Sales Outsourcing Sucks.

Yes, that's right. Here it comes again.

Earlier this year, I wrote a blog post, “RPO Sucks”, about why Recruitment Process Outsourcing solutions weren’t a great solution for some of our clients. To say it was a “popular” post that resulted in a few conversations is an understatement.

Many executives I spoke with as a result of that post encouraged me to dig into an industry aligned with outsourcing solutions many clients already count on us to deliver, with hundreds of operations employees currently working on their behalf. That industry is “Sales Outsourcing”.

The underlying message, again and again, from CEO’s, CFO’s, HR Leaders, Procurement Leaders, Sales Leaders, VC and PE Partners, to front line employees, was this industry is ripe for disruption, desperately in need of a new approach and better solutions.

It is a hidden industry that many barely realize exists. Executives are surprised to learn the large number of well-known enterprise, mid-market, and SMB brands that have hired, fired, or considered “outsourced sales” service providers.

It is shocking how unsatisfied so many existing and former customers are with how this industry has operated. There is a massive gap between what customers want and what solutions are available.

The sales outsourcing industry is as ripe for disruption as what Netflix, Uber, Amazon, Apple, and Tesla, to name a few, did to their respective industries, exposing legacy companies and their outdated business models that didn’t evolve and meet modern buyers expectations.

Guess what? Those companies recognized a massive gap and took action. They created modern business models, won legions of satisfied customers, and offered employees and partners amazing opportunities. They changed entire industries.

I listened to all those executives that were screaming the sales outsourcing industry desperately needs change. They were correct.

Our team at RocketPower is on a mission to disrupt the sales outsourcing industry.

We’ve invested in hiring key leaders and built solutions that are changing the game. The early response has exceeded our wildest expectations.

More on that later, let’s begin with a little background.

What is Sales Outsourcing?

Sales outsourcing is when a company hires a firm to “sell” products or services on their behalf. “Sales” can mean lead generation, appointment setting, actually closing sales, direct to businesses or consumers, through partners, training and advocacy, and post-sales support.

It includes inside, virtual field, or in person sales. Short sales cycles with low prices, to long sales cycles with very high prices. Retail, B2B, Enterprise to SMB, SaaS, Telco, Automotive, Tech, FinServ, Consumer Electronics, Home Improvement, and many other verticals. If you sell a product or service to a business or consumer, chances are high a company in the sales outsourcing industry has tried it (not all successfully).

The Process of Realization

Since I wrote “RPO Sucks” in February, I’ve discussed sales outsourcing with many CEO’s, CRO’s, Sales VP’s, Chief People Officers, and VC Partners. Executives that considered, hired, and fired, many sales outsourcing companies.

We immersed ourselves in this industry. Mystery shopping service providers. Talking to employees across the industry, from insider executives to front line employees. We even hired a company in the space to do some work on our behalf.

I realized “sales outsourcing” is a bastardized term with a nasty stigma. The flawed business model and outdated approach propagated across this industry for years created a generation of executives that won’t even consider “sales outsourcing” as they don’t believe they can get what they actually need and want.

It’s amazing the industry has been around 30+ years and hasn’t evolved much since.

It is not transparent. It breeds skepticism. Distrust is rampant between employees, solution providers, and customers.

That doesn’t happen as a result of one “bad” company. Yes, like anything, there are rare exceptions where companies do create value and happy customers exist. Not as rare as unicorns or leprechauns, but close.

We are making a bet, responding to the people (and customers) that would rather work with a company that is willing to challenge the old way of doing business in a legacy industry, ignores the old constraints, doesn’t like to be told no, and wants to tell customers yes.

It is time to advocate for those that have the courage to do things differently: treat employees and customers with transparency, pay team members more, charge customer’s less, providing them all of what they want and none of what they don’t.

Why does Sales Outsourcing Suck?

Employees are being paid less than they are worth. Customers are forced to buy more than they need. Customers aren’t able to buy what they want. Customers are paying more than they should.

Surprised, skeptical, intrigued? Read on and I’ll dig into each of those four statements one by one.

Employees are being paid less than they are worth

The foundation of the sales outsourcing industry business model is based on companies charging a customer more than they pay the employee. More importantly, and unfortunately, it is also founded on a lack of transparency.

The “product” is the employee. The lower the product cost, the more profit. Sure, other costs like taxes and benefits (what little are offered) are a factor. However, nothing impacts profit more than billing customers more and paying employees less. That attitude and approach permeates across companies in this industry.

The front-line teams working on behalf of the customers, the managers, and surprisingly many senior leaders, are being undervalued, paid far less than market wages. Those employees lose. The customers lose. The legacy sales outsourcing industry will eventually lose as well.

