Op Ex vs Cap Ex in the current climate

Matt Sumner 14th March 2023

Sales leadership is a critical function in any organisation that is focused on driving revenue growth. However, the traditional model of compensating sales leaders with a salary, commission and bonuses based on sales volume may not always align with the long-term goals of the organisation (maximising profit, go to market for Mergers and Acquisition etc). Let's have a look at the benefits of moving to an operational expense (Op Ex) model for sales leadership.

What is an Op Ex model?

Under an operational expense model, the compensation for sales leaders is based on a consultant fee, rather than salary, commissions and bonuses tied to sales volume. This model is often used for other functions in the organisation, such as Finance, Human Resources, and IT. The goal is to align the compensation of sales leaders with the long-term strategic objectives of the organisation, rather than just focusing on short-term sales performance.

It effectively creates a tap you can turn on and off. This has been a trend for the last 15 years with using developers, accounts functions and creative agencies, however, in light of the growing number of `over-hires' in the tech sector, which has led to record severances and redundancies, companies are adopting this model in the sales management space.

Benefits of moving to an operational expense model for sales leadership:

1. Aligns compensation with long-term objectives: The Op Ex model aligns sales leadership compensation with the organisation's long-term strategic objectives. This helps create a culture where sales leaders are focused on developing and executing strategies that drive sustainable revenue growth, rather than just hitting short-term sales targets.

2. Using a consultant leverages experience which would often cost well over $400K a year in a full time capacity. For a fraction of the cost, the knowledge, framework and materials required to implement a lucrative sales process can be achieved without carrying the capital expense.

3. Provides stability: The Op Ex model provides stability for sales leaders. They can focus on their role without worrying about the variability of their compensation based on sales volume. This stability can help reduce turnover and improve employee engagement. From a business or Board perspective, it ensures a sales leader is working to create the most sustainable and lucrative model, rather than effectively being an over-paid sales person, scrambling to bring in individual sales.

4. Improves forecasting: The Op Ex model provides a more predictable cost structure for the organisation. This allows for more accurate forecasting of future expenses, which can help with budgeting and resource allocation.

5. Enhances collaboration: The Op Ex model promotes collaboration between sales leaders and other functions within the organisation. This is because sales leaders are not solely focused on sales performance, but rather on achieving the organisation's long-term objectives. This collaboration can lead to more effective decision-making and better outcomes for the organisation. Most importantly, the model fosters an improved culture across the business, where the sales leader works in tandem with the support functions, rather than creating an `us and them' culture.

6. Reduces risk: The Op Ex model reduces the risk associated with sales performance. In a commission-based model, sales leaders may be tempted to engage in unethical behaviour to meet sales targets. However, under an Op Ex model, sales leaders are not incentivised to engage in such behaviour, which can reduce risk for the organisation.

7. If the consultant or sales leader isn't bringing the desired outcome, you simply turn the tap off. Unlike what we're seeing in the tech sector, in companies such as Salesforce, Oracle, Google etc, where employees are being paid enormous severance packages, the Op Ex model ends up reducing the risk of losing up to a years pay-out of a total package.

Using a consultancy also leverages a collective amount of experience and knowledge, channelled through an outsourced Chief Revenue Officer or Head of Sales. Now compare this with an internal hire. You've got recruiter fees, lengthy interview processes tying up multiple resources, an onboarding period and trusting a candidates CV.

If you want to explore the Op Ex model, get in touch with us at Revenue Rise to see how we can help.