100622 value chain, g t-m strategy, sales model
TRANSCRIPT
Value Chain
►What is a value chain All the independent entities required to bring the
product to the end user Each independent entity adds value and receives
compensation for that value
►End user price is the price that final end user pays for the product or service
►Revenue to your company is the amount of revenue you receive ONLY for your segment of the value chain
Value ChainDirect to End User
Cost of Goods
(Supply Chain)Profit + SG&A + r&D
End
C
onusm
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$
EU
Dis
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Notice the little r and the big D !
RevenueList Price
Value ChainResellers
Cost of Goods
(Supply Chain)Profit + SG&A + r&D
End
C
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$
EU
Dis
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Rese
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Revenue
List Price
Value ChainDistributors / Resellers
Cost of Goods
(Supply Chain)Profit + SG&A + r&D
End
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$
EU
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Rese
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RevenueList Price
Value ChainInternational Distributors
Cost of Goods
(Supply Chain)Profit + SG&A +
r&D
End
C
onusm
er
$
EU
Dis
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Rese
ller
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rMaste
r D
isti
Revenue
List Price
Your Product Becomes your Customer’s COGs
Value ChainOEM or IP Licensing
Cost of Goods
(Supply Chain)
Profit + SG&A + r&D
End
C
onusm
er
$
EU
Dis
cou
nts
Rese
ller
Dis
trib
uto
rMaste
r D
isti
Cost of Goods
(Supply Chain)Profit + SG&A + r&D
Rese
ller
List Price
Revenue
Value ChainYour Acquired OEM Product or Licensed
IP
Cost of Goods
(Supply Chain)
Profit + SG&A + r&D
End
C
onusm
er
$
EU
Dis
cou
nts
Rese
ller
Dis
trib
uto
rMaste
r D
isti
Cost of Goods
(Supply Chain)Profit + SG&A + r&D
Rese
ller
Cost of Goods
(Supply Chain)
Profit + SG&A + r&D
Rese
ller List Price
Revenue
04/18/2023 S351 11
Sales and Marketing
BCSimple Products$Many CustomersLow Touch
BBComplex Products$$$$$Few CustomersHigh Touch
Imp
ort
an
ceMarketing
Sales
GTM Strategy
►Match the product price / complexity to the sales and marketing strategy
►A high cost complex B-B product requires a high touch direct sales model, typically with technical support
►A low cost, simple, B-C product requires a very low touch, low cost sales model, but generally more marketing costs
►Let’s analyze the economics of a couple of GTM strategies
NanoSec Server Company
►Servers are valued at 10K per unit, and are sold in single units, and in multiple sales sometimes as large as 250 units ($2.5 M)
►The average deal (ASP) is $250K►Sales require high touch, face to face
technical selling►Gross Margins are 50%►This is a highly competitive market, and
total time from suspect to final close averages 9 months
Direct, High-Touch, Technical, B-B Sales Rep – Cost to Deploy
$ ?
Direct, High-Touch, Technical, B-B Sales Rep – Cost to Deploy
Payroll Other
SR
SE
Mgmt
Payroll Ovhd = 20%
T&E
Overhead (office, admin, etc.)
Totals
Direct, High-Touch, Technical, B-B Sales Rep – Cost to Deploy
Payroll Other
SR 100 100
SE 100 25
Mgmt 50 50
Payroll Ovhd = 20% 50
T&E 60
Overhead (office, admin, etc.) 60
Totals 300 295
Marginal Contribution per Rep?
►Product Gross Margin = 50%►Product Sales of $1.2M is breakeven►For total sales cost to equal 15% of
revenue (typical operating stack) sales rep must generate $4.0M / yr.
Match to the market ► With an ASP of $250K, that would require 16 transactions per
rep per year.► What kind of pipeline is required for this?
Suspects► Need to qualify
Prospects► Need to convince► competition
Verbal selection► Need to close
Final close► Need to book
► Is this possible?► What happens to this plan if the ASP is 25K
Capacity Plan
►Once this model is developed, the company can develop a capacity plan
►Full Time Equivalent (FTE) SR takes account of: Sales Rep / SE learning curve (time to
productivity) Attrition
►Company’s revenue is determined by the FTE’s on board each quarter
Recruit.Com► A SaaS based product that helps hiring managers to recruit
personnel Resume management, interview scheduling, candidate scoring,
selection, offer letters, recruiting analytics, etc.)► Transactions are based on number of user per month, with
each seat yielding net revenue of $100/mo► The average deal (ASP) in the first year is 8 seats, equals
$10K► Market decays at the rate of 25% / year► Sales require extremely low touch method
Click-and-try click-and-buy (one seat) Insides sales, present / close over the phone As the company matures, renewing and upselling are important
► Gross Margins are 75% (cost of infrastructure)
Low-Touch, B-B Sales RepCost to Deploy
$ ?
Low-Touch, B-B Sales RepCost to Deploy
Payroll Other
SR
SE
Mgmt
Payroll Ovhd = 20%
T&E
Overhead (office, admin, etc.)
Totals
Low-Touch, B-B Sales RepCost to Deploy
Payroll Other
SR 40 40
SE 10
Mgmt (one per 10) 10 10
Payroll Ovhd = 20% 12
T&E 5
Overhead (office, admin, etc.) 50
Totals 72 105
Marginal Contribution per Rep?
►Product Gross Margin = 75%►Sales of $130K is breakeven►For sales to equal 10% of revenue
sales rep has to achieve $1.7M / year
Match to the market ► With an ASP of $10K, that would require 170 transactions per
rep per year = 3.5 per week► What kind of pipeline is required for this?
Suspects► Need to qualify
Prospects► Need to convince► competition
Verbal selection► Need to close
Final close► Need to book
► Is this possible?
Another PerspectiveUnit Economics of
Recruit.Com► In startup, annual rep productivity might be 400K / year, and
grow slowly.► So, how does this work?► Cost of Customer Acquisition
Sales Cost for initial deal Cost to sell renewals / upsells
► Lifetime Value of Customer Gross Margin of monthly Revenue Stream Average Lifetime (3 – 5 years?) Account Seat Growth User Base Decay
► Build out of this kind of business requires a lot of upfront capital, but yields a highly predictable, highly profitable business in maturity
Sales Model
►Who►What►When►Where►How►How Much $
Who Buys► Who is the business / economic buyer
Looking for ROI► Who are the actual end users in the organization► Who is the technical buyer
Implementer Will compare competitive alternatives
► Who is the recommender Who actually does the evaluation
► Who actually signs What are the typical signature levels required for this product
► Department head► Department VP► CFO► CEO► Board of Directors
What are the Steps
► Lead►Prospect► Introductory presentation►Demonstration (proof of concept)►Technical presentation►Pilot► Final presentation►Best and Final Offer►Negotiate contract►Receive PO
When
►How long, on average from lead to deal
►What is the range of time►Does the range of time vary by deal
size
Where
►Where are the customers?►Domestic vs. International
Feet on the ground required?►Vertical►Major Accounts / National Accounts /
Global Accounts
How► Direct Selling
Technical support to selling Inside sales Telemarketing Lead generation
► Channel Selling All of the above Channel reps and channel management
► Manufacturers Reps► Retail
Distribution Shelf space and stocking
► OEM► IP Licensing► Multi-tier Distribution► Etc.
Copyright Mark Leslie
One Final Thought…
Copyright Mark Leslie
it is regret for the things we did not do that is inconsolable.
Sidney J. Harris (1917–86)
Regret for the things we did can be tempered by time;