ZS associates research

SMA 2014 - ZS Solem-Sims - Market Coverage © 2014 ZS Associates - 1 -

Optimizing Market Coverage

to Drive Organic Growth

Marshall Solem

Principal

ZS Associates

Scott Sims

Principal

ZS Associates

15–17 September, Atlanta, Georgia

SMA Annual Sales Force

Productivity Conference


Marshall Solem

Principal

ZS Associates

[email protected]

Scott Sims

Principal

ZS Associates

[email protected]

SMA 2014 - ZS Solem-Sims - Market Coverage © 2014 ZS Associates

Today’s Objectives

- 3 -

In this session, you will:

Learn more about your peers

and hear their viewpoints

Share best practices on customer

segmentation, as well as sales force

sizing, structure and deployment (in an

effort to maximize market coverage)

Make ideas more relevant through

exercises and cases


Agenda

Introduction

Customer Segmentation

Sales Force Structure

Sales Force Sizing

Sales Force Deployment

Wrap Up

- 4 -


Agenda

Introduction



Sales Force Sizing


Wrap Up

- 5 -


ZS Associates is a global leader in sales and marketing

>30 year legacy

3,000 professionals providing global service

from 21 offices

– Largest Sales & Marketing consulting firm in the world

Worked with 1,000 companies in 70 countries

and 30 industries

Tight links to leading academics

- 6 -

BARCELONA • BOSTON • CHICAGO • EVANSTON • FRANKFURT • LONDON • LOS ANGELES • MILAN • NEW DELHI • NEW YORK • PARIS

• PHILADELPHIA • PRINCETON • PUNE • SAN DIEGO • SAN FRANCISCO • SAO PAULO • SHANGHAI • TOKYO • TORONTO • ZURICH

Introduction


ZS’s focus on sales and marketing issues, combined with a

complete and integrated range of services, is unique to the market

- 7 -

Introduction

Strategy & Planning

Marketing

Operations & Technology

Sales


Highly effective sales organizations are achieved through a clear

growth strategy and aligned capabilities

- 8 -

Introduction

Market Insight Go-To-Market Strategy Operational Excellence

Customer

Insight

Competitor

Insight

Market

Environment

Segmentation & Growth Strategy

Sales

Force Structure

Customer

Engagement

Process

Value

Proposition

Strategy

Sales

Resources

Sizing

Territories

Account Targeting

Territory & Pipeline Mgt

Culture

Competency Model

Hiring

Training & Coaching

Performance Measures

Incentives & Rewards

Performance Reviews

Sales Process & Decision Support Tools

Knowledge,

Skills &

Behaviors

Motivation

Tools

Marketing

Programs

Marketing Mix

Demand Generation

Lead Nurturing

Sales Force & Partner Enablement

Community Building

Operations

(Sales,

Marketing,

Channels)

Data & List Management

Sales Admin

In-line Forecasting

Reporting

Analytics

Agency Management

Platforms & Systems Management


Agenda

Introduction



Sales Force Sizing


Wrap Up

- 9 -


Even when good

targeting data does not

exist, applying rigorous

heuristics or using

surrogates can have

a significant impact

on effectiveness

How much money are you leaving on the table?

- 10 -

Perfect Targeting (100% targeting effectiveness)

Random Targeting (0% targeting effectiveness)

Opportunity

100% 80% 60% 40% 20%

80%

100%

0%

20%

40%

60%

% P

ote

nti

al

0%

% Accounts (Reach)

% of Accounts Reached

20% 40% 60% 80% 100%

Cu

rre

nt

Eff

ec

tive

nes

s 20% 100% 55% 32% 14% 0%

40% 60% 37% 22% 10% 0%

60% 33% 22% 14% 7% 0%

80% 14% 10% 6% 3% 0%

100% 0% 0% 0% 0% 0%

Percent productivity improvement possible (using typical potential concentration)

Segmentation


Two common dimensions for segmentation are overall sales

potential and current penetration (i.e. share of wallet)

- 11 -

Current Penetration Low High

Hig

h

Lo

w

Sa

les P

ote

ntia

l

Segmentation

Account Segmentation Strategy

How big is the account? How

much could this customer add to

our top/bottom line over time?

How much share of wallet do we possess?

