By Dave Zwicker

Lean” thinking has been applied to manufacturing and service organizations to maximize efficiency for years. However, it has been slow to impact the realm of sales and marketing especially for selling IT services to small and medium businesses. Lean should be an essential part of building an efficient sales and marketing engine for cloud services.

Does your sales and marketing function operate as a lean customer acquisition engine? Read the formal definition of lean, courtesy of Lean.org, to answer that question: The core idea is to maximize  customer value  while minimizing waste. Simply, lean means creating more value for customers with fewer resources. A lean organization understands customer value and focuses its key processes to continuously increase it. The ultimate goal is to provide perfect value to the customer through a perfect value creation process that has zero waste.”

Let’s apply the theory of lean thinking to the challenge of building a sales and marketing engine that will accelerate the growth of a cloud service broker (CSB) business. A CSB business almost always is based on recurring revenue. It has the same cash flow challenges faced by every software-as-a-service (SaaS) company acquiring customers with an upfront investment in sales and marketing and recovering that investment with the incremental profits generated by monthly service fees.

The problem is the economics of the traditional approach to sales and marketing simply do not work for selling cloud services on a recurring revenue basis. Consider the chart, “Customer Acquisition Cost Comparison” (above), which makes a compelling case for a lean sales and marketing approach, showing that it recovers the customer acquisition cost in less than half the time of a traditional sales and marketing approach. It’s the difference between a scalable model for selling cloud services and a model that is not scalable. We can debate the assumptions used in the chart, but can we agree that a lean model that pays back all customer acquisition costs in less than a year is far more desirable than a traditional model that consumes all deal profitability during the first two years?  Lean thinking would suggest that an additional one-third of the profitability of a three-year contract has been wasted and should be eliminated. Let’s explore the differences between a traditional and lean model for customer acquisition.

In the diagram, “Traditional vs. Lean” (above), the traditional sales and marketing model is based on conventional lead generation tactics (direct mail, telemarketing and face-to-face events) or what has come to be known as outbound marketing. Leads are handed off to an outside sales rep to qualify, meet with the customer (usually many times and over many lunches) to try to get the prospect to buy something. The sales rep puts many opportunities in play and prays that a reasonable number of them can be closed. It’s an expensive model when you consider the cost of outbound lead generation, which averages $346 per lead, according to market research from Hubspot, plus the cost of an outside sales rep at $100,000 to $150,000 per year.

Contrast that with a lean sales and marketing approach based on the concepts of inbound marketing. In this model, leads are nurtured through the buying process until they reach a buyer-ready state. This is accomplished by supplying the prospective buyers of your solutions with only the information they want and need to make a decision on their terms and in their time frame. Everything associated with sales and marketing that does not fit the criteria of highly relevant and valuable content provided to potential buyers is eliminated from the process.  This is a fundamental principle of lean deliver value and eliminate waste.

Inbound marketing leads are less expensive than outbound leads, according to Hubspot, which says they average $135 per lead and represent a 61 percent reduction in cost. A less expensive inside sales rep helps buyers to make an informed decision about the solution that will bring them the most value. Inside sales reps make an average of $50,000 to $100,000 per year, representing a 30-50 percent reduction in cost.

Does inbound marketing really work?  Hubspot virtually invented inbound marketing and is living proof its success. By using this approach to drive its own business, Hubspot has grown dramatically  82 percent year-over-year in 2012  as have many thousands of its inbound marketing customers.

Lean sales and marketing includes creating content, lead nurturing, campaign workflows, measuring performance and aligning your sales and marketing operation with your business goals and growth targets. It’s time to think lean.

Dave Zwicker co-founded

CSBcommunity.com
, an online business-building center for cloud service brokers (CSBs). The CSBcommunity.com website is operated by CSBexcellence, a consultancy also co-founded by Zwicker, which offers an inbound marketing tool kit for CSBs.


Twitter:

@dave_zwicker
,

@csbexcellence


LinkedIn:

linkedin.com/in/davezwicker

MORE INFO

Learn more from CSBexcellence’s Dave Zwicker in the session, “Scaling a Cloud Services Brokerage by Building a ‘Lean’ Customer Acquisition Engine,” at the Channel Partners Conference & Expo, Feb. 26-28, 2014, in Las Vegas.