Amidst the doom and gloom of local news media, it’s lost on many that there’s a sector of local businesses that can provide a 20% lift in revenue. McKinsey did an analysis using a market of 1 million people to determine the revenue increase a newspaper could get if it attained a similar share of ad budgets in small and medium sized businesses (SMBs) as it had with larger local businesses. It represented a 20% revenue increment over where they are today. In an environment where “flat is the new up”, that’s significant. It does require a fundamentally different sales approach than what most local media have practiced which I outline below.
In my experience as a revenue traction consultant and local publisher, I have seen 20% growth is attainable as we saw that with a number of clients in Q1 when most businesses saw a decline in revenue. McKinsey also found that already the penetration of SMBs spending online is greater than the penetration of SMBs spending in newspapers. Though we often think of smaller businesses being behind larger organizations, it turns out they have deeper penetration with online than any other form of measured media. It is worth noting that SMBs aren’t simply interested in display ads, however. McKinsey’s findings echo my experience that SMBs have interest in other online marketing tools like Search, Email and other non-display tactics.
In general, we have seen a gap between the high-end of the market where shoe-leather sales models are still appropriate and the low-end of the market where some local media have pursued self-serve models. Our experience has been that added sales focus in the mid-market will increase sales yield. This isn’t lost on companies like ReachLocal, Citysearch and others who are grabbing swaths of the market that local media has every opportunity to capture with the proper focus. One of the ways to differentiate versus the national players is outlined in the follow-on piece on thought leadership I outline below.
It is critical to apply the appropriate sales model to the revenue opportunity. As a general rule of thumb, here’s what we find/recommend:
- If a customer will bring in more than $100,000 in revenue, you can afford a shoe-leather sales model
- If a customer brings in between $5,000 and $100,000 per year in revenue, a telesales-based approach is most appropriate. Note: The biggest point of confusion I observe is people confusing either inbound order-takers or outbound “script readers” in call centers with a well-trained, professional sales organization that actually closes new business.
- At under $5,000, you’ll want one or some blend of the following:
- Inbound order-taker call center who can quickly turnaround a new advertiser but aren’t involved in cultivating new business
- A self-serve ad model
- A channel sales model where your offering is part of a larger solution/relationship
A reason this gap exists is that the traditional shoe-leather approach isn’t economically viable in the SMB market. Thus far, all of the efforts I have heard about are taking wrong-headed approaches. While SMBs are looking for a partner who can provide consultative advice, instead they are getting low-value “script readers” who are no different than the irritating telemarketer calls we hate to get at home. This is in contrast to the well-trained, professional telesales organizations that are profitably driving revenue for many organizations. One of the best examples is Dell that drives over $3B in sales via their outbound telesales organization (my business partner ran that organization before joining my firm). In McKinsey’s study, they found 60% of SMBs are comfortable with remote support via phone or email. An additional 26% said a mix of face-to-face and remote was ideal. Only 8% stated face-to-face was what they always wanted.
One might reasonably ask “where do I find the resources to build a professional Inside Sales team when we are cutting back?”. In every sales organization we have worked with whether it is in the media business or not, there are bottom performers that should be let go. Typically, the Inside Sales reps we hire have a loaded base cost of $3,000 per month and a variable comp of an additional $2,000 if they hit their targets. Two or more of this type of headcount can be filled for every bottom performing shoe-leather sales person. When we build these teams from the ground up, we normally start with two people and then scale the organization with revenues so this is well within the reach of every publisher. We have seen these Inside Sales organizations grow to dozens of team members as the revenue supports it. The typical range in revenue generation is $300-500k per rep which can be quite profitable.
Let me comment on self-serve ad models since it is held out as a savior of sorts. Like many things in technology, I believe that it is overestimated in the short-term and underestimated in the long-term. My consulting business has worked with one of the leading self-serve technology vendors. Their lack of success with the self-serve model is why we helped them develop an alternative low cost customer acquisition model that reflects the reality that the vast majority of advertisers today still need human involvement. I believe that will change but my gut tells me we are three to five years from self-serve ad models delivering on the promise many of us hope for. In the interim, a bridge to that will be what I call a “publisher assist” model. The publisher realizes some of the efficiency benefits of the self-serve tools while taking an approach comfortable to the SMB.
A topic for a separate article is the products one should offer to SMBs. In a nutshell, simplicity is key. In addition, experimenting with different offerings is important.
In a follow-on piece next Wednesday, I will address a critical component of a low-cost customer acquisition model. That is, it’s necessary to have a cost effective lead generation machine. One way of doing that is to establish thought leadership. The disruption caused by what Jeff Jarvis has called The Great Restructuring has created demand on the part of local businesses to accelerate their understanding of Internet-based marketing. Local publishers have an opportunity to fill that void by establishing themselves as thought leaders in digital marketing. In the follow-on piece, I will highlight how we are using a How-to guide to digital marketing and a series of seminars to stimulate demand for online marketing that my site fulfills. The how-to resource and seminars are being used both for customer acquisition and retention purposes.