Often, employees think they are being valued and compensated fairly when they are not. Somehow, companies in this industry have been successful convincing employees that the culture and workplace is so great they should be happy being undervalued and to have a job at all.

As someone who has spent an entire career in HR and consulted with many companies on culture, I couldn’t believe employees actually buy into this.

How great can a culture be when the business model is based on undervaluing talent and paying people less than they are worth?

Too many times to count, I heard from customers in this industry that they have no idea how much the employees working on their behalf are getting paid. The frustration was palatable.

Why the fundamental lack of transparency?

Why do customers that work with sales outsourcing companies want to know how much the employees that represent them are getting paid? Why is it almost impossible to get that information, across an entire industry?

It dawned on me. The customers instinctively realize the quality of the talent working for them is correlated to how much that talent is paid. If employees are paid 10% more than market average vs. 20% less, the odds of attracting, and keeping, top talent in the market is far greater.

If an executive realizes they are paying a sales outsourcing company 2X+ what the employee working on their behalf is getting paid, there is going to be a problem. As a result, that information is treated by companies in this industry like the code to a nuclear weapon. Perhaps because if that code got out, the industry might just blow up.

A front line, entry level, employee working for a sales outsourcing company shared with me a situation where her team hit 95% of their objective, but she was only paid 65% because they worked in a “performance based culture”. I told her nothing could be further than the truth.

I can only imagine a customer's reaction if they realized 30% of what they were paying in bonus compensation wasn’t going to the employees working on their behalf, it was dropping to the sales outsourcing companies bottom line.

Actually, I don’t need to imagine it. I asked several executives how they would react to that situation. Unequivocally, universally, and without hesitation, the answer was they would cancel contracts and look for a new partner.

We interviewed a talented first time manager working for a sales outsourcing company looking to grow his career. The company convinced him that if he met all his KPI’s, he should expect to be paid 80% of his bonus. According to him, it was impossible to earn 100% no matter what he did. I was baffled, he was so convinced this was normal I spent 15 minutes explaining to him that it isn’t.

Those are just two of many examples. Those discussions prompted me to have an attorney do a quick search for compensation based lawsuits across the sales outsourcing industry. The results were stunning.

No doubt, this industry has a serious problem. Not just one company, many across the industry.

Companies are routinely undervaluing employees, paying people less than they are worth, and even worse, paying people less than they earned.

I can’t think of many faster ways to lose great talent and customers.

Customers told me they’ve released RFP’s with required cost breakdowns, directly asked the employees themselves what they are actually earning, and so on. Despite those efforts, they rarely, if ever, got a straight answer.

The excuses shared were endless. “What we pay our employees that work directly on your behalf is “IP.” “That is what you are hiring us to do.” “You don’t want to deal with that.” “There is technology included in our rate.” “It includes real estate and office space.” “It includes taxes and benefits.” “They are W2 employees.” “It’s a solution.” “It’s a bundled rate.” “It’s a fully burdened expense.” “It includes leveraged expenses.” “Do you know how much it costs Apple to produce an iPhone”, “It’s against our policy to share that.” “Our pricing is based on value metrics (huh?).”

Or, another laughable excuse. Co-employment. “Sharing that puts you at risk for a co-employment lawsuit.” PEO companies handle this issue every day, many companies in the sales outsourcing industry would rather use it as a convenient excuse.

I started to dig further. What is driving this lack of transparency between sales outsourcing companies, their employee’s, and customers?

A light bulb went off. Based on the outdated business model prevalent in the industry, it is not in the sales outsourcing companies best interest to be transparent.

If they are, difficult conversations will be had. Employees will be looking for a raise or a new job. Their Executives will be looking for a discount or a new service provider.

This lack of transparency is a symptom across an industry that is failing to treat their customers and employees with a modern approach that is focused on value. It’s a core failure of an outdated business model ripe for disruption.

Customers are forced to buy more than they need

This is connected to employees getting paid less than they are worth. If you aren’t transparent, don’t want to expose that you are marking up an undervalued employee’s wages a ridiculous amount, how do you get around it?

You bundle in a lot of services, mark those up, and hide it. You don’t provide companies what they need, you force them to buy what you have. Across this industry, there is a legacy business model based on an outdated definition of “sales outsourcing.”

Again, customers told me the smoke and mirrors came out. More excuses abound. “We use our CRM”. “We have a sales and marketing tech stack we use”. “Our team can’t work out of your offices”. “Our team can’t use your computers”. “We have dedicated resources.” “We have data science expertise.” “We have process engineers.” “We have playbooks.” “We have a proprietary sales process”. “We offer Sales as a Service”.