Where are we focusing our efforts? What

customers are most important to us?

Tier 3 Tier 1

Tier 4 Tier 2


An effective segmentation should provide strong strategic

guidance on both where to play, and how to win

- 12 -

How to Win Where to Play

Segmentation

Understand whom to target in the

marketplace based on customer

potential, behavior, and motivations

Identify key tactics that should be

implemented in each segment based

on their specific drivers & barriers

Industry

Ma

rke

t Po

ten

tial

Strategic

Transactional

Str

ate

gic

Im

po

rta

nce

A

A

C

Segment

Tactics

Tactics

Tactics

Execution Objective

Convince

Make Aware

Protect


How do you currently segment your customers?

- 13 -

Segmentation


Strategy Formulation

Segmentation serves as

the foundation for strategy

development to effectively

identify and win key customers

Execution

Segmentation drives tactical

planning and execution based

on a rich understanding

of customer needs and

decision drivers

Monitoring

Segmentation focuses

performance measurement on

the most relevant customer

factors, leading to more rapid

and focused market response

Segmentation provides benefits to the organization across each

major stage in the sales and marketing process

The Benefits of Segmentation

- 14 -

Segmentation

Enhanced profitability through focus


Agenda

Introduction



Sales Force Sizing


Wrap Up

- 15 -


There are three key aspects of sales force structure

- 16 -

Structure

Multiple dimensions to decide

Positions Reporting Relationships

Roles & Responsibilities


There are many ways to design sales roles/positions

- 17 -

Structure

Many ways to organize

Geography Activity

Product/ Service

Primary Interaction Venue

Account Type


A schematic can help clarify sales rep roles

- 18 -

Structure


Segment 2

Segment 3

Segment 4

Product A Product B Product C

Segment 1

Inside Sales

Products B&C Field Reps

Key Account Managers

Associate Field Reps

Products

Customers

Product A

Field Rep


Case example: Fortune 200 capital equipment & financing company

- 19 -

Strategic Large Medium Small

Direct

Small

Indirect

Overall Account

Planning

Local Facility

Planning

Functional

Area Planning

Opportunity

Identification

Solution

Development

Quotation,

Neg, Closing

Solution

Implementation

Account

Executive

AM PSS A

ccount

Executive

AM PSS AM PSS

Tele

PSS VAR

Product Sales Specialists

(6 types, territory aligned)

Structure


The range and diversity of structure options currently in use

is quite broad as many sales forces employ multiple roles

- 20 -

Complex Solution Selling Ability Low High

Hig

h

Lo

w

Cost

GAM

KAM /

SAM

Field

Sales

Inside

Sales

GAM: Global Account Management | SAM: Strategic Account Management | KAM: Key Account Management

Structure


The range and diversity of structure options currently in use

is quite broad as many sales forces employ multiple roles

- 21 -

Complex Solution Selling Ability Low High

Hig

h

Lo

w

Cost

GAM

KAM /

SAM

Field

Sales

Inside

Sales

GAM: Global Account Management | SAM: Strategic Account Management | KAM: Key Account Management

Structure


Historically, inside sales has been successful in situations of lower

buyer risk, and low buying process and solution complexity

Structure

Buying Process & Solution Complexity Low High

Hig

h

Lo

w

Buyer

Ris

k

Drivers

Technology

comfortable buyers

Low cost-per-contact

Scalability

Specialization with

low efficiency loss

24/7, rapid response

Blurring lines with field

sales (e.g., intimacy of live

video)

Increasing

inside sales

sophistication

Inside sales

sweet-spot

- 22 -


Inside sales is a growing investment area for many organizations

- 23 -

2011 Change in Inside

Sales Force Size

4%

25%

27%

19%

25%

Decrease

Increase

>20%

Increase

11% to 20% Increase

1% to 10%

No

Change

Source: 2011 Change in Sales Force Size – CSO Insights Source: 2009-2011 Job Growth – Simply Hired

2009 – 2011 Job Growth

Lead Generation

Jobs

Inside Sales

Jobs

Up

124%

Up

59%

Structure



- 24 -

Sales Department Breakdown

49.30%

48.20% 47.30%

50.70%

51.80% 52.70%

44%

45%

46%

47%

48%

49%

50%

51%

52%

53%

54%

2011 2012 2013

Outside Sales Reps Inside Sales Reps

Structure

Source: Insidesales.com 2013 research – 321 responses with companies from 30 industries



