Larry Kaul, Founder and CEO, Kaul Sales Partners
KSP Sales ROI Perspective Paper
Whether you’re using internal or external resources, this is the overarching question asked by those who need new business and face an investment in sales or marketing.
Here’s how we help our clients think through it: We ask them to think about the length of time between their first talk with a prospect (the one about what the customer needs and what our client does) and an agreement to work together. Then we work backwards, using that time period as our time to revenue (TtR) yardstick.
As a provider, your credibility is ultimately based on your prospect’s buy-in to the concept, and they’re going to buy in (or not) based on how your solution is unique and applicable — not because somebody referred them. If you’re not superior in that conversation, it generally doesn’t matter who referred you. Strength of friendships is not an indicator of best fit or quality. Therefore, sales cycles can include both cold and warm prospects.
Once you’ve launched your sales campaign, you should know quickly whether or not you have viable interest. If you get that interest, it should take no more than another month to create the “first conversation” that I referenced at the beginning (allowing for scheduling headaches). If you’re not getting the interest, time to rethink, retool and re-launch — fast.
At this point, you’re in your normally measured sales cycle. This is the context in which you should evaluate any sales investment. This naturally queues the ROI conversation, which is a bit different, because creating opportunities and cycle to close still doesn’t mean ROI. ROI considerations must include deal size and how many deals you need to demonstrate a positive outcome in synch with your normal sales cycle. At this still early phase we look at closed revenue, not ROI.
The short answer? For most B2B service and software companies, you get positive ROI after generating one to five conversational opportunities like the one I described. For many companies, it takes a year to realize a 6:1 or more return on investment. Those are realistic assumptions for a new sales investment. Again, this depends on your required deal size and count.
We recommend setting aside enough money to fund a new sales and marketing program for a year before requiring that program to fund itself. This is prudent as you don’t want to stop too early. Having said that, set high expectations and demand fast results. For the average B2B company sales and marketing investment as a percentage of revenue should be around 12% to 14%. It’s only a yardstick but it works here as a baseline measurement.
We can dig into this in a future post. In the meantime, I invite you to share your thoughts and experiences around how you “set the clock” for your outbound sales campaigns. Thanks for reading!
About the Author
Larry Kaul is founder and CEO of Kaul Sales Partners (KSP), which specializes in helping B2B companies with or without sales teams generate more quality opportunities and revenue. Larry has spent decades refining his experience on the front line of new customer acquisition and founded KSP to help clients acquire new customers at a more rational cost and cut through the clutter of expensive and time-consuming prospecting, recruiting and sales operation struggles.
Larry’s experience spans virtually all industries and most marketing, consulting and software products and services. He has a BA in history from The George Washington University. He was a graduate student at large at the Booth School of Business and is certified as an expert Toastmaster.