Lower Cost of Goods Sold with Microsoft CRM
Posted on: May 11, 2016 | By: Craig Thompson | Microsoft Dynamics CRM
Building a profitable ERP and CRM process in the cloud is essential for businesses to drive revenue within their respective industries and organizations. In a world where cloud based software is becoming more mainstream and CRM systems like Dynamics CRM are becoming essential for sales teams to increase revenue, knowing how to best utilize Microsoft CRM to reduce CoGS is crucial. Below is a video from Microsoft, that outlines just how Microsoft Dynamics CRM can help increase revenue as well as decrease expenses to keep your sales team on track.
Below is a transcript of this video to enhance your viewing experience:
Hello, I'm David Smith, general manager partners for Microsoft Dynamics in the US.
This video is the fourth in our series titled from the cloud our session today is focused in on helping partners to lower the cost of sale as part of an integrated strategy for building a profitable cloud-based ERP or CRM practice.
Now in order to profitably scale a cloud-based business, data suggest the partner should manage customer acquisition costs to 15 percent of revenue. Including the cost about sales and marketing now this is a fundamental change to how most partners run their business today.
The traditional selling model for an on-premise solution is both labor-intensive and time-consuming. It's not uncommon for instance to consume as many as 90 hours or more of a salesperson's time to close an on-premise deal and include multiple off site sales calls as well as pre-sales support.
As a result, it's possible for partners today to see their total cost of sale in excess of twenty five thousand dollars per deal. These costs will pick prove prohibitive in a cloud based environment given a lower initial revenue streams associated with these deals.
What's needed for sustainable cloud practice is a shift in mindset towards driving volume with repeatable solutions.
Look! The move toward IT consumption as a utility is not only reducing the desire companies to pay for more billable
services over time, it's changing help partners manage their profitability model.
Over the next few years the health of a partners business and the value it has house in the market will increasingly be based on the size limits annuitize revenue stream. The faster partner can build this up, the more likely they are to whether competitive and economic challenges in the market.
In order to accomplish this the focus should be on driving the percent of customers that are on a subscription-based relationship. Doing this is probably going to take some evolution in the business model that you currently have.
For example your current on premise model probably isn't best suited for acquiring new subscription-based customers. For most to you today leads are generated and passed to an existing on-premise consulting sales rep and designated as a traditional on-premise opportunity.
The point being that you are still leading with on-premises when it comes to qualifying new opportunities. Add to this the fact that many cases your compensation model from on-premise consulting projects will be higher due to the services component.
As customer buying patterns change this can be problematic in competitive situations and will become more of an issue as the market continues to increase its desire for consuming business applications as a utility.
One other quick point on this topic, that's worth mentioning is the selling model for most on-premise sales reps today is based on a more traditional approach that includes customized demos, many face to face meetings and ultimately equates to longer sales cycles.
In order to rapidly build up the volume of customer adds required for driving heightened profitability. With a cloud-based service and accelerating selling process is desirable. We found that partners will find it easiest to instill this approach with reps who are wholly dedicated and compensated selling cloud solutions.
One approach to better align compensation to cloud solutions is to ensure that your sellers are clearly aligned with building a strong a new annuity stream given that most customers are going to be adverse to high up-front costs and more keen to pay for that service as an operational expense.
You should consider having variable compensation focused in on customer acquisition volume and the annual contract value rather than billable hours sold. Additionally, you want to be mindful how long you pay your reps for the annuity streams they're creating.
Paying them into perpetuity is not recommended as it creates a never-ending cost of sale and demotivates the rep to continue to drive new sales.
With the need for volume and rapid selling cycles, higher amount of selling activity will likely be phone-based. Especially smaller opportunity partners looking to be more volume oriented with the cloud practice should also set higher customer targets per rep.
A successful cloud-based Rep should target 35 deals per year as compared to an on-premise rep you may close just twelve to fifteen explicitly focusing in on pure new cloud models versus plans that include existing customers
may also improve your ads growth rates. Now it's also important to keep a close eye on sales cost and ideally under 10 percent first year's revenue. Therefore in order to acquire more customers and keep down costs of goods, sell cycles must be accelerated as we just talked about previously as you build your pipeline for cloud-based solutions and point the right type of sales reps.
It's important to remember that a typical on-premise sales engagement requires roughly ninety hours of selling activity and for most partners that creates approximately twenty five thousand dollars in sales costs.
In a cloud-based model partner should aspire to cut this to one-third and where possible and without impairing your chance to win, reduce the number of interactions needed to close a deal
This means that steps at the solution selling process need to be accelerated not eliminated.
Alright, so where should you start as you know the number of large monolithic deployments of CRM and ERP are becoming fewer and fewer due to previous experience with these types of applications many customers are looking to acquire technology to address a very specific need.
A benefit of this approach is that it helps to establish the role of a trusted advisor while limiting the risk associated with deployment
Now a final set of points on improving sales execution as you build your cloud based practice there's perhaps nothing more important than the initial engagement with your potential customers, specifically in the qualifying and develop stages.
First work diligently to qualify prospects and be delivered about meeting with the cloud. it's equally important to understand how and when to disengage on a deal if appropriate second partner should leverage the Microsoft trial engine along with the dynamics market place to help generate relevant test experience for prospects.
Leveraging this asset could help reduce the time required to create custom demos and costly time traveling to customer sites for a lengthy meetings.
Finally the more consistent structure partners have to their offering to package typing and pick cloud delivery. The last time will be required for creating custom proposals and Terms of Service.
Thanks again and see you next time on from the cloud.
For more information on Microsoft CRM, contact Logan Consulting your Chicago based Dynamics CRM partner for a consultation, or details/pricing on Dynamics CRM Training.
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