The following was a guest article by Will Richards and Carlos Flores of the Research Alliance, a leading business development agency for independent research formerly known as Financial Research Solutions. The article is excerpted from a white paper, Business Development Options for IRPs offered on the firms IRP-facing website. It was originally published on Integrity Research.
Selling research has never been easy and it has become even more challenging as institutional research spending has declined. The pressure on independent research boutiques to maintain revenues has intensified from MiFID II, tightening research budgets, and increased competition. It is more imperative than ever that research firms have a solid sales strategy in place if they wish to maintain their market share, and hopefully increase it.
The good news is that independent research providers have different options for organizing their sales efforts. Lets examine each in turn.
In-House Sales Team
Successful in-house sales teams can bring in revenues two to four times their salary-and sometimes more- with all profits going to the IRPs bottom line. To build an in-house sales team, you need capital ($100,000+/year), time (10-20 hours a week initially, 10-20 hours/month steady state) and experience in managing a sales team.
The cost of the first hire of a sales professional is around $165,000/year, plus commissions and overhead expenses. This is also assuming that the salesperson will be responsible not only for direct sales but also for all their marketing, lead generation, invoicing, and accounts receivable follow-up. More mature sales teams include a marketing director (to assist with in bound lead generation) and a relationship manager/client service director (to ensure that renewal rates remain high and that all revenues are collected post sale), in which case more capital would be required.
For these reasons, IRP owners that are well capitalized, have extra time to invest in the hiring process and have background in sales and sales team management (i.e., experience hiring, firing, and managing a sales force) would be effective at building their own in-house sales team.
Solo Sales Agents
There are a few different approaches to outsourcing sales. One option is to commission a sales agent who would typically be a single operator with sales experience in the financial markets. The advantages to working with sales agents include advantageous commission rates, minimal commitment requirements, and low downside risks.
Perhaps the most attractive aspect of working with sales agents is their low commission rates (thirty to forty five percent for the first year of a sale made). This is possible because sales agents keep overhead at a minimum by working out of their home or a modest office. And because sales agents rely on their own network for prospecting, they do not need to invest in pricey databases for lead generation. Likewise, their introductions tend to be more personal, so sales agents can avoid investing in and working with a professional marketer. And lastly, with low renewal commissions (0 to 40 percent for subsequent years if the new client renews their subscription) sales agents have no need for back office or relationship management staff.
Sales agents can be an attractive option given their Rolodex of contacts on the buy-side that can hopefully lead to a few productive introductions on behalf of the IRP. The challenge for sales agents generally begins once they have tapped out their Rolodex. Without a systematic lead generation system, sales agents often struggle to bring in more than a few new sales for IRPs.
Sales agents are a good option for IRPs looking to top up their client base with low financial risk.
Business Development Partners
Larger outsourced sales organizations, or Business Development Partners (BDPs), offer a broader set of sales capabilities which include all aspects of business development, such as positioning, marketing, product knowledge, lead generation, direct sales, buy-side knowledge, relationship management, client servicing, invoicing, and accounts receivable/collections.
Relationships with firms like these are closer to partnerships because the BDPs bear the sales risk, in that they are only paid if they are successful in selling. If the business development efforts fail, the IRP is free to leave the agreement, with the business development partner covering all costs. BDPs not only pay for the salary and commissions of salespeople, but also all the related expenses such as prospect databases, Bloomberg terminals, marketing platforms and travel expenses. Specialized marketing procedures and post-sale client support can add to the BDPs investments.
Therefore, BDPs tend to be very selective in the research firms they partner with, which is perhaps the biggest drawback to using them. BDPs may not be an option for every boutique.
These partnerships are most successful when IRPs desire significant long-term growth (e.g., doubling or tripling a companys profitability). By associating with a BDP, they receive the expertise and experience of a team that is ready to execute a strategic business plan to grow the IRPs top and bottom line. And since their day-to-day participation is not required, IRPs are free to concentrate on their area of expertise: research and financial analysis.
Before joining forces with a Business Development Partner, the IRP should check references and look for a track record of success, including an established sales channel, a methodical process-driven approach to sales, access to databases of buy-side financial professionals, a methodology for increased renewal and retention rates and a comprehensive team including sales professionals, an in-house marketing coordinator and relationship managers.
Research aggregators specializing in independent research recently entered the research selling scene. They offer advantages such as working under an established brand name, low commission rates and ease of use (IRPs must do nothing more than submit research to the platform). Using a research aggregator may be supplemental to other outsourced sales options or to an in-house sales effort, generating qualified leads for larger relationships.
The downside to research aggregators is that there are no full-time salespeople pushing individual products (their salespeople generally sell the platform not the research of individual contributors). For this reason, they are not a good standalone sales strategy, but potentially can be a supplement.
Maintaining the Status Quo
The cheapest and easiest option is to maintain the status quo. Word of mouth and leveraging analyst relationships are the most cost-effective sales strategies, but they only go so far. Worst case they can degenerate into wishful thinking (if we keep producing high quality research then the clients will find us) which perpetuates a lack of action.
Many IRPs want to grow revenues, yet their aversion to risk keeps them from doing anything. Maintaining the status quo, while comfortable, can have a serious detrimental impact on the growth of boutique IRPs.
It takes money to make money
Business development is expensive. IRPs that chose to commit to significant long-term revenue growth must invest significant time and capital. Cheaper options exist, including maintaining the status quo, but returns on these strategies tend to correspond to the size of the investment. For most IRPs, investing heavily in business development is the only true path for the financial growth required that will lead to a stable and successful succession plan. After all, IRPs are no different than the firms they cover as analysts in that world-class products require a world-class marketing and business development strategy to maximize growth.