One executive at a large company shared that they already have a tech stack, data team, trainers, offices, computers, all that they could easily leverage, or if not easily procure directly at very low rates.

Leveraging what he already had would save his company money, and be more effective. He didn’t want a “solution” forcing him to pay for things they didn’t need. He couldn’t get an un-bundled solution.

Another executive told me they engaged with multiple companies in the industry to try and structure a performance based deal. Not a 90% guaranteed, 10% at risk contract. A true 50%/50% risk share. An actual performance based agreement.

She was originally told they were open to it. Then the excuses and caveats appeared. “For this model to work, we have to manage the number of reps, technology, and other variables to deliver performance at a defined level.” “We start at 90/10 and will consider shifting over time to 50/50.” “Only if we have sufficient data to base pricing on.” “We have to agree to a limited set of metrics and it can’t just be revenue”. “We need a sufficient ramp up period.”

In other words, if the company has to take any real risk it isn’t going to happen.

What is the real reason she couldn’t get what she needed? The sales outsourcing providers would have to hire the absolute best talent for the role to avoid losing money in a true risk based model, and that best talent isn’t found at 20% below market average wages they can mark up 2X+.

Customers, again and again, told me they are forced to either buy all of what a sales outsourcing company was selling, or none of it. True customization to their needs was impossible to get.

Combine a lack of transparency, the need to hide what undervalued employees are actually making, loading up a “fully burdened” solution that customers don’t need, and you have the only option customers are getting.

Customers aren’t able to buy what they want

The sales outsourcing business model has been around 30+ years. The business model hasn’t changed much since. Recruit and undervalue people, hire for less than fair market wages, add in “required” services, mark it up, hide the cost and margins, and there you have it.

Executives shared more excuses why they can’t buy only what they want, and none of what they don’t. “No”, “We can’t do that”, “That isn’t how outsourcing works”, “Buy the technology through us, we can use it better”, “That puts you at risk for co-employment lawsuits”, “that is against our policy”, “our MSA doesn’t allow for that”, are heard far too often.

A partner at a PE firm had a portfolio company that needed to stand up a sales team from scratch. They needed to find the best talent (and he knew the best talent won’t be undervalued and commands above market wages), build a team, and get it running. Fast.

However, they didn’t want to “outsource” any part of his sales team because they don’t believe in the industry definition of “sales outsourcing” as they knew it. They were convinced it would dilute long term enterprise value for the portfolio company. They wanted to “own” a team as fast as they could.

This partner spoke with several companies in the industry. They all tried convincing him why their outdated solutions were a better idea. One even suggested that the portfolio company could take the team over after a minimum period of a year, then spent 30 minutes attempting to convince him why that wasn’t a good idea.

A company that was really listening, and not stuck in an outdated model, would realize he didn’t want “outsourcing” at all. He wanted a partner to find the absolute best talent, build up the team, run it to get it started, and transition only the best performers over to the portfolio company as quickly as possible.

Another executive that hired a sales outsourcing company for 3+ years decided to cancel the contract and shift the team internally. She shared that when she gave a cancellation notice, they did everything possible to make it hard for her to hire the employees that had been working on their behalf for years.

She was stunned (as was I) to find out that the sales outsourcing company she worked with for years took advantage of entry level employees who desperately needed jobs by making them sign ridiculous non-compete agreements.

These employees she finally found out were making less than $60K a year (despite her paying $125K!!!) signed non-compete clauses buried in electronic onboarding documents without even knowing it until they wanted to take a new job. That is disingenuous at best.

She couldn’t hire those employees despite them all wanting the jobs. Fortunately, she worked for a big enough company she was able to effectively force the outsourcing company to allow the employees to take the jobs.

A company with a modern approach to meeting customer’s needs would be completely transparent about what the sales team was making, how much the tech stack costs, what tech the client already has that they could leverage, and exactly what a fair margin was for the value they provided, and exactly how they would build, operate, and transfer the team to the customer. They wouldn’t burden entry level employees with onerous non-compete agreements.

Customers are paying more than they should

I saved the best for last. Across the sales outsourcing industry, providers have too high an operating cost, financial “requirements” and multi-layered corporate structures to charge you what you should be paying.

Customers told me stories of big buildings in multiple locations, dozens of fancy conference rooms, “experience centers”, layers of executives and managers that they had no idea what they did, multiple administrative assistants, huge entertainment budgets, big technology teams, big HR and finance organizations, lawyers, and endless operational constraints from “corporate”, multiple investors, you name it.

Guess what? These customers are paying for all that regardless if they know it or need it. It all goes into the “fixed” cost.

