Build a Lean CSB Sales and Marketing Engine
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 mid-sized 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 below 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." (Courtesy of Lean.org )
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 business. A CSB business is almost always based on recurring revenue. It has the same cash flow challenges faced by every 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 below:
The chart makes a compelling case for a lean sales and marketing approach as it recovers the customer acquisition cost (CAC) 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.
In the diagram above, the traditional sales and marketing model is based on conventional lead generation tactics (direct mail, telemarketing and face-to-face events) or what has come to be known as outbound marketing. Leads are handed off to an outside sales rep to qualify, meet with the customer (usually many times and over many lunches) to try and get the prospect to buy something. The sales rep puts many opportunities in play and prays that a reasonable number of them can be closed. It's an expensive model when you consider the cost of outbound lead-gen (averaging $346/lead according to market research from Hubspot) and the cost of an outside sales rep ($100,000 - $150,000 per year).
Contrast that with a lean sales and marketing approach based on the concepts of inbound marketing. In this model, leads are nurtured through the buying process until they reach a buyer-ready state. This is accomplished by supplying the prospective buyers of your solutions with only the information they want and need to make a decision on their terms and in their timeframe. Everything associated with sales and marketing that does not fit the criteria of highly relevant and valuable content provided to potential buyers is eliminated from the process. This is a fundamental principle of lean — deliver value and eliminate waste.
Inbound marketing leads are less expensive than outbound leads, averaging $135/lead (according to market research from Hubspot) and representing a 61 percent reduction in cost. As buyers enter the buyer zone, a less expensive inside sales rep helps them to make an informed decision about the solution that will bring them the most customer value. Inside sales reps average $50,000 - $100,000 per year representing a 30-50 percent reduction in cost.
Does inbound marketing really work? Hubspot virtually invented the concept and they are living proof of its success. By using this approach to drive their own business, Hubspot has grown dramatically (82 percent year-over-year growth in 2012) as have many thousands of their inbound marketing customers.
Are you interested in learning more about lean sales and marketing? Visit the CSBcommunity business-building center for more information on creating content, lead nurturing, campaign workflows, measuring performance and aligning your lean sales and marketing operation with your business goals and growth targets. In the meantime, start to think lean.
Dave Zwicker co-founded CSBcommunity.com , an online business-building center for cloud service brokers (CSBs). The CSBcommunity.com website is operated by CSBexcellence, a consultancy also co-founded by Zwicker, which offers an inbound marketing tool kit for CSBs. The CSBexcellence team guides channel partners through a structured methodology for creating a scalable and profitable CSB business and implementing a “lean" inbound marketing engine for fueling the sales funnel and driving business growth. During a successful marketing career spanning three decades, Zwicker has held executive assignments with leading technology companies offering voice/data systems, security solutions, application performance management software and managed voice services.