5 Arguments For and Against Outsourcing Sales

At a recent Business Journal Pitch event John Chambers, CEO of JC2 Ventures, and legendary ex-CEO of Cisco, said that all B2B startups should outsource sales. And not just sales development but ALL sales. His theory was based on the fact that the sales function can be the most expensive and distracting non-core activity that a company usually invests in and one that lean startups should avoid like the plague.

He even suggested mature companies in the later growth stages might want to re-think their in-house sales models as well.

Regardless of where you come down on the theory, sales outsourcing can be an effective and efficient way for companies to increase lead generation and manage the sales process without investing in management, training, technology, turnover and overhead costs associated with a full-time sales and/or sales development team.

In spite of and maybe because of, the fact that sales outsourcing has been around a long time, many companies are reluctant to entrust a critical business activity like generating new business to an outside third party. But not unlike other critical business activities, (Law, Insurance, Talent Acquisition, Financial Services, Real Estate, HR, etc.), the odds that a modern outsourced sales team is more competent in the art and technology of modern selling and more cost efficient than an in-house team are actually quite high.

There are good arguments for outsourcing and good reasons not to. Here are the top five:

1. Your pricing model won’t work for outsourcing.

Today’s sales development outsourcing is generally priced around sales activities and usually runs into the $5-10K/month range for a campaign that might yield 20-30 meeting per week. Now, since a high performing in-house sales development rep can only do 100-125 activities per day yielding 5-10 meetings per week, you will need 3-4 of the best sales developers to match that performance and with leadership and technology costs, you are well above the $5-10K/month number if you were to try to do that yourself.

But additionally, you need to consider whether your pricing model fits the outsourced model. If your annual contract value is $1,000 or lower, it won’t make sense to carry an outsourced team and an internal account manager(s) team to work on the opportunities developed by the outsourced team.

This is generally true for most B2C, B2B2C, or B2C2B businesses. The one caveat is that if you have data or other reason to believe that the LTV for those customers turns out to be 5x or more of that ACV, you may still be a candidate for outsources sales. Like if your customers would have no reason to leave once signed.

Some business models that don't fit sales outsourcing, regardless of pricing, are those where the sales cycle short and/or the lead pools are consumerish in nature, i.e., large horizontal pools not easily segmented and better targeted with advertising or freemium market strategies.

2. Sales outsourcing costs too much.

There is a lot of residual noise in the markets. Companies that have never used outsourced sales services believe it will cost a lot, and that an in-house team will be less expensive while providing them greater control.

The reality is exactly the opposite.

Most surveys that we’ve seen say that cost savings is in fact, the primary reason for outsourcing to begin with. Data from Glassdoor, Indeed, and AngelList peg the average Sales Development Rep (SDR) base salary at between $48K and $65K. The Bridge Group’s Sales Development Metrics and Compensation Research Report reports SDR On-Target Earnings (OTE) inclusive of commissions/bonuses of $76K.

None of these costs include the sales tech stack or other overhead which usually runs to 35% of the base salary. And they also don’t include any allocation of management time or cost. When the hidden costs are factored in, we can easily get to $120K per SDR.

In addition to the actual costs of an in-house SDR being far higher than most people think, the management of the longer-term career trajectory presents a challenge that translates into additional hard dollars.

Typically, the SDR role serves as a short runway toward a job in “regular “sales. But what happens when there are no opportunities in “regular” sales? Many companies depending on their business model and the economic outlook find that the conversion rate for new leads coupled with a persistent rate of customer churn fail to create the number of “regular” sales positions necessary to satisfy this anxious pool of future junior sales reps. So, of course they leave for other opportunities.

Again, the data (depending on which you choose) says that the average SDR stays in their job for 15-22 months (including ramp time) and the cost to hire, train, and retain is never factored in to the equation. A DePaul University report on sales representative turnover indicates that the time to replace an open position ranges from 5.8 – 7.8 months, averaging 6.2 months. Acquisition costs of a rep average $29,000, training costs average $36,000, and lost sales in territory average $50,000.

That’s $115,000 that is rarely considered when evaluating the outsourced sales decision.

In-sourcing comes with a multitude of costs, most of which are hidden, so when you evaluate using all costs, it becomes clear that outsourcing is less expensive, far more predictable and dramatically more consistent and controllable.

The other major benefit is that it lets your best sales people focus on that which they do best and enjoy the most, which is selling.

