To raise profitability, control tech costs in sales

From 5 Ways To Reduce Cost of Sales by Geoffrey James:

There’s nothing wrong with getting R&D folk involved in a sales opportunity; indeed, some complex products require it.  However, using R&D to help close business can vastly increase cost-of-sales.

Consider: every day that an engineer spends helping on a sales engagement ensures that the engineer in question’s current project will be a day late. It is not unusual, especially in small firms, to find an entire R&D group mired in special requests from sales, indefinitely delaying the next version of the product.

Using R&D resources in sales situations also encourages salespeople to sell products or product features that don’t yet exist, effectively committing R&D to do work that’s of use only to that individual customer.

A formal process that allows sales management and engineering management to decide collaboratively what deserves the attention of the R&D team prevents such abuses and ensures that R&D costs applied to sales are applied wisely.

(1) We’ve found a different solution to this problem. We permanently assign fixed tech resources to sales (a “pod”), and include those resources as part of the sales budget. Sales is then measured on net contribution (sales minus cost of sales).
(2) See: Compensate for profit, not revenue.

One thought on “To raise profitability, control tech costs in sales

  1. That seems like a fine approach once you’ve got a minimum-efficient scale required to make it work. Startups can run into this conundrum before they have sufficient R&D resources to commit anything resembling a “pod”. In our case it’s actually 20% of one (of our three) engineers’ time [one day a week] that’s committed.

    The other thing is you need R&D folks who are amenable to the customer interaction that comes with being in the ‘sales pod’ which is probably a predilection that you need to hire for unless the pod is a rotating assignment (even then you probably need to screen folks for willingness!)

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