Stephen Hurrell's Analyst Perspectives

I have a phrase I like to use when describing the changing nature of sales: Not all revenue and sales dollars look the same. This is in reference to the changing nature of both how in addition to traditional offerings, organizations are now selling subscription and usage-based products and services through multiple channels. These customer-driven shifts in the approach to buying and selling are also altering the economics of the B2B and B2B business models. The cost of customer acquisition and sales efforts for subscriptions are relatively unchanged versus one-time sales. But as the revenue is spread over time, it changes the point at which the buyer becomes profitable to the vendor. If, for any reason, there is not a sustained engagement between buyer and seller, the buyer will not be profitable. Although revenue targets may be achieved, it will be at the expense of margin. This also affects how organizations compute and understand product profitability, potentially distorting the appearance of product-level performance if measured by revenue alone. The adoption of variable pricing models has led to differences in the economics of business, including the impact of the increasing volume and value of trade purchased through self-service and digital commerce platforms. Such platforms typically have lower costs to serve versus a direct or partner sales model, positively impacting the underlying financials used to establish profitability and margin. But even though these market initiatives have a fundamental impact on how businesses operate today, people, processes and technologies in many organizations have not yet fully adjusted. An example from our experience was with a subscription-based software provider who wanted to introduce self-service purchasing for existing customers. Despite expectations of a speedier solution, customers who used this new buying method were frustrated as the fulfillment process still took two weeks. As it turns out, the compensation plan had not been adjusted, and orders continued to be processed through the salesperson so that they received credit for the sale. These unintended consequences occur because organizations do not think holistically about accommodating a more complex sales and revenue process, especially for B2B buyers. With multiple buying channels and differing pricing and engagement models, a single revenue target, simplistic incentive compensation plans and quotas, roughly drawn territories or traditional resource plans are insufficient. These organizations need plans that balance revenue targets across different channels linked to profitability and margin targets. It’s also critical to determine incentive compensation attribution and crediting processes that recognize transactions may be involved in a sale or an account, even if the final order occurs online. Territories that are only linked to geography and reliant on the previous year’s sales are unlikely to be perceived as representing “balanced” opportunities for individual sellers. This could become a disincentive, or worse, cause salespeople to look for new roles elsewhere, requiring expensive replacements. We believe that by 2025, only 1 in 10 organizations will recognize the need to pursue a unified approach to plan for omnichannel buyers and mixed revenue models. The remaining organizations will face a reduced ability to hit corporate revenue goals. To avoid this disconnect, sales and revenue leaders need to work with finance, human resources, self-service and e-commerce teams during the planning process. Myriad decisions factor into identifying proper processes: How will sales credit and attribution work? Who owns renewals and expansions? How will resources be allocated? Territories can be viewed geographically but also as virtual territories since remote selling affords the potential for vertical specialization regardless of physical location. Final decisions need to be communicated collaboratively to sales teams to facilitate adoption. Sales and revenue planning is not a one-time, annual task but an opportunity for continual adjustment as events on the ground transpire. Effective decisions depend on plausible forecasts and projections. For successful forecasting, those responsible need access to a wide range of data sources covering all sales and revenue channels, not just direct sales, as is the case with most sales forecasting processes. We call this wider, more comprehensive approach to sales and revenue planning revenue performance management. While spreadsheets are often the default tool for sales and revenue planning, they are inadequate for today’s revenue organizations. Multichannel sales, the need to share and link to finance and HR and the requirement to continually adjust in response to forecast projections adds sufficient complexity and size to necessitate using more specialist sales and revenue performance planning tools. We strongly recommend that sales and revenue leaders ensure they are using the right specialist sales and revenue performance management and planning applications. If not, undertake to review the available options. A good place to start is with the Ventana Research comprehensive Sales and Revenue Performance Buyers Guide, available here. Regards, Stephen Hurrell

Stephen Hurrell's Analyst Perspectives

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