Leveraging B2B Outbound Prospecting To Accelerate Organic Growth (Part 2 of 3)

B2B companies with a compelling value proposition in markets including from a few thousands to a few hundred thousands prospect accounts should embrace account-based outbound prospecting to strenghten their sales process and accelerate organic revenue growth. Referencing a case study from the flexible packaging industry, this article outlines how to develop an investment case for B2B outbound prospecting to validate the significant upside potential and understand how to manage the potential downside financial risk.

In a previous article we covered the basics of outbound prospecting, its impact on market revenue consolidation, and introduced the case study we'll continue to reference in this article.

How to develop an investment case for outbound prospecting

For many leading B2B companies, building an outbound prospecting capability is a strategic investment with significant upside value and marginal downside financial risk that typically requires some external professional support and some internal changes in sales culture and budgeting practices to execute successfully.

There are few middle market B2B companies that use a methodology that manages the end-to-end process of selling as efficiently and effectively as they could. To be both efficient and effective, companies need to standardize the entire customer-facing relationship (including marketing, sales, and customer success) and achieve continuous improvements in those functions in the same way as to what has become normal in other functions like supply chain or procurement: using data driven, standardized, and intelligently automated processes.

Yet in practice, the overwhelming majority of sales teams at B2B companies in all industries still rely on a few superstar performers who deliver the lion’s share of results. These superstars leverage personal networks and intuitive judgment developed over decades in their industry to drive performance.

Superstar sales professionals are a great and valuable resource. However, the problem with this model is that superstars are expensive and hard to find and that the performance of systems relying exclusively on them is often highly variable and difficult to sustain over time.

Once ready to embrace outbound prospecting to overcome those limits, CEOs and senior sales executives will typically want to address four key questions:

• What is the nature and size of the opportunity in our industry?
• How can we setup a pilot program to validate the opportunity?
• How will we measure the pilot program success?
• What is the investment required and what kind of return can we expect?

Following is a discussion of how to address those important questions in real world situations where available information is often imperfect and the only way to develop true insights is by taking action and perform rapid iterative market testings. Depending on the size of the company and the complexity of the market, completing this work typically takes between 2 to 4 weeks.

To facilitate the discussion we'll continue to reference our case study from the flexible packaging industry that we introduced in a previous article.

The key results of the investment case we developed can be summarized as follow:

• Assuming things would go reasonably well and using conservative assumptions (i.e. the investment base case):
  • During the initial 12-month pilot program, the outbound prospecting effort would generate approximately 4 new customer accounts, $800K in revenue, and a negative free cash flow of about -$534K. Additional achievements during the first year would include a new sales tech infrastructure, new content and processes, and the start of a data driven sales optimization cycle based on historical quantitative and qualitative data.
  • As a result of continuos process optimizations, in Year 4 the outbound prospecting effort would generate approximately 28 new customer accounts and $6.12M in revenue from those 28 accounts. Because of the additional new customer accounts acquired in the previous 3 years (estimated to be approximately 39), however, total sales generated by the outbound prospecting program in Year 4 would be approximately $25M. The program cumulative free cash flow during the initial 4 year period would be about $5M.
• Assuming things would turn out to be more challenging than originally anticipated (i.e. investment worst case):
  • As many things would not go as expected, a total of only 19 new customer accounts would be acquired during the 4 year period. However, given adjustments in the program expenses and the slow build up of revenue from new customer accounts during the 4 year period, the negative free cash flow generated during the initial two years would be compensated with some positve free cash flow during the last two years and no negative impact on the company's net financial position would materialize by the end of Year 4.

Interested readers can jump directly to the discussion of the investment case.

Understanding the nature and size of the opportunity

In most B2B industries, understanding the nature and size of the opportunity for organic growth for any given company it's not an easy task and in most cases deciding the best course of action will require heuristic estimates, educated guesses, and a test and iterate approach to develop more market intelligence, promote team learning, and validate initial assumptions.

In most B2B industries specialized market research and consulting firms provide estimates of actual and projected total market revenues by product type, product application, or some other relevant criteria. When working on high level corporate strategies this data is usually quite valuable. However, for sales executives that need to develop an operational sales growth plan the data is less useful.

