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Benchmarks Can Be Dangerous!

Posted by Marshall Solem on June 16, 2015



iStock_000028498962_SmallIn conversations with clients, I receive frequent requests for benchmarks on various aspects of running a commercial organization. Examples include:

  • What percent of revenues do other companies spend on marketing? On the sales force?
  • What is a good benchmark of sales per rep that I should target for the sales force?
  • How large are our competitors’ sales forces?
  • How much time should first-line managers spend in the field with sales reps?
  • What is the average amount of time sales reps spend on administrative tasks?
  • I just did an assessment of our sales force effectiveness along a number of dimensions. How do my scores compare to industry benchmarks?

You can probably think of many other questions like these that you have asked.

Understanding what other companies and competitors are doing provides useful context to inform commercial decisions, but too frequently, companies use benchmarks to drive or dictate their decisions. Putting too much focus on what others are doing is fraught with risks. We should learn from benchmarks, not replicate them. Here are several reasons why following benchmarks can be dangerous:

  • Are you really the same? Following benchmarks assumes that your target markets, product portfolio and stage in the product lifecycle are the same as the companies in the benchmark. If these elements for your company are not identical (or at least very similar) to those in the benchmark, blindly following or duplicating benchmark strategies is likely to lead to suboptimal outcomes for your portfolio.
  • Do you just want to be average? Frequently, benchmarks are expressed in averages across a group of industry participants. By managing your business to the benchmark, you are doomed to, at best, average performance and results. Rather than look at averages, you should look at what best-performing companies are doing; but again, you need to consider how similar those best-performing companies are to your company in terms of product portfolio and target markets.
  • Reverse causality, and apples and oranges. When looking at financial metrics specifically (e.g., what percent of revenues to invest in marketing or sales), there are two issues: First, this question reverses cause and effect. It has revenue as the driving factor to determine marketing and sales investment. In reality, it’s the other way around. Marketing and sales investment drives revenue. A better question would be, how much revenue can I get from a certain level of marketing and sales investment? Second, it is very difficult to get an apples-to-apples comparison of what’s included in these financial ratios. If you ask 10 companies to tell you their marketing spend and then ask what elements they included in that figure, the composition of what each included is going to differ. It’s impossible to make sense of, or take action on, a ratio if you don’t know what it includes (and most benchmarks aren’t rigorous in how they define these metrics).
  • Fire the sales force. In addition to having many of the above issues, trying to maximize sales per rep to hit a benchmark can lead to very dangerous decisions. In the extreme, the best way to maximize sales per rep is to fire all the reps except one. You’ll have very high sales per rep (at least for a year or two), but will have mortgaged the company’s future in the process. Clearly this is an extreme example, but you get the point of how chasing a ratio can lead to very bad decisions.
  • Copycats seldom win. Mimicking others by trying to hit a benchmark is an undifferentiated, following strategy. As an example, for a small competitor, spending at the same ratio as the market leaders will cause the company to underinvest, seriously jeopardizing long-term success. Developing a unique strategy for commercializing your product or service is likely to result in a much better long-term outcome.

A better approach

Benchmark information provides helpful context for understanding what’s going on in a market and how your company compares to others. Benchmarks are likely more useful for market laggards as they strive to up their game and catch up with the pack. But for companies that are performing reasonably well, and certainly for market leaders, the best approach is to understand benchmarks (more important, understand best practices) for context, then develop a marketing and sales investment strategy tailored to your specific situation and that will set you apart.

 Beyond the benchmarks, start understanding customer needs across different customer segments and how your product and service offering aligns to those needs. Understand your customers’ decision-making processes and how best to interact with them. Understand what customers like and dislike about how your competitors are engaging them. Then develop a sales and marketing approach (investment levels, marketing programs and sales force strategies) that align your resources with the way customers buy … and in a way that differentiates you from, but doesn’t align you with, competitors.

One last thought: Following benchmarks makes the fatal assumption that your competitors “got it right.” Chances are they didn’t, and even if they did, what works for them may not work for you.

Marshall Solem is a principal with ZS who has spent the majority of the last 25 years helping medtech companies address go-to-market strategy and sales force effectiveness issues.

Topics: Sales Force, medical devices, medical products and services, diagnostics, sales and marketing benchmarks, benchmarks are dangerous, benchmarks, Marshall Solem

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AUTHORS
Brian_Chapman_thumbnail
Brian Chapman
Principal,
ZS Associates
Tobi_Laczkowski_thumbnail
Tobi Laczkowski
Principal,
ZS Associates
Will_Randall_thumbnail
Will Randall
Manager,
ZS Associates
Matt-Scheitlin-London_thumbnail
Matt Scheitlin
Associate Principal,
ZS Associates
Andy-kach_thumbnail
Andy Kach
Associate Principal,
ZS Associates
Bhargav_Mantha_thumbnail
Bhargav Mantha
Associate Principal,
ZS Associates
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