Trimming overhead and slicing operating expenses (OpEx) is a challenge for any business. but it’s also a key part of running a successful business. The Society for Human Resource Management (SHRM) explains:
“The metric of salaries as a percentage of operating expense is related to two important factors that drive any business—the base salary costs associated with human capital and all other costs required to operate the business.”
Other large expenses include commission, travel, and back-office support.
It can be difficult figuring out where to start, but we’ve compiled a list of five areas that are typically prime for trimming and optimizing your OpEx.
Five often Overlooked Areas
1. Spans and Layers
Focus on cutting our unnecessary mid-management positions. The rule of thumb is for a software or hardware manager to have no more than eight sales partners and no less than six ideally. The reasoning behind this is it enforces sales transformations. That manager will be able to mentor and develop their sales team to be most efficient and create a more committed team of partners. Forbes discussed this phenomenon as well, “the goal is not to see how far you can stretch – this shouldn’t be a contest of he/she with the most direct reports wins…Smart leaders use elasticity in the most fluid and flexible fashion to extend their engagement, increase their knowledge, and to create scale for those they lead.” Good management and mentoring leads to better sales.
Cutting out all the unnecessary mid-management leans companies up, but also increases opportunity to create this mentoring relationship and dramatically can cut costs. Consider how much a manager costs. There’s salary, benefits, bonuses, etc. But is a manager really earning their comp with only two partners reporting to them? Probably not. Consolidate the position and reallocate the money elsewhere.
2. Sales Operation Areas
Because of advancing technology, having a division of partners and managers in a low cost market isn’t always the best practice. Outsourcing is more accessible than ever. Many companies are using outsourced partners for work, allowing them (companies) to source the best expertise while reducing long-term costs. Eliminating these divisions and spending the money on outsourcing will cut costs.
The Harvard Business Review explains that, “strategies that use both internal and external (outsourced) resources enable sales ops leaders to build and manage these diverse capabilities cost-effectively.” The difference in cost can now be used to invest in new growth opportunities.
3. Zero-Based Initiatives
These initiatives are often used to penetrate certain markets, but don’t do too well. The problem is not knowing when to let go. Doing zero-based budgeting forces managers to justify what they’re doing and how it will pay off in the long run. Managers must think about what they need, because there is no blank check hand-out.
With overlays, managers end up having expert reps working on only one client, along with your regular sales team. That’s too many people (read: salaries) to a single client. This will also cause the cost of every dollar coming in to be higher than it needs to be. Inc.com also discusses how these independent reps can be risky, “an independent rep won't pay you much attention unless your product is one of his or her top 3 revenue producers. And you need to carefully consider whether an independent rep is a good fit for the types of accounts you call on.”
Plus, these sale calls usually end up being too crowded and are often perceived as unorganized. It’s important as we discussed above to have a strong and cohesive sales team. Bringing in an outside expert can throw off the whole team – as well as cost the company. It’s simpler to save the company money and avoid the risk of alienating a sale because of an unorganized team.
Incenting the right behaviors is key to cutting OpEx It’s also critical to meeting business objectives. Managers need to encourage the right behaviors. Awarding a partner for every deal sealed is not a good idea; the partner will just see every client as a transaction. What will that client come back in a year after such detached service?
The goal is to ensure partners aren’t just gaming the system for their next payout. Create incentives that encourage behaviors which contribute to an effective business. Xactly Corp highlights incentives as not “a tactical problem; they’re a strategical solution.”
Doing more with less is possible. And it’s what smart businesses do when faced with cutting OpEx. The challenge is recognizing what area of your business can be trimmed and how to make due.
Cut OpEx effectively and manage your sales workforce with The Spur Group.