Kamran Qamar » implementation plan

Build Go-to-Market Cost Model

Kamran — Sun, 08 Nov 2009 18:59:06 +0000

The last step in creating a clear business case for an integrated multichannel go-to-market strategy is to calculate how much money needs to be invested in each channel to achieve overall revenue targets. The output of the last step— resource planning by channel—is a good starting point, because resources often account for fifty percent or more of a channel’s cost structure. There are other costs associated with a channel e.g., indirect field expenses for the field sales force, distribution margins for partners, telephone bills for call center, or website development and maintenance costs for the Internet, etc. In this step, I will show you a generic cost model that you can customize for your use.

The table below provides an overview of various types of expenses that different channels can incur. Of course, you won't be building every channel, but it provides a good starting point and lays out the standard framework for expense calculation.

Build the Go-to-Market Cost Model

This table is pretty much self-explanatory. It defines the major expenses per channel. For example, major expenses for the business partner channel include: margins, channel program training, rebates for promotions and management expenses. Table also spell out general expenses and allocates them equally to each channel. This provides a mechanism to calculate and compare the productivity and efficiencies of different channels.

Channel E/R or Channel Expense to Revenue ratio is one of the standard ways to calculate the efficiency of a channel and compare it with other channels. It shows how much investment is needed to generate the target revenue. As the table shows, different channels will have different E/R values; these values can be used to decide which channel to use. You can either go with the lowest-cost channel or take a balanced approach. Keep in mind that that channel profitability ultimately reflects the level of service being provided to customers. Lowest-cost channels generally cost less because they provide fewer services in the sales process. In some circumstances—for example, when high service levels are the key differentiator for a business—it may make sense to select a channel that can deliver an acceptable level of profitability rather than the highest possible level.

In Conclusion

You have settled on your market, come to understand your customers, decided on the best mix of channels to cover your markets and are armed with your financial business case. Now, all that is left is to present it to the management team and get its buy-in, after which you should start to put your plans in action. In the next section, I will discuss the steps that you must take to build the organizational capabilities so you can successfully implement this plan.

Estimate Channel Resources

Kamran — Sun, 08 Nov 2009 18:58:23 +0000

Your new revenue forecast will impact the number of resources needed by various channels, as well as the overall allocation of resources across channels. People will need to be hired or fired or shifted between channels to support the revenue plan. Resource analysis involves figuring out where people need to be added, subtracted, or shifted to optimize their allocation in pursuit of a revenue target. Unless you determine how many people will be needed to achieve the channel’s revenue target, you can’t determine how much a channel will cost.

Luckily, there is a straightforward relationship between the channel’s revenue target and the resources it needs to reach that target. It is:

Number of resources required = channel revenue forecast ÷ contribution per resource

Example:
The channel revenue forecast for field sale force is $20 million, and each rep brings in, on average, $1 million in sales (based on industry or historic data) . Thus, the number of resources required = 20

You can also get the industry benchmark information from leading industry journals. The problem with that is twofold. First, it is averaged. Second, it is a tactic, well suited for organizations that already have well-established channels. If you are building it from scratch, you cannot assume the same level of productivity for your sales channel.

Estimate Channel Resources

The table above provides an example of how this calculation will play out in the real world. Here is an organization that achieved $23 million in sales last year; this year it is forecasting $28 million in revenue, an almost 20 percent increase. The table shows that the top 20 percent of the company's sales force has a productivity of $1.25 million. On the same productivity level, its sales force channel has a capacity of $50 million but achieved only $19 million.

This year, they opted for an integrated multichannel strategy and re-categorized their revenue projections, as shown in column 3 (Revenue Targets $m).

Once the new projections are made, it is clear that resources need to be moved around. As the table shows, the field force need to be downsized by twenty-eight people, whereas the company needs to recruit five more partners to meet projections. Telesales also needs two more reps. Internet, on the other hand, is a little different. Our sample company will need multiple talents to implement Internet sales channels. Based on the current benchmark, the company will need to increase its investment by five times to meet its projection of a 500 percent increase in revenue from this channel.

Why not keep the existing sales force? Why downsize them? Well, first, a company cannot have unlimited resources. Second, by downsizing company will be able to reduce its cost of sales, hence increasing profitability while increasing the top line.

