How to pick the right ones out of hundreds of possibilities
by Jeanne Urich, Service Performance Insight
The race is on to outsell, outmarket and outpackage the competition with profitable growth as the prize. The professional services industry has switched from “controlling costs” to “growth” due to the economic recovery. Around the globe, services providers are re-examining their approaches to the market. They’re looking at the most effective sales, marketing and packaging techniques to determine the optimum investment formula with the greatest payback.
SPI’s 2013 PS Sales and Marketing Maturity Model Benchmark report analyzes professional services industry spending on sales, marketing and packaging. A total of 187 global professional services organizations participated in the study conducted in July 2013.
Prior to starting the research
When we began this research, we knew that most professional services organizations were dissatisfied with their sales effectiveness. For the past eight years, more than 1,500 PS organizations that have completed our benchmark surveys have consistently given their sales efforts failing marks.
The benchmark seeks to answer the following questions:
- What are professional services organizations spending on sales, marketing and packaging?
- What results are they achieving?
- Which investments yield the most benefit?
- Which investments are not worth the effort?
The benchmark report attempts to answer these questions while providing insights and guidance into the best practices used by the most mature professional services organizations to enhance their sales, marketing and packaging efforts.
The current facts:
- The discipline of professional services selling is still in its infancy. Very few firms have well-established solution selling methods or trained and dedicated services sales teams.
- Current expenditures on PS sales are significant. As a percentage of total PS revenue, the average investment in selling is 8.6 percent.
- The results for the very few firms that have successfully implemented a PS sales discipline are extraordinary, with 47 percent of all services sold as packaged solutions, 29 percent net profit and $255,000 annual revenue yield per consultant.
- The majority of firms have a dedicated solution selling team with an average annual PS sales quota of $1.6 million per person. Only 67 percent of PS sales representatives achieve their annual quota — yet this figure improves to 75 percent for the best organizations that significantly invest in sales training, systems and tools.
Based on the survey, the results revealed that the pressures facing PS executives primarily revolve around accentuating services differentiation and improving sales effectiveness. Accelerating client project time to value is also a principal concern. We looked at the differences between embedded services organizations and independent services organizations. ESOs are services organizations within product companies, and INDs are firms whose primary charter is to provide profitable consulting services.
Table 1 compares the survey responses of ESOs and INDs on a scale of 1 to 5, with 5 being the most challenging.
With the return to a healthy economy, firms have started to focus on new market penetration and expansion of their services portfolios. Fewer firms fear commoditization of their services. PS organizations make investments in sales and marketing as they face increased global competition, strategic sourcing adoption, technological complexity and pressure to accelerate time to value.
Firms adopting a well-coordinated plan to amplify their sales and marketing investments are reaping significant rewards. This report shows that although there is wide disparity in the amounts spent on sales and marketing, these investments pay for themselves in larger sales pipelines and better bid-to-win ratios. Ultimately, this translates into achievement of PS revenue and margin targets and higher levels of net profit.
PS sales effectiveness
In “The New Solution Selling,” Keith M. Eades provides the definition of a solution: “So what is the definition of the word solution? The typical response is, ‘An answer to a problem.’ I agree with this response but feel it’s important to expand the definition. Not only does the problem need to be acknowledged by the buyer, but both the buyer and salesperson must also agree on the answer.
So a solution is a mutually agreed-upon answer to a recognized problem. In addition, a solution must also provide some measurable improvement. By measurable improvement, I mean there is a before and might be an after. Now we have a more complete definition of a solution; it is a mutually shared answer to a recognized problem, and the answer provides measurable improvement.”
Common signs of services selling failure:
- Client “pain” is not adequately identified or pervasive. The services portfolio does not resonate with the sales force or prospective clients, resulting in a weak sales pipeline and limited market penetration.
- Wrong assumptions about product to services mix. Product companies want to increase product revenues and reduce services revenues, which mean they want to move solutions to partners to reduce the cost of services delivery. Without proper planning and solution testing, partners are ill-equipped to deliver new solutions.
- Unreliable sales forecasts. Consistent misses in sales forecasting accuracy ripple through the PS organization, showing up in consultant over- or underutilization or poor resource scheduling and planning combined with the inability to achieve planned revenue and margin targets.
- Poor sales effectiveness. Inability to generate enough interest and qualified leads to fill the sales pipeline. Poorly articulated services value proposition resulting in not enough qualified opportunities to support the sales forecast, along with poor win-to-bid ratios.
