2. “Strategic Outsourcing: It is an indispensable tool for
world-class companies, allowing them to improve
their products and services, lower their costs,
and enhance their flexibility.” i
Sales Force Outsourcing is not a new concept.
What is new, however, is the fundamental shift to a longer-term, more strategic view of Sales and Marketing
Outsourcing that integrates sales force outsourcing as a key element in an overall transformation of Sales and
Marketing organizations.
Intense competition and shifting market forces are compelling companies to re-engineer their sales and marketing
functions, to create more effective growth engines. One key transformation strategy is to expand the use of Sales
and Marketing Outsourcing to improve marketing productivity, expand sales capabilities and reduce costs. This
trend is particularly significant among business-to-business companies – a sector that has routinely outsourced
some sales functions to third parties.
The decision to outsource is frequently driven by cost savings because outsourced functions are cost centers like
Manufacturing, Information Technology and Human Resources. The Outsourcing Institute, an independent associa-
tion of companies involved with outsourcing, surveyed over 2,000 member companies who outsource to determine
the Top 10 Reasons Companies Outsource:
TOP 10 REASONS Companies Outsource
1. Reduce and control operating costs 6. Accelerate reengineering benefits
2. Improve company focus 7. Function difficult to manage/out of control
3. Gain access to world-class capabilities 8. Make capital funds available
4. Free internal resources for other purposes 9. Share risks
5. Resources are not available internally 10. Cash infusion
Sales and Marketing outsourcing, however, is the exception. Since Sales and Marketing is primarily focused on
driving revenue, decisions to outsource are primarily driven by the need to profitably drive revenue growth. Over the
past 15 years, studies have consistently found that companies have shifted to outsourced sales teams to generate
increased revenue growth and higher levels of customer satisfaction while reducing costs. Today, many companies
are using Sales and Marketing Outsourcing as a core strategy to gain competitive advantage.
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3. What is Background
Sales Force Sales team effectiveness is critical to the profitability of all companies.
Three factors play a critical role in sales team profitability: sales force size,
Outsourcing? allocation and productivity. Companies often focus on these three related
areas to improve sales performance:
Simply Stated, Sales Force
Outsourcing is hiring an external 1. Increase the size of the sales team
organization to sell for a company
2. Optimize allocation of the sales team
as an expansion of their own sales
force or as its sole sales force.
3. Improve productivity with more effective
Outsourced sales forces function
management, more information, better tools,
exactly like in-house sales teams
sales training or higher quality salespeople
– they have quotas, report results,
and are compensated for achiev-
Some companies focus on making internal changes to improve sales team
ing sales goals. Outsourced sales
effectiveness. Other organizations have started to focus on transforming their
teams are usually indistinguishable Sales and Marketing Organization and integrating third party resources. Sales
from the firm’s own sales reps and representative roles are similar across broad industry sectors, and outsourcing
develop direct customer relation- this function is relatively easy.
ships on behalf of their client.
Sales Force Outsourcing can be
used for specific sales programs,
campaigns, new product launches
or to expand into new territories.
Outsourced sales teams are also
frequently used by start-up firms
who are in the high-growth, new
customer acquisition phase of
market development.
Sale Force Outsourcing is often
accompanied by a full portfolio of
High-growth start-up firms and mid-sized to large companies have found that
outsourced services: CRM systems,
Sales Force Outsourcing integration is one way to increase productivity and
sales training, business process sales revenues while lowering costs. Sales Force Outsourcing benefits also
design and optimization, market- include efficiency gains, expertise, speed, flexibility and capital savings. The
ing strategy consulting, and other result is that Sales Force Outsourcing is rapidly replacing in-house sales teams,
services. the use of indirect sales partners and independent sales representatives. Some
newer companies have never even established in-house direct sales and have
outsourced all of their related sales functions including marketing strategy, lead
management, and strategic partnership development.
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4. The emergence of strategic outsourcing
Initially, most outsourcing decisions were tactical – a way to reduce costs, expand
capacity to handle a specific project, fill a temporary gap or gain access to special
skills. Companies routinely outsourced Advertising, Data Analysis, Lead Generation,
Field Sales and Strategic Planning. In the past decade, however, the main driver of
Sales and Marketing Outsourcing shifted to strategic outsourcing. The most
important reason companies outsource sales and marketing is to increase
revenue and acquire new customers.
Primary driver of Sales and Marketing Outsourcing is to improve marketing effectiveness
and drive profitable sales growth. Common Strategic Sales and Marketing goals:
• Introduce new products and services • Increase new customer acquisition rates
• Improve market coverage and distribution • Improve promotional effectiveness
• Expand into new markets • Provide superior competitive position
Secondary benefits of Sales and Marketing Outsourcing are efficiency objectives,
the most important:
• Increase speed to market • Improve customer service and processes
• Improve product availability and visibility • Reduce sales and marketing costs
• Rapid implementation of marketing programs
Measuring effectiveness versus cost savings
Firms initially turned to Sales Force Outsourcing in an effort to capture cost savings. Transaction cost analysis was the
dominant method of identifying cost efficiencies that could be achieved with outsourcing. Over time, firms shifted to
using measures of effectiveness for decision support. The most common approach for quantifying sales effectiveness
is to look at classic sales productivity measures – revenue growth, close rate, market share, reorder rates, average
order, sales profitability, ROMI (Return on Marketing Investment) and so on.
