There’s a great scene in The Wolf of Wall Street in which the sleazy main character ends a meeting with FBI agents by tossing hundred-dollar bills at them. Predictably enough, the tactic fails to register. It’s a neat depiction of how throwing money at a problem—literally, in this case—won’t make the problem go away.
There’s a parallel for medtech companies (minus the illegal activity, of course). As the healthcare market becomes more complex, companies know that they need to invest in sales force effectiveness (SFE). Many still have a sales model that was built for the 1990s, and the cracks are starting to show, but as they make investments to improve SFE, some companies don’t know which areas to focus on, or what kind of returns they can expect.
ZS Associates recently conducted the Explorer Study, which tracked the typical payout from SFE initiatives. A few key findings stand out. First, medtech companies have spent less on SFE than other industries have, but they’re planning to catch up. SFE investments are likely to increase from 11% of sales and marketing budgets to 13% over the next two years.
Second, these investments pay off. A single sales-force initiative can lead to bumps in revenue and profitability of 2% to 8%. To put that in dollar terms, consider a firm with annual sales of $1.5 billion that invests $3 million on an SFE program. Even a conservative revenue increase of just 1% works out to a one-year cash-on-cash return of 175% (assuming 35% margins).
Third—and most importantly—not all SFE investments are the same. Historically, medtech has focused on traditional areas such as territory alignment, targeting and compensation. (In the Explorer data, medtech companies were far more likely to focus on these areas than the overall universe of industries that ZS studied.)
INFOGRAPHIC: How Medtech’s SFE Investments Stack Up
Today, however, data is the new priority and the biggest opportunities lie in analytics and data management. Thus far, medtech is still underinvesting in these areas.
That’s understandable. Because such tools are so new—and the underlying technology is changing so fast—many companies either haven’t jumped in yet, or are limiting their efforts to small-scale pilot tests. But medtech has an opportunity to become a leader in data and analytics, provided that it targets its SFE investments in the right areas.
For example, we recently worked with a molecular diagnostics company in which the challenge wasn’t access to data, but making sense of it all. The company had reams of information coming in from its network of distributors, to the point where all of that data was clouding business decisions. Teams from finance and sales operations spent much of their time simply sifting through it all and trying to link it to the company’s management systems.
To fix this, the company invested in a master data management system that can boil that data down into real insights that improve how the company manages its sales territories. The company still needs to do some manual processing—all data requires some grunt work to clean it up—but the system is designed to learn over time, so that the amount of manual work goes down each month. Best of all, the information goes straight to the field force through an intuitive interface. The result is that the sales team is freed up from the drudgery of processing data and, instead, spends its time generating new business.
The bottom line: Throwing money at a problem rarely works. Medtech companies are spending more on SFE, but they need to spend smart, making targeted investments in the areas most likely to pay dividends.