Because of switching costs and other considerations associated with the introduction of a new vendor, only a portion of total market revenue is typically available for grab in any single year. However, research estimating the size of that portion is usually not available and predicting which customers will be interested in introducing a new vendor is also very hard.

In our case, for example, key questions for which we could not find robust supporting data included the following:

• How many companies in the Food & Beverage industries, in an average year, will be introducing a new flexible packaging vendor?
• What will the average number and total value of the projects shopped to new vendors be in each year?
• Why will Food & Beverage companies consider introducing a new vendor (i.e. what pain points will they try to solve with the introduction of a new vendor)?
• How many vendors on average will be invited to make a proposal for each new project and how will those vendors be selected among all those offering flexible packaging solutions?

The best that can be done at companies that don't have specific market intelligence data is to use the collective knowledge of the sales and marketing teams to develop some preliminary educated guesses. In our case, with some one-to-one interviews and group brainstorming sessions we were able to elaborate the following hypotheses:

• Between 10% to 20% of targeted CPG companies in the market would probably be interested in introducing a new vendor each year. Some we'll be proactively searching for a new solution for their known pain point, others we'll have a more reactive stance being unaware of the problem they have or that a solution exist for their known problem.
• The value of projects offered by Food & Beverages buyers to new vendors will probably be between 4% and 8% of total revenue in those market segments (about $1.6B to $3.1B).
• Buyers looking to introduce a new flexible packaging vendor are typically looking for: 1) better supply chain services, 2) lower manufacturing errors and defects, 3) access to lower raw material costs, and 4) greater flexibility in manufacturing volumes.
• Buyers shopping a project with new vendors will typically invite 3 to 5 potential candidates to submit an offer and in any case never more than 10.

Despite the limited available information, it was clear form those discussions that for all but a few of the largest companies in the industry the opportunity was large enough and could have a significant impact on equity value if managed successfully.

When sales teams in B2B industries with a fragmented demand and a relatively high average sales ticket start looking into what is required to accelerate new account acquisition, it becomes clear that outboud prospecting is the most cost effective and scalable approach to develop valuable market intelligence and to discover new sales opportunities available in the market.

Once a company's CEO and senior sales leaders are aligned with regard to the strategic value of account-based outbound prospecting and have been able to formulate preliminary estimates regarding the sales available for grab each year, the next question is about the best approach to validate the value creation opportunity.

Defining scope and required resources for a pilot program

For B2B companies with a compelling value proposition and a selling cycle typically spanning several months, a twelve months pilot program is usually the best way to validate initial assumptions regarding the nature and size of the market opportunity and a company relative competitive position.

In most cases, the best way to ensure a pilot program success is to identify an internal champion (either the VP of Sales or the VP of Marketing) and to partner with a specialized part-time interim executive that can help the company design the new processes, deploy the required technology tools, setup and lead a small multi-functional execution team with internal and external specialized professionals, and foster collaboration among all functions involved to ensure that for each new sales opportunity the company will deliver its very best.

On the other hand, the best time to hire a permanent leader for the new Sales Development Team is usually toward the end of the pilot program. In fact at that time, a company will usually be in a better position to formulate a compelling proposition and attract a truly qualified and talented professional having developed a better understanding of the size of the opportunity, the resources required to succeed, the importance of building an outbound prospecting capability, and set fair expectation regarding performance results.

The key decisions when planning for an outbound prospecting pilot program are the number of prospect accounts and contacts to be targeted, the activities to be performed, and therefore the professional resources required to execute.

With regard to the targeted number of prospect accounts and contacts, in our case we decided that during the initial 12-month pilot program we would target about 1,000 prospect accounts in the Food & Beverages industries and about 5,000 prospect contacts working in key functions and with appropriate titles at those accounts (reaching out to about 150 new prospect contacts each week).

