By Dave Zwicker
“Lean" thinking has been applied to manufacturing and service organizations to maximize efficiency for years. However, it has been slow to impact the realm of sales and marketing — especially for selling IT services to small and medium businesses. Lean should be an essential part of building an efficient sales and marketing engine for cloud services.
Does your sales and marketing function operate as a lean customer acquisition engine? Read the formal definition of lean, courtesy of Lean.org, to answer that question: “The core idea is to maximize customer value while minimizing waste. Simply, lean means creating more value for customers with fewer resources. A lean organization understands customer value and focuses its key processes to continuously increase it. The ultimate goal is to provide perfect value to the customer through a perfect value creation process that has zero waste."
Let's apply the theory of lean thinking to the challenge of building a sales and marketing engine that will accelerate the growth of a cloud service broker (CSB) business. A CSB business almost always is based on recurring revenue. It has the same cash flow challenges faced by every software-as-a-service (SaaS) company — acquiring customers with an upfront investment in sales and marketing and recovering that investment with the incremental profits generated by monthly service fees.
The problem is the economics of the traditional approach to sales and marketing simply do not work for selling cloud services on a recurring revenue basis. Consider the chart, "Customer Acquisition Cost Comparison" (above), which makes a compelling case for a lean sales and marketing approach, showing that it recovers the customer acquisition cost in less than half the time of a traditional sales and marketing approach. It's the difference between a scalable model for selling cloud services and a model that is not scalable. We can debate the assumptions used in the chart, but can we agree that a lean model that pays back all customer acquisition costs in less than a year is far more desirable than a traditional model that consumes all deal profitability during the first two years? Lean thinking would suggest that an additional one-third of the profitability of a three-year contract has been wasted and should be eliminated. Let's explore the differences between a traditional and lean model for customer acquisition.