Other techniques have emerged that provide more insight into sales
force outsourcing strategy. Resource Analysis, for example, is used
to explore the capacity of specialized outsourced capabilities as a
potential source of value creation.
Even though cost savings is not the most important reason for
companies choosing to outsource Sales and Marketing functions,
it is a significant benefit. Full Sales Force Outsourcing
typically saves 25% to 50% in costs over onsite teams
and traditional outsourcing models like working through
manufacturers’ reps. Although the benefits from cost
improvement are compelling, they are just part of the
financial gains from building a more competitive
business model.
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5. Determining the true cost of your sales organization
Compare the costs versus benefits of sales force options. There are different cost structures for in-house versus
outsourced sales forces – some more controllable than others.
Most companies have a difficult time determining the true costs of their in-house sales team. Typically, sales expenses
are mixed with administrative expenses. In addition, support personnel and overhead costs are often shared resources
that are challenging to allocate and may not be able to be eliminated if all or some sales functions are outsourced. The
best approach is to spend some time tracking and analyzing how shared resources are used, since employee estimates
may not be accurate or complete.
New models for Sales and Marketing Organizations
Selling increasingly more complex products and services, and the associated customer demands, requires more agile
sales strategies and more sophisticated, technically proficient field sales teams. Solution selling, for example, is no
longer an optional strategic advantage, it is a requirement. Meeting the needs of high-demand buyers requires
collaboration across functions and more technical support for field sales teams.
At the same time, Sales Force Outsourcing has become a more significant part of many companies’ Sales and Marketing
organizations. The result is four basic Sales and Marketing Business Models that incorporate Sales Force Outsourcing
have emerged – two tactical business models and two newer strategic transformation models:
1. Project Sales Outsourcing (tactical)
2. Functional/Task Sales Outsourcing (tactical)
3. Full Sales Force Outsourcing (strategic transformation)
4. Integrated Sales Team (strategic transformation)
Project Sales Outsourcing is the most discrete and requires the least complex analysis. The other three outsourcing
business models require more complex analysis.
1 Project Sales Outsourcing
Project Sales Outsourcing a company works with a third party to drive a specific project.
Typical projects include:
• New product launch • New customer acquisition campaigns
• New market entry • Accelerate growth in a rapidly growing
business by expanding the sales team
• Expansion into a new territory
without adding employees.
• Increase share in underserved industry
• Add seasonal sales professionals to deal
sectors or territories
with periods of high volume or fill staffing gaps.
• Capture missing key opportunities with
sector specialists
In some cases, companies have several possible revenue growth opportunities and work with a third party
Sale Force Outsourcing firm to evaluate market potential and risk of each possible project, and then pursue
the projects with the greatest probable market opportunities. The evaluation process needs to be
comprehensive and include an evaluation of competition, market risks, estimated customer acquisition
rates, revenue and margin potential, along with sales and market penetration costs.
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6. 2 Functional/Task Sales Outsourcing (tactical)
In many cases, particularly in larger companies, specific sales and marketing functions and tasks are
outsourced. Commonly outsourced sales functions include:
• Strategy and market planning. • Sales of particular product or service lines.
• Lead generation and lead qualification. • Highly specialized functions – CRM systems,
market analysis and sales training and
• Sales to particular customer segments
motivation.
– niche segments, territories or sectors
that are difficult to reach or are culturally
very different.
Most companies tend to outsource functions and activities that can be performed by a third party cheaper,
better and/or faster. Certainly, it is essential to focus on the cost factors of outsourcing decisions, but a more
robust analysis will increase the odds of making the best decision about which functions to outsource.
A detailed analysis and careful benchmarking of costs and productivity improvement potential which combines
cost-benefit analysis, core competency identification and strategic skills gap analysis can result in creating a
Sales and Marketing business model that will provide a sustainable competitive advantage.
It is essential to identify the functions that create a firm’s strategic advantage but not to limit the business
model to a simplistic rule of outsourcing Non-Core functions and in-sourcing all Core functions. Often the
ideal business model is to outsource a combination of Core and Non-Core activities and create a strategic
business model that builds a competitive advantage by combining the strengths of a company with the
expertise of a third party.
Core and Non-Core Activities
The first step in optimizing a Sales and Marketing organization is to identify Core Activities, the functions
that provide a competitive advantage – and Non-Core Activities, the functions that are essential to the
business model but do not provide a completive advantage.
Core/Non-Core Activity Identification is used to identify which sales and marketing activities are core to
differentiating a company and providing a competitive advantage. Generally, Core Activities should be
subject to a careful strategic analysis prior to outsourcing while Non-Core Activities can just be analyzed
from a cost and service level standpoint.
In evaluating Core Activities, it is essential to determine the best way to optimize these functions to
build upon a company’s strengths and minimize points of vulnerability.
Strategic Skills Gap Analysis
This process involves identifying opportunities to differentiate a company and create a competitive
advantage by acquiring new core competencies. In some cases, these Core activities are outsourced
because it is the fastest and most cost-effective way to access a new capability.
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7. Evaluation and Sourcing
The results of all three analyses can be combined into a decision table. Some activities should probably
be retained in-house. Other activities should probably be outsourced. The remaining activities should be
allocated by other factors including speed to market/delivery. Prior to outsourcing specific activities,
Functional/Task Sales Outsourcing should be compared to Full Sales Force Outsourcing.
Existing Functions New Strategic
and Activities Capabilities
Core Non-Core
Financial Desired Quality Less expensive Probably Outsource Probably
and and Service outsourced outsource outsource
Level available
Quality/ outsourced More expensive In-source Probably In-source
Service outsourced In-source*
Level Desired Quality Less expensive In-source, but determine if capability can
and Service outsourced be developed with outsourcing partner
Evaluation
Level not
available More expensive In-source Probably In-source
outsourced outsourced In-source*
Compare Functional/Task Sales Outsourcing to Full Sales Force Outsourcing
* Examine in-house cost analysis to make sure no major costs were omitted; validate specifications used for vendor bit are identical
to in-house specifications. Consider negotiating pricing with vendor.
3 Full Sales Force Outsourcing (strategic transformation)
For many companies “Lead to Close” outsourcing is the most effective and efficient way to accelerate growth
and reduce sales and marketing expenses. Full Sales Force Outsourcing is having a third party be a company’s
sales force. Instead of hiring, training and supporting a sales force on the company payroll, many firms save
money and increase sales productivity by outsourcing their entire sales division, including many associated
management and support functions.
Full Sales Force Outsourcing differs from contract sales, working with distributors or value added resellers
because the sales representatives are dedicated to selling one company’s products and/or services and are
fully accountable for their actions. The client company gains the benefits of having a dedicated sales force
along with the benefits and expertise of a third party provider who is focused solely on sales. In some cases
the relationship between the client company and their sales agency can be based on shared risk. In other
cases the outsourcer is paid for all of their activity similar to a hired direct sales force, but the outsourcer
provides speed, agility, experience and can leverage existing relationships.
Full Sales Outsourcing requires direct recruitment of sales personnel with specific backgrounds for each
client and sales campaign along with sales support services – marketing, strategic planning, lead management
and CRM systems – along with sales management. Outsourcing firms provide regular reports on sales results,
pipeline status and other activities that benchmark revenue generation and customer relationships.
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8. 4 Integrated Sales Team (strategic transformation)
The newest innovation in sales team optimization is Integrated Sales Teams. This is the creation of a truly
integrated organization where corporate employees and outsourced sales force members are fully integrated
into one organization. The hiring relationship of the Integrated Sales Team is not an important factor to either
the team members or the clients.
Strategic Outsourcing Analysis is used to look at the entire Sales and Marketing operation and builds a
comprehensive outsourcing strategy in which the optimized combination of in-house and outsourced functions
are identified and business processes are implemented that achieve the company’s sales and marketing goals
in the most effective and efficient manner.
Outsourcing Leaders
Over 20% of business-to-business sales in the United States – across every sector – are made by outsourced
sales professionals. Many technology companies make significant use of sales force outsourcing. Intel, for
example, uses outside sales organizations to sell products in markets where its inhouse sales force lacks
experience or has few relationships.
About 70% of all CPG (Consumer Package Goods) companies retail sales revenues in the United States
are handled by outsourced sales representatives. A major 2006 study conducted for the ASMC Foundation
revealed that sales outsourcing saved companies approximately 30% of cost and resulted in higher levels
of customer satisfaction.
“According to the research findings, most CPG companies believed that SMAs (Sales and Marketing
Agencies) performed transactional services at nearly 30 percent lower cost than direct sales teams.
Lower transactional costs for SMAs stemmed from scale advantages of the syndicated business
service models wherein SMA overheads and operating costs are spread over multiple products and
manufacturers. Their costs were also lower because SMAs were better able to cope with the
fluctuations and “peaks and valleys” of work force demand…”ii
This study also found that customers considered outsourced sales representatives far superior in developing
and managing relationships, new product introductions, and a wide range of other sales and service activities.
The pharmaceutical industry has shifted over 80% of field sales to sales force outsourcing and contract sales
organizations. This transition has enabled pharmaceutical firms to meet their revenue goals while dramatically
reducing selling costs. In 2008, Merck cut about 15% of its U.S. sales force then brought in outsourced sales
representatives. Merck spokeswoman Amy Rose told Dow Jones Newswires that...
“rather than recruit, hire or keep full-time representatives on the books, we’re creating a more flexible approach
so as the market demands, we can expand and contract the number of reps we have at our disposal.”iii
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