In today’s competitive business landscape, outsourcing your sales team can be a strategic move to accelerate growth and gain a competitive edge.
However, the decision to outsource is not without its complexities. One of the most critical factors to consider is the Return on Investment (ROI).
Calculating ROI for your outsourced sales team not only validates the financial viability of this strategic decision but also sets the stage for ongoing performance evaluation.
In this article, we’ll delve into the intricacies of calculating ROI for sales team outsourcing, providing you with a structured approach to make informed decisions.
Why ROI Matters in Sales Outsourcing
Before we dive into ROI calculation, let’s explore why ROI is such a pivotal metric when it comes to outsourcing your sales team.
ROI is not just a financial term; it’s a comprehensive measure that can make or break your outsourcing strategy.
Understanding its importance can help you navigate the complexities of outsourcing more effectively. Here’s why ROI should be at the forefront of your decision-making process.
The Financial Imperative
ROI is more than just a buzzword; it’s a financial imperative that directly impacts your bottom line. Regardless of whether you’re outsourcing or hiring internally, you’re still making a significant investment in external resources.
These resources come at a cost, and it’s crucial to know whether this cost is justified by the returns you’re getting.
A well-calculated ROI can provide a clear picture of the financial health of your outsourced operations, allowing you to make adjustments as needed.
Beyond the numbers, ROI serves as a strategic compass that aligns your outsourced sales activities with your overall business objectives.
A positive ROI indicates that your outsourcing strategy is working in favor of your business goals, be it market penetration, revenue growth, or customer acquisition.
On the other hand, a negative ROI is a red flag that calls for immediate action, whether it’s revising your outsourcing contract or re-evaluating your sales strategies.
Outsourcing inherently involves a few risks, such as the quality of service, data security, and alignment with your company culture.
Calculating ROI helps in risk mitigation by quantifying the value derived from the outsourced sales team.
If the ROI is not meeting expectations, it serves as an early warning system, enabling you to take corrective measures before these risks escalate into significant issues.
ROI is not a one-time calculation but a continuous process that aids in long-term planning.
Regularly measuring the ROI of your outsourced sales team can provide valuable insights into trends, seasonal fluctuations, and the effectiveness of various sales strategies.
This data is invaluable for future planning, helping you make informed decisions about scaling your outsourced team, renegotiating contracts, or even bringing some functions back in-house.
The Components of ROI
Understanding ROI requires a deep dive into its core components. ROI is a ratio that compares the gain or loss generated by an investment relative to its initial cost. The formula for ROI is straightforward but powerful:
ROI = ((Total Revenue Generated – Cost of investment)/Cost of investment) * 100
Let’s break this formula down:
Total Revenue Generated
This is the revenue generated from the outsourced sales team. It includes not just the direct sales but also any upsells, cross-sells, and long-term contracts that can be attributed to the team.
Cost of Investment
This encompasses all the costs associated with outsourcing your sales team. It includes initial setup costs, ongoing operational expenses, and any other costs that are directly related to the outsourced team.
By understanding these two primary components, you can calculate ROI with greater accuracy, ensuring that you’re making apples-to-apples comparisons when evaluating the effectiveness of your outsourced sales team.
Preparing for ROI Calculation
Before you jump into calculating ROI, there are several preparatory steps that can set you up for success. These steps ensure that you have all the necessary data and understand the key performance indicators (KPIs) that will be used in the calculation.
The first step in preparing for ROI calculation is gathering all relevant data. This includes:
- Sales revenue generated by the outsourced team
- Costs associated with the outsourced team
- Any additional metrics that could influence ROI, such as customer lifetime value or churn rate
Identifying Key Performance Indicators (KPIs)
Understanding which KPIs to track is crucial for an accurate ROI calculation. Some of the key KPIs to consider are:
- Cost per lead
- Cost per acquisition
- Average deal size
- Customer lifetime value
Checklist for Preparing ROI Calculation
To ensure you’re fully prepared, here’s a quick checklist:
- Compile all financial data: Make sure you have a complete financial picture, including both costs and revenue.
- Identify KPIs: Know which metrics are most relevant to your ROI calculation.
- Set a time frame: Decide on the period for which you’ll calculate ROI, whether it’s quarterly, annually, or another time frame.
- Consult stakeholders: Make sure all relevant departments are involved in the process to provide the most accurate data.
Calculating Your Outsourced Sales ROI – Step by Step
Calculating the ROI of your outsourced sales team is a multi-step process that requires meticulous attention to detail.
