The importance of Outbound Sales — Part One
My admiration for Sales
Hi, I’m Marcin and I have never managed a sales team. During more than 25 years of my career, I was in a role of an entrepreneur, manager, business consultant, business angel, or, like currently, managing partner of a VC fund. I was responsible for creating new revenue streams, improving sales efficiency processes as well as my salary and ESOP often depended on the sales results, but I have never supervised a team of Sales Reps. At least not directly.
However, I was blessed with the opportunity to observe and co-operate with such people throughout almost all of my professional career. At work, I observed both the sales failures and virtuosos, and I believe my analytical skills could synthesize some differences between their skill sets. Moreover, since 2012 when I started to be fully engaged as a venture capitalist, I have spent a hell of a lot of time with European CEOs responsible for sales, CSOs (Chief Sales Officer), Sales Managers, SDRs (Sales Development Representatives), and external sales consultants analyzing their actions and observing results. Finally, this article was directly inspired by the book of Frank V. Cespedes — ‘Sales Management That Works’. So please treat these pieces of advice included in this article rather as a voice in a discussion and not as ‘two Stone Tablets sent straight from the heavens’. I always repeat that ‘sales is kind of an art’ and there are no one-size-fits-all solutions.
On the way to great sales machines
Let’s briefly familiarize yourself with the terms of Inbound and Outbound Sales. While the first one refers to sales initiated by a potential customer who reaches out to the company, the Outbound Sales are exactly the opposite and mean those leads that the sales team created as a result of their effort.
Both, Outbound and Inbound Sales teams use different tools and processes to achieve great results. But the importance of salespeople in making a customers’ purchase decision, especially in B2B Sales, is constantly highlighted in a number of researches. ‘Direct interaction with the provider’, meaning an interaction with a Sales Representative, is the most important factor of making a purchase decision for a business buyer. Study shows that it’s even slightly more important than ‘References’.
The unsung heroes of every company’s success might be called differently. ‘Sales Reps’, ‘SDRs’, ‘Door-To-Door Salesmen’ or a ‘Field-Force’, but it’s clear to me that these people use some universal patterns now, the same as they have used decades ago. In this article I will use all the aforementioned terms simultaneously meaning the same great individuals or groups.
In Market One Capital we invest in European marketplaces and digital platforms. Very often they present network effects or have a software component that makes them SaaS businesses. In this article I’m going to focus on some rules for B2B outbound sales using examples of startups I consider being great sales machines.
Well-oiled Sales Machines
In Grupa Pracuj — the biggest online recruitment business in CEE, the owner of a job board and a few HR management solutions with a close to an unicorn valuation — they sell a virtual product (a job ad or an applicant tracking system) but the majority of sales comes from a typical, outbound outreach. More than 50% of their couple of hundred employees in Poland and Ukraine are sales-related people. They spend hours on phones, video calls or visiting clients, selling their products to HR managers. Without a doubt, the pandemic reduced the number of face-to-face meetings and influenced the usage of long distance communication tools, but the essence of sales stayed the same. They build relations with people who would like to recruit an employee.
In Booksy — global SaaS enabled marketplace for customers who want to book a visit in a beauty salon — soon to be unicorn — there are almost 300 employees in the Sales Department, selling the software to manage barber shops or hairdressing’ salons. They do it both by tele-sales and field sales when visiting salons in the locations where they’re currently expanding. I witnessed building a Tele-sales Department of Versum (a company merged with Booksy International) operating from a small city of Bielsko-Biala, Poland, growing from a couple of sales specialists up to almost a hundred of them serving 11,000 customers. Since then, the merged sales team of Booksy and Versum has been serving more than 50,000 customers around the world from 8 regional sales offices in 7 different countries.
In DocPlanner — a platform for patients to find a doctor and book an appointment — already a unicorn — their 400 salesmen had been visiting doctors in their offices but the pandemic changed the balance by putting more significance on remote sales. Currently, approx. 2/3 of their sales force offer their products to more than 100,000 doctors remotely from 7 regional offices around the world.
All of the mentioned examples sell a digital product by a physical and specialized B2B outbound sales force. At some point, all of them faced the same challenges regarding ‘Who are their key customers?’, ‘What is the most efficient way to sell them the product?’, ‘When and how to scale the Sales Team?’, or ‘How to incentivize them efficiently?’.
A Golden Customer
To start modelling a sales team it is important to answer the question of ‘Who your target customer is’? Such a customer is not necessarily the customer that brings you the biggest revenue nor the one who is easiest to acquire. In business consulting, we coined the term ‘Golden Customer’. The Golden Customer gets a significant value from using a product and is aware of the value he derived from it. It’s important not only to consider geography, demographics, behavioral attributes, size of a company, or a tech stack. The best way is to pick 10 attributes describing your Golden Customer and start digging into what is the real value you bring to them. Usually it’s done by continuous and cyclical interviews with clients, both online and offline.