- Lackluster sales results. Fewer than 60 percent of the services sales representatives surveyed achieve quota, resulting in failure to achieve revenue and profit objectives.
- Poor estimating. Underscoping and underbudgeting projects results in project delays, overruns, poor project margins and dissatisfied clients.
- Few reference clients. The PS organization is unable to convert clients into references and evangelists, resulting in lackluster repeat sales and referrals.
PS sales effectiveness metrics
Many firms want to know how to define sales effectiveness and what metrics they should use to measure the effectiveness of the services sales force.
The benchmark focuses on the following sales effectiveness areas:
Services sales quotas.
- Services sales quotas by person, by PS vertical market and by size of organization.
- Percentage of services salespeople who achieve quota.
Spending on services sales.
- Total cost of the services sales organization as a percentage of total services revenue.
- Total number of services salespeople.
- The size of the sales pipeline as compared to the quarterly sales booking forecast.
- Win-to-bid ratio.
- Average closed deal size.
- Average services revenue by account.
- Percentage of revenue from new clients.
- Sales forecasting accuracy.
- Services pricing accuracy — proposed price compared to actual delivery cost.
- Length of the sales cycle from qualified lead to contract signing.
- The number of qualified leads that are closed.
- Percentage of reference clients.
- Percentage of annual services revenue target achieved.
- Percentage of annual services margin target achieved.
- Sales methodology followed.
- Days of sales training taken per rep per year.
- Percentage spent on sales enablement, training and support.
- Marketing mix and expenditure on supporting the sales effort.
Sales organization structure.
- Charter of the services organization.
- Sales reporting structure.
- Sales focus: geography, industry, major accounts or competency.
Table 2 provides an overview of sales effectiveness metrics and shows the differences between embedded services organizations and independent services organizations. Embedded PS organizations reported lower sales quotas but a higher percentage of salespeople who achieve them. ESOs reported better forecasting and pricing accuracy than their independent counterparts.
ESOs have shorter sales cycles, but their average closed services deals and revenue by account are significantly lower than for independents. ESOs generate more business from new accounts and have higher win-to-bid ratios than independents, yet they posted lower sales effectiveness scores and have significantly fewer referenceable clients.
The nonexistent sales and marketing silver bullet
Almost every PSO surveyed or interviewed in the past seven years has committed to the importance of the sales and marketing of professional services. However, the role of professional services within each company is different. Services can be used for profit, product enrichment, client intimacy or some combination of each.
Regardless, very few sophisticated product organizations can survive without a strong emphasis on professional services. For independent firms, PS sales and marketing are the lifeblood of the firm, for without them, new business cannot be developed nor can the firm expand its presence within its existing client base.
Unfortunately, both embedded and independent PS organizations often think of effective sales and marketing as a magic bullet. They believe all their problems will be solved if they can just find an amazing rainmaker. Not so! Finding rainmakers is not easy. Even if it were, business development efforts would fail without a compelling services go-to-market strategy and clear differentiation.
A couple of surprises
Our study focuses on PS sales, marketing and packaging to gain insights into the best practices and realities of how PS organizations are approaching the market. The biggest surprise was how many organizations are not adequately investing in sales and marketing. Many don’t have a cogent plan or dedicated resources or funding to support business development. Without an effective front office — no matter how compelling an organization’s services delivery and experience are — the firm simply cannot properly address the market and will be doomed over the long term to lackluster growth and ultimately failure.
The other surprise is the poor levels of services sales quota achievement. Classically, fewer than 60 percent of salespeople achieve quota. The figure is a bit better in services industries, with 67 percent average quota attainment. However, underlying this figure, the reality is stark.
Fully 25 percent of the organizations surveyed reported fewer than 50 percent of their services salespeople achieve quota, while fewer than 20 percent of services salespeople attain more than 90 percent of their annual quota. The other surprising fact is that 30 percent of the firms surveyed offer no formal sales training. The fallout from inadequate sales enablement shows in their poor results!
A final word about effective services selling
According to the 2013 PS Sales and Marketing Maturity Model Benchmark report, effective services selling is very difficult to achieve. Few traditional product salespeople successfully transition to solution selling without significant consulting and domain-specific background and experience. However, investments in building charter clarity, differentiation, marketing and packaging pay off handsomely in terms of sales effectiveness. Sales enablement activities are well worth the effort and provide measurable impact.
Bottom line, the services market is in a major growth phase. Revenues and juicy margins are there for the taking. However, they require a consistent, well-organized approach to the market and emphasis on improving all aspects of sales effectiveness.