While the basic formula for ROI is straightforward, applying it in the context of outsourced sales involves several specific steps.
Here’s how to go about it:
Step 1: Initial Investment Costs
The first step in calculating ROI is to tally up all the initial investment costs associated with outsourcing your sales team. This includes:
Setup Costs: The fees charged by the outsourcing provider for initiating the service.
Training Costs: Expenses incurred in training the outsourced team to align them with your product, services, and company culture.
Technology Costs: Any software or hardware required for the outsourced team to function effectively.
Add up these costs to get the total initial investment.
Step 2: Ongoing Operational Costs
Once the team is up and running, there will be ongoing operational costs. These include:
Salaries and Commissions: Monthly or annual payments made to the outsourced team.
Management Fees: Fees paid to the outsourcing provider for ongoing management of the team.
Miscellaneous Costs: Any other recurring costs such as additional training, software licenses, etc.
Sum these up to get the total ongoing operational costs.
Step 3: Revenue Generated
The next step is to calculate the revenue generated by the outsourced sales team. This should include:
Direct Sales Revenue: Revenue from sales directly attributed to the outsourced team.
Indirect Revenue: Revenue from upsells, cross-sells, or long-term contracts that can be attributed to the outsourced team.
Combine these to get the total revenue generated.
Step 4: Calculate the ROI
Finally, you can calculate the ROI using the formula we mentioned above. Here it is again:
ROI = ((Total Revenue Generated – Cost of investment)/Cost of investment) * 100
This will give you the ROI percentage, which you can use to evaluate the effectiveness of your outsourced sales team.
Measuring Qualitative ROI
While quantitative ROI provides a numerical evaluation of your investment, it’s essential not to overlook qualitative ROI, which offers insights into non-monetary benefits. Qualitative ROI can be a bit more challenging to measure but is equally important for a comprehensive understanding of your outsourced sales team’s performance.
One of the qualitative benefits of outsourcing your sales team is increased brand awareness. A well-trained, outsourced sales team can effectively communicate your brand’s value proposition, thereby enhancing brand recognition and reputation.
Outsourced sales teams often have the advantage of local market knowledge, especially if they are located in the target market. This can lead to more effective market penetration strategies, helping you reach audiences that you might not have accessed otherwise.
A skilled outsourced sales team can also contribute to higher levels of customer satisfaction. By providing excellent customer service and understanding the nuances of your product or service, they can improve customer retention rates, which, although not directly quantifiable, have long-term revenue implications.
Flexibility and Scalability
Outsourcing allows for greater flexibility and scalability, enabling you to adapt to market changes more swiftly. Whether you need to scale up or down, having an outsourced team can make the transition smoother, saving you both time and internal resources.
By considering these qualitative factors alongside the quantitative ROI, you can gain a more holistic view of the value your outsourced sales team brings to your organization.
Pitfalls to Avoid
When calculating ROI for your outsourced sales team, there are some common pitfalls to be aware of:
- Ignoring Hidden Costs: Not accounting for hidden or indirect costs can lead to an inflated ROI.
- Overestimating Revenue: Be cautious of overestimating the revenue generated by the outsourced team, as this can also skew ROI calculations.
- Neglecting Time Factor: ROI is not just about money; it’s also about the time invested. Ignoring the time aspect can result in an incomplete ROI picture.
- Lack of Ongoing Measurement: ROI should be a continuous process, not a one-time calculation. Failing to regularly update your ROI can lead to outdated and unreliable data.
- Not Differentiating Between Sales Roles: When calculating ROI, it’s crucial to account for the specific contributions and costs associated with different sales roles like OSRs, SDRs, BDRs, and appointment setters. Each role has unique KPIs and cost structures that should be factored into the overall ROI calculation.
Calculating the ROI of your outsourced sales team is a multifaceted exercise that goes beyond mere numbers. It involves a careful analysis of both quantitative and qualitative factors, from initial investment and ongoing operational costs to brand awareness and customer satisfaction. By adopting a comprehensive approach to ROI calculation, you not only validate the financial viability of your outsourcing decision but also gain invaluable insights for strategic planning and risk mitigation. In a competitive business landscape, understanding the full spectrum of ROI can be the key differentiator that propels your organization to new heights.
If you’re looking to build a remote sales team that aligns with your financial and strategic goals, 1840 & Company can offer the expertise and global talent network to make it a seamless process. Simply schedule a call with our growth experts to discuss outsourcing your sales team.