The output of this step offers a clear picture of resource requirements, as well as the resource gap—the surplus or deficit of resources—that currently exist in each channel. This information will determine who needs to be hired, let go or reassigned. It will also establish the foundation for building the cost model to determine how much money needs to be invested in each channel, as described in the next step.

[Needs to be re-written]

Reference:

Go-To-Market Strategies by Lawrence Friedman

Defining Revenue Opportunities for a Channel

Kamran — Sun, 08 Nov 2009 18:57:25 +0000

The first step is to define the sales forecast, specifically in terms that can be used for evaluating and allocating channel investments. Such a forecast is different than the kind most companies are used to. Most companies forecast sales based on products, or vertical markets; such projections works particularly well for product development and marketing/messaging positioning. Unfortunately, these kinds of projections are of little use for channel planning. This is because channels cut across vertical markets and product lines, as you have seen in the last step while building the integrated multichannel market coverage maps. Therefore, a distribution-based revenue forecast, one that looks at revenue primarily in terms of how—through which channels—it will be captured, is needed to calculate the real economics of channels.

Such a revenue forecast could be calculated in two steps:

Re-categorize revenues into market segments that closely reflect channel usage
Overlay the market coverage map developed in the last step to calculate revenue by channels

Left grid in the figure shows revenue per product per vertical market for a sample company. In the figure you can see, $1 million worth of "simple" products are projected to be sold to high-tech companies. The question is whether this "simple" product is valid for all kinds of high-tech companies or if it is suitable for small businesses?

Right grid shows the same projections but re-categorized based on product-market fit as discussed in Channel Mix section. As it is shown, Simple product is targeted only to SOHO and mid-market. The first thing to note is that SOHO market cut across market verticals (Manf. High Tect etc.) and served by different channels.

After re-categorizing the revenue projection by product-market fit, all that is left is to overlap the market coverage map from the last step to develop a complete revenue forecast by channels. The figure below shows this process and the results.

As the figure shows, the field force is responsible for generating $21 million in revenue while selling mass customized products and complex solutions to Fortune 500 companies. Distributors will be responsible for penetrating the mid-market using all available products. Their goal is to generate $10 million in revenue. etc.

Let me point out that this is a simple example. In real life, there will most probably be more than one channel covering the product-market segment. That will require some creative thinking to distribute the revenue responsibilities.

Now that we have clarified what is expected from each channel, let’s look into how much resources these channels will need to meet their goals.

[This section need more examples and clarifications]

Reference:

The Channel Advantage

Your revenue forecast will impact the number of resources needed by various channels, as well as the overall allocation of resources across channels. People will need to be hired or fired or shifted between channels to support the revenue plan. Resource analysis involves figuring out where people need to be added, subtracted, or shifted to optimize their allocation in pursuit of a revenue target. Unless you determine how many people will be needed to achieve the channel’s revenue target, you can’t determine how much a channel will cost.

Luckily, there is a straightforward relationship between the channel’s revenue target and the resources it needs to reach that target. It is:

Number of resources required = channel revenue forecast/contribution per resource

Example:
The channel revenue forecast is $20 million, and each rep brings in $1 million on average. Thus, the number of resources required = 20

Although the calculation is simple, you have to find out the channel productivity. You can get this number from your history data. For example, if you have fifteen salespeople who brought in $15 million in sales last year, your field sales force channel’s productivity is $1 million per sales rep. Of course, not every sales rep in your sales force is superstar. Therefore, to calculate real productivity, you can apply Pareto’s rule i.e., calculate the productivity for the top 20 percent of your sales force. You can also get the industry benchmark information from leading industry journals. The problem with that is twofold. First, it is averaged. Second, it is a tactic suited for for organizations that already have well-established channels. If you are building it from scratch, you cannot assume the same level of productivity.

Economic / Revenue Models

Kamran — Sun, 08 Nov 2009 18:46:40 +0000

Budgets are always finite and resources are always scarce. As a result, it’s imperative to use investment dollars and resources where they really count: where they will do the most good and where they are most needed in light of market and revenue opportunities. That is why the final step before jumping into any implementation of integrated multichannel sale system is to validate the economics of the strategy and build a business case, to be presented before the management to get their buy-in.

