Of the many business processes that companies perform on a daily basis, sales is one that you might think unsuitable for outsourcing. After all, what’s more basic to business than selling the goods or services that an enterprise produces?
But as companies face an increasingly competitive global environment, constantly changing business conditions and the desire to enter new markets around the world, a growing number is looking to outside firms to handle sales and marketing.
When outsourcing sales, a company can place its selling operation, including the recruitment of personnel, payroll processing, insurance, management of commissions, sales training and general sales-management responsibilities into the hands of a service provider. Under these arrangements, the service provider assumes the responsibility for building and managing a sales team for the client.
In some cases, the outsourcing partner provides no more than consulting and best practices advice on how to develop and maintain an effective sales operation. In others, the service provider supplies the personnel needed for companies to rapidly unveil new campaigns or move into new and unfamiliar territories or markets. And in still other cases, the outsourcing firm delivers a complete soup-to-nuts sales operation for the client.
Why would an organization consider such a strategy? “One reason is a greater or more immediate need for scale to attack new markets,” says Matt Goldman, Director, Research, Gartner. “It might be a time-to-market issue. Another [reason] might be a new or different offering that requires different selling skills. A third might be geographical, where they don’t have a local presence or experience.”
Instant Sales Team
One of the biggest potential advantages of sales outsourcing is that organizations can hire an outside firm that’s especially proficient in selling, to gain quick expertise that might ordinarily take months or years to develop.
A company — particularly a small or midsize business or the division of a larger enterprise — might hire a service provider for sales in order to get new products or services to market in a hurry or to quickly capture market share.
In 2003, TXU Energy was looking to quickly enter the newly deregulated market for electricity services for small and midsized business customers in Texas. Rather than develop its own sales team, TXU opted to hire Sales Focus to help in rapidly launching a sales operation.
“We were basically a startup within a 100-year-old utility company,” says Odus Wittenburg, who served as Director of Channel Sales at TXU when Sales Focus was hired, and now runs his own events-management firm.
“Going to an outside sales expert gave TXU instant feet-on-the-street in its new market,” says Wittenburg. “It helped considerably that Sales Focus’ personnel were familiar with the electricity market from a prior engagement,” he says.
Some companies hire an outsourcing firm for help in boosting sales before bringing the function back in-house. Newgistics, a provider of returns-management products, in 2002, hired sales outsourcing provider SalesLogic, when its own sales department failed to generate any new business that year.
“We brought them in to help us understand the cause of the problem and make recommendations on how to improve sales,” says Ken Johnson, SVP, Sales, Newgistics. SalesLogic took over the sales operation for Newgistics, providing sales management for about a year to implement new processes and run the sales organization.
Newgistics garnered about $24 million in new business in 2003, and more than $30 million in 2004, Johnson says, and he credits the SalesLogic initiatives for much of the improvement. “The sales process before was flawed and focusing on the wrong people; it was ad hoc,” he says. “Now it’s a very structured process.”
Another potential benefit of outsourcing sales is that organizations can gain greater stability. High turnover is common in corporate sales departments, and outsourcing firms can often promise low turnover rates as part of the arrangement. That, in turn, can lead to improved relationships between the client organization and its customers.
The outsourcing of sales and sales management can also result in cost savings by eliminating the expense of creating an internal sales force, including salaries, benefits, training and other costs. With an internal staff, “you’re paying those people [a salary and benefits] regardless of whether or not they perform,” says Bob Trinkle, President, Trinkle Enterprises, a consulting firM, and co-author of a book called Outsourcing the Sales Function: The Real Costs of Field Sales.
A company might pay a sales agent a full salary and benefits for months before the agent actually brings in an order, Trinkle says, whereas an outside firm, depending on the contract, might not get paid until after products are shipped. Outsourcing sales also gives an organization a predictable cost of sales, as opposed to a variable cost with a captive sales force, Trinkle says.