Every member of the Management Board of Grupa Pracuj spent a couple of weeks per year visiting and talking to their customers, asking about the real value of the products they delivered and about the way they would improve them. Every quarter, there were results of customers’ research giving answers on what is the efficiency of some key job ads (e.g. how many applications / high-quality applications the job ad brought?) in comparison to the same ads placed on their competitors’ sites. A special, biyearly research gave the answer on what is the price sensitivity of their products. It was one of a few businesses I have observed, where they were allowed to increase prices of their products every single year throughout the few years I was involved in this business.
Adjusting your sales tactics
Knowing your Golden Customer is only the tip of an iceberg. The fun begins when you start designing a Sales Team supposed to be selling efficiently. In young startups, it’s usually the CEO who must answer some basic questions on ‘Should I use an inbound, outbound or a hybrid sales?’. ‘When is it efficient to build and scale-up an internal Sales Team?’. ‘What is an efficient unit economics for sales?’
As a rule of thumb, the type of sales is dictated by transaction size. When your transaction is relatively low (i.e. up to EUR 200), it is usually more efficient to use Inbound sales. With mid-range transactions of a couple of hundreds or low thousands — there are some hybrid models of Inbound and Outbound Sales. With high tickets of thousands of euros, there are key account specialists treading their paths to their customers and thus the sales are much more relationship driven.
My observation from reviewing a couple of thousand startups and investing in close to 50 of them is that among startups, approx. 70% implement hybrid sales models (outbound + inbound), 20% are purely outbound-driven, and one out of ten is inbound-driven only.
Size matters
Unlike the other things, Sales Team size matters. Usually, the bigger the team is, the more it can deliver. So in my opinion, when there is a competent Sales Leader, it’s important to aim for a bigger number of Sales Reps. Small teams deliver small results. However, it is kind of obvious that to scale up the Sales Team and sales efforts, it is worth having Product Market Fit and healthy unit economics. One SDR should bring to a company revenue of a multiple of an average transaction size and new customers they could acquire per month to secure this healthy unit economics.
Calculating your Sales unit economics
In some efficient companies with simple products and customers generating low-end tickets, I usually see quality SDRs who could do 15–20 demo calls a day ending up with approx. 10–15% of SALs (Sales Accepted Leads) out of which 20–30% is finally accepted. For example, with the monthly revenue per client (ARPA) of EUR 200, such a well-qualified SDR, out of approx. 500 demo calls per month might generate 50–75 SALs and sell to 10–15 new customers, bringing approx. EUR 2,000–3,000 of new, monthly revenues to the company. And when you talk about recurring revenue you multiply monthly revenues by a number of months a client buys your product and you get a decent sum.
In companies selling more sophisticated and more expensive products or services, one SDR might generate a contract every couple of months bringing hundreds thousands of euros of revenue annually. The most important question is then ‘How much of a revenue must a salesperson bring to a company to cover its costs’?
So there is another rule of thumb used to calculate unit economics you have probably heard about. It is an LTV (Life Time Value — revenues your company gets through the lifetime of a client) divided by CAC (Cost of Acquiring a Client — average cost of acquiring a client including all sales [incl. overheads, incentives etc.] and marketing costs). Sometimes sales managers calculate LTV using Gross Margin (company’s net sales revenue minus its cost of goods sold) instead of net revenues. During the first years of a company’s activities, LTV is also quite hard to calculate as estimations might be inaccurate due to a short history.
Usually LTV/CAC below 2 is bad, 2–3x is average, 3–4x is good, and everything above 4x is excellent. VC funds like this indicator to be up on the scale, but please remember that too high results tell about a loss of potential growth (maybe you might be able to increase your costs and sell more?). The LTV/CAC indicator is also a bit misleading when calculating sales force efficiency while CAC is highly influenced by marketing costs. It’s also worth mentioning that the LTV/CAC indicator should be analyzed together with the Payback Period (the amount of time that takes to recover the cost of sales — usually calculated in months). Therefore, to calculate the efficiency of a Sales Team sometimes we use a simple indicator which is a gross revenue (or gross margin) a Sales Team generates during a specific period (i.e. a month, quarter or a year) divided by the costs the team incurs while generating it. The outcomes are similar to those of LTV/CAC. Below 1x is very bad, 1–2x is bad, 2–3x is average, 3–4x good and above 4x — your sales force presents an excellent sales efficiency.
End of Part One. In the Part Two you will read about hiring Sales Leaders, setting up the Sales Team, employing Sales Novice vs Veterans, firing Sales Reps and some useful Sales Tools.