Most organizations tend to take last year’s cost numbers and adjust them incrementally upward or downward, depending on which sales and marketing activities are doing well. This kind of conventional, incremental budget planning may work acceptably with a single channel but it doesn’t work with integrated multiple channels. Integrated multiple channels require a different approach. First, complex multiple channels systems must be managed and funded against specific revenue and market projections to ensure that channel spending doesn’t become a runaway train. Second, channels should be invested in collectively.

With scarce resources, allocated them across the full range of channels — to ensure that each channel gets exactly what it needs to meet its projection — needs detailed planning. Such planning has four steps:

This section explain these steps in detail, starting with "Define revenue opportunities by channel".

Channel Integration

Kamran — Sun, 08 Nov 2009 18:00:23 +0000

Channel mix assumes that each channel will perform all the tasks in a sales cycle. Why have one channel perform all the tasks in a sales cycle? Why do you want your sales reps to run around prospecting, when telesales channels, direct mail or even the Internet could do a better job, inexpensively? A more profitable approach would be to create a division of labor within a sales process: to have different channels take on different functions within the overall sale. This is called Channel Integration.

Channel integration involves "pushing down" of tasks within a sales cycle to channels that are better able to perform them at lower cost, and perhaps in higher volume too. Channel integration is not easy. Everyone would have a fully integrated model if it were a matter of taking out a sheet of paper and drawing a few charts. So let me share with you some wisdom from the field. Below is a three-step tool to integrate channels:

1. Align Sales Force Tasks With Appropriate Channels

For a product-market, begin by breaking down your sales cycle into simpler yet concrete steps. Write down selected channels in the left column. Now, rank each channel’s ability to perform the sales tasks. The figure below uses a simple three-star ranking and shows how channels could be aligned with sales process tasks in a typical large business-to-business sale.

The chart uses a simple three-star ranking, three being the perfect channel-task fit.

Please note: The chart above is just a representative channel capability matrix. It will change based on your product-market. For example, in the large order sale, telesales channels are shown as unsuitable for sales closure. For small orders, however, or consumer sales, telesales channels may be perfectly sufficient for sales closure. Thus, channel-task assignments need to be designed with a specific type of sale, your product and the customer in mind.

After ranking channel capabilities, select channels for each task in the sales process. The goal is to select the lowest-cost channel that can adequately accomplish a task.

2. Manage Channel Task Hand-Offs

When multiple channels participate in a single sales transaction, there is a high probability of things falling through the cracks. Communication and coordination are critical. In order to define clear policies for task hand-offs, it is important to:

Precisely define task-completion criteria
Task-completion events are the points at which sales opportunities are handed over from one channel to the next. Each task in the sales process must be defined clearly so each channel understands what it is supposed to complete before it moves a sales down the pipeline. For example, when do you consider the lead qualification task to be completed? When it comes in the door, when it feels like an opportunity, or when the customers’ budget and purchase date have been formally confirmed?
Document the process of how the hand-off should be made
The more rigorous and formalized hand-off procedures are, more likely individual channels are to execute them properly. For example: Are the sales reps supposed to call a business partner within two days of sales closure, or log the closure in a database for a follow-up call?

3. Assign an overall owner to an account

The complexity of an integrated multichannel selling environment warrants a drum-master for each account to make sure that everything that is supposed to be done gets done correctly, throughout the entire sale. There can be two approaches:

Assign a person or channel responsible for sales closure as the account owner. This approach is extremely effective for a long and complex sales cycle.
Assign a person or channel responsible for lead generation and qualification as the account owner. This approach is good for a simple and/or short sales cycle.

A mix of the above two approaches can be used when a variety of sale types are involved at varying levels of complexity.

The potential of channel integration is huge, but to achieve the promised pay-off, multiple channels must be managed and controlled as a single, frictionless, system. The two-step approach presented here takes the complexity out of creating an integrated multichannel go-to-market model and provides you with tools to successfully execute and manage this selling environment.

Now that you have a integrating multichannel sales models, its time to validate it against financial projection / models. Next section "Economic Modeling" will walk you through the process of economic modeling and developing a business case for new sales models.