- 25 -

Projected Growth of the Inside Sales Industry

1,974 1,968 2,202

2,339 2,381 2,424 2,466 2,509 2,551 2,594 2,636

0

500

1,000

1,500

2,000

2,500

3,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

No

n-R

eta

il I

nsid

e S

ale

s R

ep

s (

tho

usa

nd

s)

Structure

Expected growth of non-retail inside sales jobs will grow

to 42,400 new jobs each year Source: Insidesales.com 2013 research – 321 responses with companies from 30 industries


Key account and team-based selling models can significantly

increase sales effectiveness

Independent

- 26 -

Typical Objectives

Single point of customer

contact

Coordinated team

interactions with the

customer

Broader leverage of the full

portfolio leading to higher

value solutions

Better cross-selling across

lines-of-business

Best talent on most

important accounts

Better flexibility to put best

talent on most important

opportunities

Increased customer

attraction, penetration

and loyalty

Account Leader

Structure

Customer

Sales Person

A

Sales Person

B

Sales Person

C

Sales Person

D

Customer

Sales Person

A

Sales Person

B

Sales Person

C

Sales Person

D

Account Manager


There is a continuum of KAM, SAM & GAM models in use

- 27 -

KAM

Best talent on most

important accounts

Typically country-specific

SAM

SAM as QB for

multi-regional team

Strategy for delivering

integrated, customized,

cross-regionally consistent

solutions to high value

multi-regional customers

Often includes executive

sponsorship programs

GAM

GAM as QB for global team

Strategy for delivering

integrated, customized,

globally consistent

solutions to high value

multi-regional customers

Typically includes executive

sponsorship programs

Structure


A KAM strategy hinges on a number of linked business decisions

and processes, which will ultimately maximize the program’s impact

- 28 -

Right Customers

Target key segments and accounts within the

market that best fit the KAM model (for the

account and for the firm)

Right Value and Messages

Customize value propositions

for each segment

KAM as integral part of value

proposition

Right People

Define the KAM role/KAM sellers

Get the right people on the bus

Establish an executive sponsorship program

Right Enablers

Establish sales process

Manage the change

Establish KPIs and motivate

the team

Structure


Unfortunately, many companies experience varying degrees

of the opposite when transitioning to these models

- 29 -

Inflated cost-of-sales

Greater complexity and

coordination costs

Gatekeeper &/or redundant role

Resource “gloming” onto

largest accounts and deals

(e.g., free riders)

Reduced account universe reach

Structure




- 30 -

Structure

Reduced individual

accountability and

finger-pointing

Destructive conflict between

account owners and product leads

Conflict between business

unit executives




- 31 -

Structure

High transition costs

Excessive customer relationship

disruption

High performer turnover

Loss of focus on “business today”




- 32 -

Structure

Failure to cost-effectively

deliver on customer

promise of greater value

Customer attrition

Lower margins


Once sales positions are designed, sales management structure

and reporting relationships can be assessed

- 33 -

Structure

FLM

VP

Sales Reps

Generalist Management Specialized Management

Account Manager Specialist A Specialist B Specialist C Specialist D


There are many criteria by which to evaluate different structures

- 34 -

Structure

Many implications to consider (some of which might be in conflict)


Pacific Packaging Supplies, Inc. Case - Introduction

PPS is a $500MM manufacturing company that sells packaging products to national and

regional CPG firms, as well as to retail outlets

The majority of the company’s revenues come from their cup and plate stock, cartons,

and skin-packaging (skin-packaging constitutes 2/5 of total PPS sales)