Want a quick example of this? We all know Covid-19 forced employees around the world to work from home. Despite that, outsourcing companies are spending ridiculous sums of money expanding and renovating Class A office space, actually increasing physical office capacity that is now sitting empty. A customer forwarded me a public LinkedIn post publicizing it. It’s hard to think of anything more tone deaf to the current business reality. Legacy thinking at its absolute finest.

I asked an executive that hired a sales outsourcing company, are you getting a discount because you, nor the teams working on your behalf, no longer need expensive office space? Nope. It’s all part of the “solution” and “bundled” cost. He should get a discount. He doesn’t need that expensive office space, and likely won’t ever again. He will get a discount, when he cancels his contract.

The sales outsourcing providers can’t afford to charge you less than they need to cover all those fixed costs. They simply can’t, and won’t, risk coming close to losing money or even breaking even. The bloated operating structures don’t allow for it.

Imagine having all those fixed costs, routinely undervaluing talent and paying less than market wages, bundling in all the services and tech they can think of, marking all of it up, and still having to deliver aggressive bottom line profit?

All that equals far higher prices and customers paying more than they should. It is the cold reality of the sales outsourcing world.

No wonder many aren’t being transparent to employees or their customers. They can’t. The business model doesn’t allow for it.

If they did, employees would know they are getting paid less than they are worth, customers would realize they are forced to buy more than they want and are paying more than they should.

So What?

It’s not a great idea to list out problems and not offer solutions. There is a better way.

A disruptive approach that gives you all of what you need and nothing you don’t. A philosophy that is rooted in transparency. An approach that reduces your risk. A structure that offers unheard of customization. A business specifically built to provide the customer experience you deserve.

Imagine a scenario where a partner could pay employees more, while charging customers significantly less, give customers everything they need, nothing they don’t, and deliver a far better result while they are at it?

That exact scenario is here, and it’s here now.

Earlier this year, I wrote a post about RocketPower’s decision to boldly lean into the current market headwinds by hiring great talent to disrupt legacy industries and capture market opportunities. We did that with the addition of several recruiting executives from the former Ejento team.

We did it again. I’m excited to announce that Ted Grulikowski and Joe LoPiccolo recently joined our team. Joe and Ted, combined with Jeff Baumgarten, Regan Howell, and others joining soon, are experienced go to market, sales, and outsourcing industry experts that share our vision.

These leaders think differently, challenge the status quo, are relentlessly customer focused, and have the depth of operational experience to deliver on our promise to disrupt this industry. In fact, they have already started.

Just last week, executives currently working with companies across the outdated sales outsourcing industry brought double digit savings back to their companies. They are being hailed as internal heroes, delivering meaningful savings that are incredibly difficult to find during tough times.

Literally this weekend, front line employees formally working for sales outsourcing companies with outdated business models are done being undervalued and finally getting paid what they are worth, celebrating raises they would not have seen in years otherwise. These employees enjoyed coming home to their family and friends with uplifting news in a world that needs it more than ever.

Disrupting a legacy industry has never felt so good, and we are just getting started.

If you are a CEO, Founder, Sales, Procurement, Finance, HR, or Talent Leader, a VC or PE partner, or a GTM executive that is working with, considering hiring or firing, a sales outsourcing company, I have a challenge for you:

  • Ask the sales outsourcing company how much they are, or will, pay employees that work on YOUR behalf. Demand transparency.

  • When you realize you are purchasing more than YOU need from a sales outsourcing company, think hard about what you are paying for that isn’t bringing YOU value. Have the discussion about paying for only that, and nothing more. Require a solution that is what you want and nothing else.

  • Remember when you have been told no too many times, or didn’t think to ask, and wanted to solve your talent challenges in a way that creates value for YOU? Know there is a company disrupting an industry that will talk about the art of the possible and has the experts that can deliver it.

  • Imagine a scenario where you pay significantly less, while the team working on your behalf makes more, and you get better results. Trust that there is a partner that is doing just that, for leaders just like you. Right now.

There is one more key part of the challenge. We heard you say this industry is ripe for disruption and desperately in need of change. Contact me before you take action on any of the above. Let us help you.

Our experts know this industry inside and out. They know all the tricks of the trade. They are here to do things differently, disrupt an industry, and help people like you.

Regardless if you end up working with us at RocketPower, our experts can, and will, help you get more value out of your current contract, or design a better solution. They can spot opportunities for you to gain more value in minutes. That is what they love to do. Either way, you win (and that is the point).

We offer disruptive talent solutions you can’t get elsewhere. We help our customers find the absolute best talent, build the exact solutions they want, and run the very best teams in the industry. We believe people power business and are on a mission to change the game for good.

The movement has started, and it is accelerating fast. Interested in joining the Rocketship as an employee, referral partner, or customer? We look forward to connecting.