[This section should be re-formatted and re-worded. Add more explanations and examples]

Reference:

The Channel Advantage by Lawrence Friedman and Tim Furey

Channel Mix

Kamran — Sun, 08 Nov 2009 17:19:47 +0000

Channel mix is about the coverage of a company’s overall market with multiple channels. Channels in a mix coexist, each providing a different route to customers. The purpose of developing a channel mix is to intercept a broad range of purchasing transactions, and thus increase sales and your market share.

In order to create a market coverage model, you have to begin by dividing your overall market into discrete "product markets" such as "simple products sold to consumers" and "customized solutions for mid-sized accounts," etc. One such matrix is shown in the figure below:

The product-market grid allows to align company’s offers with the best selling opportunities. Once those channel opportunities are clear, channel strategy jumps to center stage. After all, channels are nothing but pipes connecting your products with customers.

There are three practical ways to fill this grid:

1. Selective market coverage—Assign one channel to serve one product market only.

The figure above shows a sample selective market coverage model. As is apparent, the simple-SOHO (Small Office / Home Office) market is served by the Internet, whereas complex solutions are sold to Fortune 500 companies using a field sales force. This chart illustrates the basic concept behind the selective coverage mode i.e., keep each channel in its silo, serving a discrete and unique group of customers on its own.

Advantages:

Minimal channel conflict – Since each channel is selling in its own silo, there is a very little chance of them bumping into each other.
Ease of channel performance management – It is easy to monitor the performance and sales activities of individual sales channels when each of them is assigned to a discrete market.

Disadvantages:

Practicality – It is difficult to execute this model in real life. For example, a reseller assigned to sell a product in a smaller market may covet larger opportunities and pursue customers that they are supposed to avoid, as they often do. Customers assigned to one channel such as a reseller may also decide to use other channels e.g., the Internet. This breeds resentment among channel partners who were promised a certain group of markets.
Customer dissatisfaction – Customers want choices—they don’t want to be told how to buy things. Attempts to force them into a particular channel fail. They either go to channels they prefer or they go to a competitor.

2. Intensive coverage – Use all available channels to sell all products to all customers.

The intensive market coverage model allows maximum flexibility so customers can do business where they want and how they want to do it.

Advantages:

Alignment with customers’ buying trends – It meets customers on their own terms, and lets them migrate to their preferred channels.
Deeper market penetration – An aggressive use of all possible channels allows you to capture maximum transactions.

Disadvantages:

Margin erosion – When channels compete for the same sales, channel conflicts arise, resulting in eroded margins and, in some cases, defection of the best partners.
High costs – Providing a large number of channel inventories to cover the same market segment is not cost-effective. These channels need to be built, maintained and managed, and that costs money.

3. Hybrid market coverage – mix of selective and intensive market coverage model

In the hybrid market coverage model, a critical mass of buyers is supported by intensive channel coverage, whereas unique product-market segments such as premium customers are served by selective channels e.g., by a field sales force. The figure above shows a sample hybrid market coverage model.

Advantages:

Extensive market coverage – Just like the intensive market coverage model, the hybrid model offers deeper market reach, giving customers in those markets the flexibility that they need.
Premium service for premium customers

Disadvantages:

Channel conflicts – Conflicts over tasks and territories may develop in main markets served by multiple channels
Higher sales costs

Whichever market coverage models you choose depend upon your business objectives and conditions. However, the hybrid model offers the best of the both worlds. While designing a market coverage model, there are four basic principles to follow. They are:

Align intensively covered markets with the "critical buying mass," meaning the market segment with the best revenue growth opportunities should be thoroughly covered by multiple channels.
Manage the channel mix for profitability, not just sales. The goal of a business is to make money that you can keep. Only money you can keep is profits. Unless you have deep pockets, don’t risk the profitability of your business for a larger market share.
Save selective coverage for when it really counts, for example, reserve your field sales force for premium accounts or the Internet for simpler products; otherwise, just go for intensive coverage.
Beware of channel conflicts, particularly with indirect channels. As discussed before, there is no real way to solve channel conflicts, so play it by ear and strive for channel cooperation.

In the next section, "Channel Integration" we will see how to improve profitability for each sales channel by integrating them in one coherent system.