Pacific has a high-potential product, Retail Ready Packaging (RRP), in the pipeline

scheduled for release in March 2015, six months from now; it is expected to grow PPS

sales by 40% over three years

Case

Cup and

Paper Stock

Cartons Skin-packaging Retail Ready

Packaging

- 35 -


Pacific Packaging Supplies, Inc. Case - Sales Force Structure

The PPS sales force

consists of 107 sales

representatives: 87 field-

facing reps who have

geographically

determined territories, 14

inside sales reps who

reach small and rural

customers via the phone,

and 6 national account

reps

Management expects

that reps will require

substantial training

before they can sell RRP

effectively - RRP training

programs will therefore

begin in three months

- 36 -

Case

National

Accounts

Manager

1

Territory

Rep

87

District

Manager

10

National

Account

Rep

6

VP of

Sales

Regional

Manager

2

1

Current Sales Force Structure

Inside

Sales Rep

14

= Headcount #

Inside

Sales

Manager

1


Pacific Packaging Supplies, Inc. Case - Planning

PPS executives have decided to maintain their current sales force structure, but increase

the size of the field force in proportion to the forecasted increase in sales

Case

- 37 -

Exhibit 2: Rep Responsibility Map

Note – There is complete overlap between the Field

Force and Inside Sales Reps

Exhibit 1: Forecasted Sales, 2015 Product Type

Forecasted

Sales 2015 (%)

National CPG

Accounts

Regional CPG

Accounts

Retail

Outlets

Cup and Plate Stock 26% X X XXX

Cartons 14% XX XX X

Skin-Packaging 48% XX XXX

Retail Ready Packing 12% XXX XX

Product Type National CPG Regional CPG Retail Outlet

Cup and Plate Stock

Cartons

Skin-Packaging

Retail Ready Packing

Do you think the current plan will optimize sales?

If not, what alternative structure would you recommend?

Legend

X 0-20% of Sales

XX 20-60% of Sales

XXX 60-100% of Sales

Legend

National Accounts

Field Force/Inside Sales

Overlap


Potential Solution 1: PPS could choose to specialize on the

product dimension with an ‘RRP Specialist’ role

National

Accounts

Manager

2 Regional

Manager

Territory

Rep

116

District

Manager

13 National

Account

Rep

6

VP of

Sales

2

1

Option 1: ‘RRP Specialist’

Regional

RRP

Specialist

7

National

RRP

Specialist

1

Inside

Sales Rep

20

Case

- 38 -

Inside

Sales

Manager

1


Potential Solution 2: PPS could choose to specialize by carving

out the retail outlet, and cup and plate business

National

Accounts

Manager

2 Regional

Manager

Territory

Rep

94

District

Manager

10 National

Account

Rep

6

VP of

Sales

2

1

Retail

District

Manager

4

Retail

Sales

Manager

1

Retail

Sales Rep

36 Inside

Sales Rep

14

Case

- 39 -

Inside

Sales

Manager

1

Option 2: Cup and plate/retail outlet focus


Agenda

Introduction



Sales Force Sizing


Wrap Up

- 40 -


The most commonly used approaches to sales force sizing

and allocation are limiting and misleading

- 41 -

Sizing

Same as Last Year Percentage of Sales

Match Your Competitors Squeaky Wheel

2013 2014

Team

One

Team

Two

Team

Three

200

50

25

Team

One

Team

Two

Team

Three

200?

50?

25?

Competitor One Competitor Two

Our Size

Product Team A Product Team N

I need 100!

Product Team B

I need 100!

I need 100!

2010 2014 2012


Understanding account coverage requirements (workload)

is an important first step in sizing sales forces

- 42 -

Sizing

Activity Element Seg A Seg B Seg C

Number of Accounts

Lead Generation/Needs Identification

Promotion/Demos

Negotiation

Closing/Install

Relationship Maintenance

Total

Rep Call Capacity

FTEs

Effort per account (calls, hours, etc.)

Sum of total effort per account X number of accounts

Calls or hours per year


0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

#1 #2 #3 #4 #5 #6 #7 #8 #9 #10

Va

lue

per

Ac

ct

($)

Customer Segment

Incremental Sales

Cost to Serve

A good understanding of account potential can help determine

affordable customer coverage and sales force size

- 43 -

Sizing

Rep workload based on

customer needs and the sales

process can quantify the cost

to serve each segment

Market potential and sales

history can indicate the

average sales value of

different customer segments

Cover top 7 segments: Determine sales force size from total workload and rep capacity

Break-even

coverage


Break-even analysis can provide a baseline for thinking about

sales force investments

- 44 -

What’s the fully loaded

cost of one rep? ? Gross margin? ?

Break-even = $250,000

40% = $625,000

What do your firm’s break-even numbers look like?