3. Cold calling is dead

There are many people who have jumped onto the social and email marketing train who will declare that cold calling is a thing of the past. Most of those people are either selling email or social marketing platforms or have embraced the trend toward email and social as a way to avoid the often unpleasant, unproductive and perceived to be unsavory business of cold prospecting. They also want to avoid the actual work itself as it is largely wrought with rejection and dismissal, oftentimes accompanied by an angry screed.

The cold reality of cold calling is that it remains the only way to guarantee direct conversations with your buyer and the last time I checked, talking is the only way that you can actually sell something to someone else. I am quite certain that nothing of value has ever been sold via email or social touch alone. In fact, conversations are the tent-pole of Account Based Marketing and Account Based Sales, without which most enterprise solutions can’t effectively be sold today.

When you explore the stats, it turns out that each of the 20 fastest growing B2B SaaS companies and every B2B IPO in 2017 have implemented an outbound sales program. Cold calling is a successful, productive go-to-market strategy practiced by the fastest-growing companies in the world.

In addition, according to a recent study on the most popular sales myths by the RAIN Group, the earlier your connection and conversation (not via email) occurs in the buyer journey, the better. The study emphasizes that by earlier, it means before buyers even understand what they really need. Not in the Steve Jobs version, but in the version that says something like, “I need a cybersecurity solution, but I’m not sure which type of solution fits best.” Capturing that buyer at that moment can eliminate competitors and transform outcomes. But speed is the key.

4. Loss of control of the sales process

Loss of control is a top reason for not outsourcing sales. The SDR is your brand on display. You don’t want it screwed up. And you want some sort of mechanism that can assure you that the outsourced SDR isn’t sitting around faking productivity.

Apart from the fact that an outsourced sales company’s bread and butter depends solely on the productivity and performance of their SDR team, which actually guarantees you more, not less control over the outcomes, the individual SDR is driven almost entirely by commission goals and s/he is perfectly capable of self-management. The outsourcer only succeeds when its clients succeed.

Our own SDR teams are additionally empowered through Noble Purpose Selling, the insightful approach to sales pioneered by the brilliant sales leadership consultant Lisa Earle McLeod, who coined the term, Noble Sales Purpose (NSP). NSP helps redirect sales energy toward making a difference rather than making commissions, and always results in increased sales.

5. No feedback on message strength and weakness

Actually, market and message discovery is one the major benefits from outsourcing outbound sales. The first few days of an SDR campaign is centered on getting the message right and determining product-market fit (PMF). If the team you hire uses a sales accelerator platform (as we do), your PMF and messaging will get surfaced immediately so you can iterate and pivot on both.

The outsourced team should have message validation as their number one priority when they begin a campaign, which contrasts dramatically with the goals of an inhouse team. The speed with which to get to PMF is critical for startups as 90% of failures are the direct result of failure to achieve PMF and the need for speed is three times faster than most startup CEOs’ think (Steve Blank, the founder of E.piphany and 8 other startups and now a Professor of Entrepreneurship at Stanford).

The beneficial perspective on how your business and your product looks from a potential customer's point of view is invaluable and may best be obtained from an independent outsourced outbound team who is driven by results.

Summary

If your business model is B2C, B2B2C or B2C2B, don’t even consider outsourcing. If your LTV is under $5K and it takes only a couple of contract years to get there, then outsourcing might be a viable option. Short sales cycles and horizontal lead pools argue against outsourcing. If you have a magical business that is overwhelmed with inbound leads, you have no need for outbound sales in any form. If you are small enough and your one or two existing SDRs love cold-calling and do 120 sales activities a day and you are making your number, then you don’t need to outsource anything.

If you have nailed PMF and your messaging is solid, you will not accrue two of the major benefits from outsourced sales. There is unequivocal evidence that outsourcing sales is less costly than building and managing your own teams but there may be non-financial considerations that need to be accommodated.

But if none of those things are true, and you are willing to accept that John Chambers didn’t just fall off some turnip truck, then you might want to consider making a change to your sales process.

Status quo is a powerful force in decision making and leadership. It’s easy to take the conventional view of sales development outsourcing along with its historical baggage and dismiss it without analysis as a poor fit for your company or product goals. But looking further and applying the math against your actual costs, management challenges and performance data associated with building or continuing your inhouse sales development efforts might yield a different story.

Warren Bennis, known as the “Father of Leadership”, the Founding Chairman of The Leadership Institute at the University of Southern California, management consultant to Fortune 500 companies and several U.S. Presidents, and decorated military hero, is quoted as saying “The manager accepts the status quo. The leader challenges it.”