Corporate selling is big business, but sometimes the parts that make it up go unnoticed in light of the bigger picture. Sales support, in particular, carries high but invisible costs. An international group of 50 technology vendors surveyed by analyst firm Forrester Research saw 19 percent of their selling, general, and administrative (SG&A) costs—more than $135,000 per quota-carrying salesperson—going to support-related activities.
The report, "Uncovering the Hidden Costs of Sales Support," indicates that it's a case of belt-tightening due to economic conditions running up against steadily increasing costs. SG&A costs in the technology industry increased 10.4 percent in 2007, and another 12.5 percent in 2008. While those cost expansions are less severe in the services and "diversified" segments, costs to software and hardware firms are notably higher. SG&A growth rates for software companies for 2007 and 2008 were 27.1 percent and 17.2 percent, respectively; hardware vendors' costs increased only 9.9 percent in 2007, but a full 20 percent in 2008. The last year that SG&A costs declined for any sector was 2004, when software vendors saw them drop 10.9 percent.
Companies are trying to cut these costs, but are running into difficulty because SG&A activities occur throughout the organization and can be hard to single out. "Dispersed throughout your organization are a variety of hidden costs tucked away in various budgets—ripe with opportunities for cost reduction," writes Scott Santucci, senior analyst for sales enablement at Forrester and author of the report. "Most companies have good controls to manage the base and variable cost items. However, the funding for development and efficiency categories are scattered throughout the organization—across sales, marketing, product, and even human resources groups—making them very difficult to manage, measure, and track."
The Forrester study groups hidden sales support costs into four main types, and indicates where they go wrong:
- Base costs directly incurred when hiring and carrying a salesperson. These include "salary, benefits, and on-boarding costs associated with each quota-carrying representative, along with a weighted allocation of infrastructure costs such as office space, computers, telecommunications equipment, and specialized applications paid for in the [technology] budget."
- Variable costs incurred as salespeople consume resources or close business. Commissions and other incentive programs go here, as well as "inefficient or excessive use of subject-matter experts in the sales cycle" that impact T&E, and "overly oppressive forecasting and reporting processes" that eat up hours of otherwise productive time.
- Development costs related to improving the skill or proficiency of a salesperson. "Unfortunately, investments to improve the skill of the sales force, provide the first line of defense coaching, and create tools to help salespeople manage a complex set of activities are distributed across the organization," Santucci writes.
- Efficiency costs incurred [to] create greater leverage in the sales process. CEOs are demanding that all parts of the business show how they are contributing to revenue generation. "Any collateral, sales tools, account specific promotional activities, or other expense incurred with an objective to support the sales organization has been accounted for in this category."
Santucci suggests the first step to identifying waste is to get all such spending on the same page by creating a master inventory of sales support costs and weighing them against their actual value to the quota-carrying portion of the sales force. The question to ask is whether a quota-bearing salesperson would spend the money the same way.
Companies should focus on making sure all support functions contribute to the desired outcome -- more time spent at the negotiation table and more sales made. "The majority of sales support spending isn't targeted to achieve sales milestones, and as a result, a tremendous amount is wasted," Santucci writes. "Sales support expenditures must be directly related to specific selling activities that can be clearly defined and measured."
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