’re pragmatic buyers and they want proof, they want confidence and so they’re still going to want to insist on you selling to them directly. It’s just too early to bring the channel in. The market’s not been proven and the channel is probably not too keen to get involved anyway. Not yet, not until a market’s been proven.
The next group of buyers are also pragmatists. They’ve already chosen that they’re going to buy the product, it’s a question of from whom. And that’s the time you want to bring a third party channel in. Mostly, that third-party channel gives you reach capacity. They also honor what the customer is looking for because they just want the product and you want to make it easy for them to get the product as quickly as they can.
At Main Street, which is the top of the Maturity Model, buyers know how to buy this stuff and they’ll start dictating to you how they want to buy it. Main Street buyers are going to say ‘with respect, I know that you want to sell through this third party channel but I want to buy from you directly.’ So certainly the biggest customers will insist that you sell to them directly.
Now we’re switching again, away from the channel towards the direct model, certainly for parts of it, maybe even all of it. Once we reach End-of-Life then we need another big change, because once you’ve reached End-of-life, the market is a brand new market again.
At the decline in the end-of-life for the market you want to slow that decline down if you can, and the way to slow it down is to find new uses of your product. That’s a new market, that’s a new use. As it’s new, once again the buyers can insist on dealing with you directly and because you’re learning, you’re going to want to deal direct with them too. Like the very beginning when dealing with the early market we had the direct approach. It definitely depends on where your market is up to, what they need in time and you need to set your channel strategy according to that.
Sizing your sales resource requirements
Because we’re a buyer-centric company we’re going to have hundreds of salespeople just sitting around waiting for customers, aren’t we? Clearly not.
How do you work out how many salespeople you actually need, whether direct or indirect? Imagine for the moment you have ten salespeople – we might have eight full time sales people, a Director of Sales and three other directors in the company. That between them can account for another full time equivalent or FTE. So you’ve got a total of ten full-time equivalents or FTEs and out of those 10 people, say there are 200 selling days in a given year (once you’ve taken out holidays, public holidays, training time and so on). Ten sales people, 200 days, you’ve got 2000 days.
Now say that you can do a meeting a day. Therefore, these 2000 meetings are available to use as your selling capacity for your selling activities. Now, if, for example, it takes 10 meetings, I know some people who’ve got two call closes and it takes two meetings to close and others take thirty. Imagine that it takes 10 meetings to close a deal. You think, therefore, you could close 200 deals. 10 guys, 200 selling days, therefore 2000 meetings and it takes 10 meetings to close a deal, so you can close 200 deals a year.
Remember the funnel? Lots at the top, few at the bottom. Not every buyer makes it through the funnel so we need to consume some meetings at the top of the funnel that don’t actually become sales, so we’re going to generate fewer than 200 sales out of those 10 salespeople. Here’s a basic rule of thumb: allow for between 25 and 50 percent fewer sales per salesperson than that basic back of the envelope showed. So in the example 200 sales was the theoretical capacity allow for somewhere between 100 and 150 sales for a more realistic quantity that you can get out of that sales force, because of the funnel.
Conclusion: what kind of channel should I choose?
So let’s boil all of this down to some simple conclusions. The question is what kind of channel do I need at any point in time? Again you start with the customer (buyers) as a collective group. What kind of sales interaction are they going to be expecting from you given their maturity as a buyer for a product or service like yours? Right now, that’s again the Market Maturity model mentioned earlier. Think about the buyer, what kind of sales interaction do they need? Do they need to be dealing directly with you because it’s all so new? Do they need to be buying through a third-party channel because they just want to get to the product? Or are the big guys starting to mandate that they must deal with you directly? But the smaller ones can buy through a channel. Work that out first then model your resource capacity using the dynamics from before – the number of meetings available, the number of meetings required, therefore sales horse power required to accommodate that market.