[This Section needs to be re-written]

Reference:

The Channel Advantage by Lawrence Friedman and Tim Furey

Market Coverage Maps

Kamran — Sun, 08 Nov 2009 17:16:09 +0000

After deciding which channels align with customers’ needs and with your business objectives—and thus are suitable for your target markets—it is time to bring them together into a sound multichannel market coverage model. In developing such a model, perfection isn’t necessary. The coverage model will evolve over time in any event, as you and your channels adapt to market conditions, and as you learn what works and what doesn’t. The goal should be to develop a sound, workable channel coverage concept that will get you in front of the maximum possible amount of target customers, cost-effectively.

Though perfection is not required, still, developing market coverage models is a complex task. It involves careful structuring of the overall channel mix in a market as well as the integration of channels within the sales process. Like any complex problem, the best solution is to break it into pieces and tackle them one by one. Hence, first create a channel mix, in which you decide how each channel will serve sales opportunities more or less independently, to increase growth in sales and your market share. Then, perform channel integration by developing tight coordination of channels within a single sale to improve profitability and to service complex transactions. This two-step process will result in a winning, innovative, integrated multichannel go-to-market solution.

Let's have a detailed look at both these steps, starting with the "Channel Mix".

Prioritize Channels

Kamran — Sun, 08 Nov 2009 04:50:40 +0000

Channel selection should align with overall business goals. If the goal of a business is profitability, it doesn’t make sense to invest in high-cost channels. Similarly, if your business is looking to aggressively capture a market share, you have to build all of the identified channels. The following are some general business goals and their impact on channel selection:

Revenue growth requires building all identified channels.
Market share growth demands that you build a comprehensive network of partners, distributors, and other service providers to serve diverse segments of your market.
Time-to-market: If the goal is to sell more products and services quickly, setting up a telesales channel, whether in-house or outsourced, could be an easy approach as compared to building a partner network
Profitability: The goal of profitability requires that you use low-cost channels like the Internet or direct mail.

One way or another, you have to build all the channels that your customers demand. If you don’t, your competitors will provide the flexibility that customers are looking for and will snatch the market share. Brainstorming gives you the blue ocean of channel opportunities, whereas customer criteria filter your short list into a desirable list.

However, businesses always have constraints with regards to money and resources. Therefore, product-channel fit and business goals criteria help you prioritize the list in a workable order. At the end of this exercise, you should have a well-articulated list of channels that you should use to reach your target markets. In the next section, we will see how to integrate these channels for maximum revenue growth and profitability.

Channelizing a Product

Kamran — Sun, 08 Nov 2009 03:23:18 +0000

Product-channel fit is not just about finding an appropriate channel for a given product. On the contrary, as soon as a new channel is being evaluated, companies discover that product-channel fit works the other way around too. New channels almost invariably require at least some redesign or reconfiguration of the product. To succeed in a new channel, a product usually must first be made "channel-ready."

Salesforce.com took the old CRM technology that required expensive hardware, database software, and IT support—which was sold through a field sales force or partners—and redefined it for new channel, the Internet, using the Software as a Service (SaaS) platform. Hence, the company redefined how a complex CRM solution is sold using low-cost channels. You can do it too. Below are six principles that you can use to reconfigure your products for low-cost channels:

Tools for Channelizing a Product

There are few products that aren't successfully sold through low-costs channels. More and more products, from complex software to jet aircrafts, are showing up in low-cost direct marketing channels every day. This has been the key trend since the beginning of the millennium, one which will continue to proliferate across more industries as customers become increasingly comfortable with and enthusiastic about doing business through low-cost, self-service channels. Companies looking at channel opportunities need to stay on top of this trend and benefit from it. If you have a complex product, you can use the following six tools to modify it for low-cost channels:

product simplification – Reduce the number of features so that it becomes a simple and cost-effective product to be sold through low-cost channels, as Salesforce.com did for CRM.
product standardization – Eliminate unnecessary model variation and customization options. Opt, instead, for mass customization, as car companies do—same model, different colors, different accessories, yet standard product.
channel pricing – Customers believe they can find bargains on the Internet, so price your products accordingly. Learn from Progressive.com, which offers instant price quotes, price comparison and name your price options.
user self-sufficiency – Include training, procedures and post-sales as part of the basic product. Email support or ticketing systems offer an effective way to deliver customer support cost-effectively.
purchase streamlining – Eliminate complex and confusing contractual and financing terms. Have you ever read the full terms of reference before buying a product from Dell? Exactly my point. Adding one-click financing options, as Dell or eBay does, makes it even easier for your customers to buy your complex products.
support integration – Create a secondary support channel to provide any necessary services or post-sales support that cannot be provided well in the alternative channel.

