Magazine Article | October 1, 2018

Creating A More Efficient Software Sales Organization

Source: Software Executive magazine

By Steve Walter

Advice from a software sales expert on minimizing conflict between direct and indirect sales channels and maximizing the overall productivity of your sales team

Within the software industry, the ROI from working with channel partners or value-added resellers will denote exceptionally high returns – in some cases more than 2x direct sales returns. This suggests an opportunity for the software vendor to drive increased productivity throughout the sales organization.

Operational benchmarking allows a software vendor to identify the top areas of efficiency within the overall sales organization and, more importantly, to identify upside revenue opportunity. A high variance of benchmarking may indicate an opportunity to reassess go-to-market models and potentially optimize sales coverage of direct and indirect sales channels. The process of analyzing sales productivity, rolling out an indirect sales model, and then working to minimize conflict between direct and indirect sales teams is key to realizing the most ROI from channel partners.

ANALYZING SALES PRODUCTIVITY

Based on several projects I spearheaded prior to my current role at Aspen Technology, I believe the most effective way to analyze sales productivity is by using internal and external diagnostic tools. In my particular instance, it revealed a very efficient overall sales organization with several pockets of opportunity. For example, you may find you are one of many mature sales organizations that overinvest in sales management and/or sales support. In addition, you might find sales productivity gains within product and business units that operate independently from the mainstream or core business. When the sales productivity variance is very high, it provides organizations the opportunity to optimize sales coverage and reassess sales capabilities.

Adjusting your sales coverage model to shift from an account-centric strategy to a market-centric strategy can be a big step in the right direction. The primary reason this is successful is the level of industry subject matter expertise that is developed within the channel partner’s organization.

ROLLING OUT AN INDIRECT SALES MODEL

The transition to the new model should happen in a thoughtful, staged way to mitigate risks. I’d suggest rolling out a new coverage model in a single but meaningful region initially. Then scale channel sales as a growth engine in steps (e.g., by vertical or by solution portfolio), with a focus on training and enablement. Verify channel success before dialing back direct coverage — this will prevent a gap from growth ambitions.

Sales coverage changes should be done in stages. First, segment direct accounts into global top 25 and top 26 to 250 from the viewpoint of revenue, strategy, and opportunity. For example, you may find your top 25 accounts are 2x more productive than your top 100 accounts. This data would lead to covering your top 25 accounts differently and maintaining some generalist account coverage in the top 250 accounts. You should then analyze how account productivity varies by region and by individual rep productivity (you might find a large gap between top and bottom performers).

It likely makes sense to stop direct sales coverage and account ownership beyond your top 250 accounts. This will require a new role to serve as a “traffic cop” between direct sales and channel sales beyond these 250 accounts. In action, this new model looks something like figure 1 – where your direct sales team will closely cover the top 25 global accounts, all the way down to channel partners being leveraged for midmarket accounts beyond the top 250.

MITIGATING SALES CHANNEL CONFLICT

While the revenue gains from indirect sales are well worth the rollout of a new sales model, you’ll still need detailed planning, clear expectations, and specific guidelines to mitigate inter-channel conflict. Conflicts you might encounter include a “share shift,” duplicated efforts, customer confusion, and potentially partner dissatisfaction. Conflicts among channel partners include price competition, diluted resources, and reduced mindshare. Fortunately, there are proven mechanisms to manage these conflicts. My advice is to:

  • Have a hard deck, where accounts/deals below a certain value are passed to partners, and direct sales are not comped above the threshold.
  • Have specific rules of engagement, with clearly defined target segments for direct vs. indirect (e.g., new accounts pass from hunter reps to farmer partners after X number of sales, Y months, or Z level revenues achieved).
  • Have dual incentives where you compensate direct/indirect reps for handing off leads or on deals both have helped close.

It’s equally important to mitigate sales conflict between your channel partners by developing policies to maximize the scale of an indirect sales channel. For example, addressing conflict within your indirect channel will avoid a “share shift” from occurring within accounts (when an existing customer purchases from a different partner, which doesn’t increase new account growth).

Effective management of channel conflict will also minimize competitive discounting between partners. More importantly to the software vendor, channel conflict has the potential to dilute the sales resources and capacity available to your organization through reduced mind-share. These challenges can be managed by implementing one of the following strategies:

  • Have a partner deal registration system. This solution is centered around a deal registration system or a channel portal where partners may register and receive account “protection” on identified sales opportunities for a specific period (e.g., partner must close deal within a six-month period).
  • Provide “exclusive” territories to partners to help encourage their sales commitment and investment in resources by geographic region or product segment (this will reward and protect first-mover channel partners). This is especially useful for software vendors in the early stages of developing a channel presence.
  • Implement a “Survival of the Fittest” to simplify the overall process and leave channel partners to manage conflict themselves.

Leveraging indirect channel partners enables software vendors to increase worldwide sales capacity and provides access to subject matter expertise within new verticals. The cost impact to implement an indirect channel sales model relies on a variable based structure (value-added resellers only receive compensation when a product or license is sold). Compared to the fixed cost structure of maintaining a direct sales organization, a go-to-market sales strategy that includes channel partners will help software vendors to expand their overall market reach, increase sales rep capacity, reduce fixed costs, and ultimately increase their profitability.

STEVE WALTER is the VP of global partners at Aspen Technology, an asset optimization software company with 30 worldwide offices across six continents. His B2B channel and sales management expertise stems from 20+ years of leadership roles at software companies like PTC, Autodesk, Cerylion, and IBM. Walter has a master’s in finance from Boston College’s Carroll Graduate School of Management.