Client Situation
A lower-middle market technology company had grown into managed IT services via acquisitions. However, these acquisitions were not fully integrated and continued to operate as distinct entities and the revenue growth for this business overall was trailing the marketplace. The PE firm brought us in to work with management to not only identify top levers for revenue activation, but also build tools for the team to leverage.
3HA Approach
We leveraged a proprietary 4-step approach to identify and quantify the cross-sell opportunity for the business.
- Identify cross-selling enablers and best practices: Gain alignment with key stakeholders on key enablers, identify customer archetypes and profitability drivers
- Conduct in-depth customer research: Confirm needs with customers including latent need and determine hurdles to deeper penetration
- Create cross-sell matrix: Based on internal and external input and research, create product and service categorization, and likelihood of success for pair-wise cross sell
- Quantify cross-sell opportunity for key segments: Leverage current penetration and estimates for customer wallet size to determine cross-sell revenue potential
We arrived at the cross-sell opportunity both from a tops-down and bottoms-up approach. Subsequently we developed an interactive Excel based tool for Sales Operations that provided:
- Customer-level cross-sell opportunities and revenue sizing
- Segment-wise, customer-level cross-sell opportunities and revenue upside
This tool would allow for setting cross-sell targets at a granular level, both at the customer level and across customers for frontline sales staff.
Findings And Recommendations
Tops-down cross-sell opportunity sizing: For the SMB customer segment of the managed services business, analyzing the average revenue by employee served and bridging the gap to average for the bottom 50% of customers yielded a 21% revenue upside to baseline.
Figure 1: Customer benchmarking to assess cross-selling revenue potential
Sources: Client Finance, Client Sales Operations, 3HA Research & Analysis
Bottoms-up cross-sell opportunity sizing: The team analyzed the pair-wise solution penetration to determine the white space for pair-wise solution sell-in, i.e., customer count. By leveraging the average solution-level revenue by customer, we were able to determine the cross-sell revenue full potential for pair-wise sell-in. This yielded a 22%+ revenue upside to baseline with conservative assumptions, with further upside possible with a structured training program in place.
Figure 2: Cross-sell opportunity sizing
Outcomes
The client used the output of this engagement to set annual cross-sell targets for the business unit and the head of Sales Operations leveraged the Excel tool to determine granular customer and product level targets for front line sales executives.