Again, product-channel fit is not always about finding a new channel for a defined product. Frequently, it works the other way around. In many cases, products must be redesigned or reconfigured to fit well into a new channel. This is especially true when existing products are migrating to lower-cost channels. Lower-cost channels are lower-touch channels, and they require simpler, more standardized, more complete products to work effectively.

At the end of this step, you should have a well-defined set of channels that fits well with existing products and a buy-in from production to change/reconfigure existing products for new low-cost channels. The last step is to map these channels against business goals to create a prioritized list of channels.

[This section needs to be re-written]

Channel-Product Fit

Kamran — Sun, 08 Nov 2009 02:48:23 +0000

How you sell has to match with what you sell. Ever heard of a jet aircraft being sold in a supermarket? Products are a key factor in the selection of sales channels. Some products can be sold through only one channel, while others offer more flexibility. For example, if you want to sell to the federal government, the only channel opportunity you have is to respond to a RFQ—okay, there are some tricks, too, but you got the point.

The idea behind this step is not to shorten your channel option list based on your product. Instead, the idea is to prioritize channels into two categories: i) channels that fit perfectly with your product, and ii) channels that don’t immediately fit with your product but which customers are demanding.

There are numerous product attributes that affect the product-channel fit. A few important ones are:

Definition – How recognizable a product and how well-articulated are its benefits e.g., a pair of shoes from Nike is very well-recognized as compared to business advisory services.
Customization – The level of customization needed in the sales process. For example, Microsoft Office can be bought off the shelf, but it requires a good deal of customization to deploy the company's middle-ware application.
Aggregation – Does the product need to be integrated with other components to make a full solution? For example, an Intel CPU and ball bearings both need to be combined with other components to make a full solution.
Exclusivity – Is the product designed for mass production or exclusive use? For example, Rolex watches are for limited markets and sold through exclusive channels.
Customer risk – How much education does a customer need to make a valid decision? The riskier the product, the more education is needed eg., open heart surgery as compared to hair implantation.
Negotiation – Negotiation could be needed on price, customization, post-sales support, etc. The higher the need, the more complex the solution.

The chart below compares product attributes to generic channel attributes. You can use this grid as the starting point to divide your list of channels into two categories.

As the chart shows, complex products require high-touch channels. Simple products, on the other hand, can be sold through low-cost, low-touch channels. This commonsense wisdom works very well. However, the goal of this exercise is not to do what everyone else is doing. Rather, we want to innovate how we sell. For example, as the chart shows, complex products like strategic management consulting or customized customer relationship management software are generally sold through high-touch points like a field sales force and partners, but companies are selling a complex CRM solutions using low-cost channels like the Internet e.g., Salesforce.com. What gives? Next section "Channelizing a Product" answer this question.

Kamran Qamar » implementation plan

Build Go-to-Market Cost Model

Build the Go-to-Market Cost Model

In Conclusion

Related:

Estimate Channel Resources

Estimate Channel Resources

Related:

Reference:

Defining Revenue Opportunities for a Channel

Related:

Reference:

Economic / Revenue Models

Related:

Channel Integration

1. Align Sales Force Tasks With Appropriate Channels

2. Manage Channel Task Hand-Offs

3. Assign an overall owner to an account

Related:

Reference:

Channel Mix

1. Selective market coverage—Assign one channel to serve one product market only.

2. Intensive coverage – Use all available channels to sell all products to all customers.

3. Hybrid market coverage – mix of selective and intensive market coverage model

Related:

Reference:

Market Coverage Maps

Related:

Prioritize Channels

Related:

Channelizing a Product

Tools for Channelizing a Product

Related:

Channel-Product Fit

Related: