Basho Community

Recently, a VP of Sales Operations working with a large sales organization made an interesting point about prospecting return on investment (ROI) that caused me to examine some of the assumptions we have at Basho (expressed, we think quite succinctly, in our Basho Open ROI Calculator). Basically, he said prospecting was nice, but upselling existing clients was where his organization focused.

The metric supporting his point is simple and seemingly inarguable: they find ROI for upsell of existing accounts is three times that of prospecting ROI. The number is even more startling if you strip away the fulfillment and retention costs that make up the cost of sale -- things like materials costs, support, marketing, and billing costs.

I know this is an artificial distinction (since I am not familiar with a single sales organization that doesn’t get involved in fulfillment and support to at least some extent) but the point is still pretty clear -- the ROI to have a sales organization focus on upselling versus acquiring new customers overwhelmingly favors the former.

This begs the question -- for companies with a large book of accounts, why bother prospecting at all?

The answer, I think, is two-fold:

First, and foremost, is growth. It doesn’t take a lot of foresight to realize the essential paradox this number throws up; an efficient upsell organization, one that achieves revenue targets by upselling, quickly exhausts the possible upsell opportunities. Even if attrition were kept close to zero, this is a dead-end street. You need new customers, if only to be able to saturate them with your other products. And from what I have seen, saturation levels never get close to 100%.

This points the way to the second part of the answer, which applies old-fashioned Fordism (or at least the manufacturing theory of standardization) to sales: build an inexpensive process to get the new customers that can grow or shrink with corporate needs.

This is of course what inside sales is, at its core, meant to be. Relatively inexperienced sales professionals pushing a single product to as large a market as possible is an ideal example. Make 100 calls a day, push push push. We all know the drill.

What has happened, though, is organizations have begun to blur the line between a classic inside team and an outside team. We routinely see organizations called "inside sales" that do little more than coordinate meetings and take care of administrative tasks for field sales teams. Very few actually have a prospecting goal or metric, as surprising as this may sound.

Of course the prospecting ROI in an organization like this is low -- overqualified people are performing a task only occasionally, and with little positive impact. Somewhere along the line it became a self-fulfilling prophecy.

I don’t know if this is the result of the relatively fat years of the mid-2000s when the fish were jumping in the boat or because, in an era of cheap credit, companies could expand their investment in new products which naturally were sold to existing clients first.

Whatever the reason, times are changing and prospecting -- measured, repeatable, scalable -- is coming back into vogue.

We tend to get approached when these organization begin to glimpse that barrier to growth I mentioned above -- saturation of their base. It is probably a little late at that point.

Smart companies would do well right now to restructure their sales organizations along the lines of an old fashioned assembly line, hire some recent college grads, and start banging the phones.

This is a topic we will revisit in the coming year -- and which we will try to add some depth to with data from clients. In the meantime, happy prospecting.