Sizing Exercise


How do you assess the ‘value’ of a rep?

- 45 -

Sizing Exercise

Sales Reps 100

Sales ($MM) 100

COGS 40

Gross Margin 60

Sales Force Cost 20

Other Marketing 5

Admin 5

Operating Profit 30

Sales per Rep 1.0

SF Cost as % of Sales 20%

Op Profit as % Sales 30%

150

120

48

72

30

5

5

32

0.8

25%

27%

50

70

28

42

10

5

5

22

1.4

14%

31%

1.4

14%

31%

32

0.8

25%

27%


Sizing & allocation can be decided based on the cost/benefit of

alternative sizes

- 46 -

$ F

ina

nc

ial

Imp

ac

t

Sales Force Size

Revenue

Profit

Contribution

Segment # of

Accounts

AMs

Required

Cumulative

AMs

Cumulative

Rev ($M)

Cumulative

Profit Cont. ($M) ROI

1 76 10 10 $24 $7 332%

2 95 9 19 $41 $11 252%

31 200 4 462 $429 $66 8%

32 233 4 466 $431 $66 7%

Required Hurdle Rate = 100%

Sizing


Agenda

Introduction



Sales Force Sizing


Wrap Up

- 47 -


How would you respond?

Your company has placed some significant bets on new technology

and is banking on double-digit revenue growth, which has been reflected in your

quota for next year. You recognized the need for additional feet on the street

and have secured budget approval for additional headcount. You have

implemented a process to identify the best places to put new salespeople using

data to estimate sales potential and workload.

You have proposed to add a new salesperson into a geography where

one of your best salespeople is. The only way to make the new territory viable is

re-align some of the larger accounts currently covered by the top performer.

This salesperson has delivered some fantastic results, but you are convinced

the business can be growing even faster if a new salesperson is added. The rep

has threatened to leave if he loses any of his important accounts.

- 48 -

Deployment Exercise


Balanced

Range

Territory design has significant impact on achieved market coverage

- 49 -

Deployment

Highest

Territories

Te

rrit

ory

Wo

rklo

ad

Lowest

Territories

Sub-optimal Alignment

Optimal Alignment

Territories with insufficient work (Reps work part-time or visit unprofitable customers)

Territories with too much work (Reps are overworked or important customers are under-supported)


Heat maps can highlight where relocation may be needed

- 50 -

Deployment

Legend

Shaded by: Rel Bal

0.00 – 80.00

80.00 – 90.00

90.00 – 110.00

110.00 – 120.00

120.00 – 200.00


Mirroring specialist territories can help sales rep coordination

- 51 -

Deployment

Mirroring the sales teams can make customer coverage more effective


A prioritized list of business rules should guide alignment decisions

- 52 -

Deployment

Business Rule Priority

Create balanced territories

Keep Regional span of control at 7 territories

Keep personnel home location within geography

Minimize account disruption

Maintain state boundaries

Do not split major market areas

Do not split ZIP Codes (Postal Codes)

Priority High Medium Low


Try to avoid the “trap” of designing around people

- 53 -

Resist the temptation of designing

territories for individual personnel

(i.e., designing larger territories for high

performers and smaller territories

for new or under-performers)

Remember these key points:

Outstanding personnel could be

promoted in the near future

Personnel frequently transition out of

the organization

Your customers will be with you longer than

your personnel, but only if serviced properly

Relatively well balanced territories

optimize account coverage and help

morale by balancing workload and potential

across territories

Deployment


Agenda

Introduction



Sales Force Sizing


Wrap Up

- 54 -


Wrap Up

- 55 -

Closing

Have a clear segmentation

strategy – this is the starting point for

all resource deployment decisions

Structure is not static but

rather dynamic

As markets continue to evolve,

traditional field sales force

structures are under pressure

(KAM and inside sales)

KAM is not a role, it’s a

business strategy


Wrap Up

- 56 -

Managing sales force size by ratios

is sub-optimal

It can be difficult to change territories

without a corresponding change in

incentive compensation plans

Design sales force territories around

the business not the people: balance

workload, link potential (account)

to instill fairness, and take a flexible

approach to comp plans as they

can break

Closing


Thank you!

Documents

ZS associates research