With regard to team resources, the following requirements were identified:

• A part-time senior project leader ultimately responsible for the setup and optimization of all outbound prospecting activities spending 2.5 days each week during the initial 3 months and 1 day per week thereafter.
• A full-time Sales Development Rep (SDR) sending emails, making phone calls, managing replies, handling discovery calls, defining and managing A/B tests for email and voicemail templates, and handing off sales qualified leads to a designated Account Executive (a member of the existing Sales Team).
• A part-time Research Analyst spending 2.5 days each week researching prospects matching the defined ideal customer profile and adding contact and other required information to the CRM and Sales Engagement systems using a workflow automation tool.
• A Content Editor spending about 40 working days during the initial 3 months to write about 6 case studies and some website content and to support the editing of email and voicemail templates.
• A Sales Operations manager setting up and making required changes to the software tools used by the team, spending about 15 working days during the initial 3 months and about 1 day each month thereafter.
• A Graphic Designer spending about 20 working days during the initial 3 months to design the case studies eBook layout and the required website landing pages.
• A Frontend Web Developer spending about 15 working days during the initial 3 months to make the required changes and enhancements to the company's website.

The total estimated cost for the 12-month pilot program (including all team related expenses, expenses for data and productivity SaaS tools, and some contingency expenses) amounted to about $700,000 or $700 for each targeted account. The SDR position would be filled with a young member from the existing sales team that we would train appropriately and all other required resources would be outsourced. Because of the limited number of targeted accounts and the relatively high portion of fixed costs (i.e. program leadership, content development, web development, etc.), this was a case where the unit cost for targeted account would be relatively high.

Over a period of about 34 weeks following an initial 8 to 9 week setup period, each week the program would reach out to about 150 new prospect contacts (about 30 new prospect contacts each day). Each new prospect contact added to an outbound prospecting campaign would be touched about 7 to 9 times (using emails and calls/voicemails) over a period of 21 days. Every 4 weeks the program would take a one week break to analyze results in depth, define required changes for optimization, and to implement those changes.

In industries where the serviceable addressable market (SAM) includes 20,000 or more prospect accounts, we would design a pilot program to target at least about 5,000 accounts and 25,000 contacts. In such a case, the pilot program would require 5 Sales Development Reps, 2.5 Research Analysts, and some additional expenses for content (to produce 10 case studies and 5 videos) and for support functions (i.e. Sales Operations, Graphic Designer, and Frontend Developer). The total estimated 12-month cost for such pilot program would be about $1.5M resulting in a prospecting unit cost per targeted account of $300. During the initial pilot program some or all SDRs would also be outsourced and internal hiring would be postponed after the initial program validation period.

As we'll discuss in coming paragraphs, what's important for the financial success of an outbound prospecting program is not the absolute value of the unit cost per targeted prospect account but its value relative to the customer lifetime value (i.e. the sum of all customer revenue during the account lifetime) and the win rate (i.e. percentage of targeted prospect accounts converted into new customers). The higher are the expected customer lifetime value and win rate, the higher the amount that can be invested for the acquisition of a prospect account.

The decisions regarding how to scale the outbound prospecting program after the initial 12-month pilot program will depend on the results achieved during the initial 12-month validation period. Should the initial results reveal significant unanticipated issues, the program would be shut down after 6 to 9 months (a very unusual case given the preliminary work typically done before deciding to launch a pilot program).

Measuring success: tracking sales pipeline key metrics

Planning for and managing a data driven end-to-end sales process requires a specific set of financial and process metrics that in most cases are not systematically tracked and used by traditional B2B companies.

When it comes to sales metrics, it's often the case that different companies adopt slightly different definitions and that should not be reason for concern since what's important are not the specific definitions adopted but their consistent use across the entire sales organization and over time.

Also, while the absolute level of those sales metrics depends from many factors that are specific to each industry and company, the greatest insights often comes from watching how those sales metrics evolve over time and relative to planned performance targets.

In an Appendix to this article we have included a set of key sales metrics that can be used in a wide range of situations to plan for and measure the success of an outbound prospecting program. The ultimate measures of a sales program success are the revenue and free cash flow generated. However, to understand how to improve the sales process a set of more detailed process metrics is required.

The Appendix also includes a set of preliminary benchmarks used to set initial performance targets for sales conversion rate metrics and an hypothetical example to illustrate how small but consistent process improvements can drive large increases in the sales generated by each dollar invested in customer acquisition (i.e. the multiplicative effect of sales process improvements).

In the next and final section of this article we're are going to discuss the actual step-by-step development of the investment case. Readers unfamiliar with some of the terminology used for sales metrics can jumped to the Appendix at the bottom of the page to find the definitions for all the sales metrics used.