Selling to middle-market B2B customers is a challenge for many large, multinational companies. While midsize enterprises are the core of their supplier base, when it comes to selling to them, large enterprises are far less capable. Unlocking the potential of these middle-market customers can open new avenues and options for growth during and after the current economic slowdown.
One media company we worked with, for example, got approximately 80% of its revenue and 10% of its profits from the top 1,000 accounts — all fellow multinational giants. Another 20% of revenue and around 5% of profits came from 10,000 small-to-midsize customers. Among them, 3,000 midsize clients produced just around 3% of the media company’s overall sales — far less than you’d expect given the media company’s success with other customers.
That’s typical and widespread across industries, with many large companies failing to reach and profit from middle-market customers. In our work with clients from financial services to industrials to technology, we see two problems so often that we characterize them as systemic.
The Problems — and Opportunities
The first problem is failure to reach the market. Large companies simply get less revenue from the middle market than its market share warrants. In our work with technology companies, for example, we typically find they get less than 20% of their revenue from middle-market companies — even though those businesses represent a third or more of their theoretically addressable market.
The second systemic problem is a failure to profit from middle-market sales. Time and again, we find that multinationals’ margins on sales to midsize companies are lower than they are on sales to large businesses (even though those customers have more bargaining leverage) or small businesses (even though serving those companies can take up a lot of administrative time).
Yet the opportunity is enormous: In the U.S. alone, middle-market companies purchase more than $6 trillion a year in goods and services, according to Visa — a sum roughly equivalent to the purchasing power of the entire economy of Germany. Not only is the middle market huge, it grows faster than large or small business, as studies from the National Center for the Middle Market, Dun & Bradstreet, and others consistently show. Sellers with a big middle-market customer base can grow along with their clientele.
The fundamental problem is that many multinationals don’t have a full-fledged strategy for selling to midsize companies, as they usually do for sales to enterprise and small business clients. As a result, they try to force either their enterprise model or their small-business model onto the middle market — and it doesn’t work. When large companies pitch middle-market customers, they find themselves making the same sales moves but getting different results. We’ve also often seen companies deprioritize initiatives for middle-market sales due to their scale and size compared to enterprise sales.
We’ll describe what viable, profitable strategies might look like. But first let’s discuss how the problem manifests:
Misreading customer journeys
Middle-market companies don’t buy in the same way large companies do. They rarely have full-blown procurement functions and have fewer expert buyers. For example, the finance departments of middle-market companies probably don’t have specialized teams to buy and manage tax, treasury, and financial planning and analysis products. If your sales and service model is designed for specialists, you’re likely to overwhelm or bewilder your customer.
Misaligned product or service fit
Products designed for the needs of billion-dollar businesses are often too cumbersome and expensive for companies with $100 million in sales. Software programs for resource planning or customer relationship management, for example, are frequently not the right fit, while programs developed for small businesses — like tax software — are too simple.
Organizational issues within large multinationals bedevil middle-market sales in three ways. First is the internal sales organization. Major accounts have a structure, a team, and defined roles. For example, they usually have someone whose job is to connect a customer who needs support to the right resources. Middle-market sales reps usually handle these and other account-management tasks themselves, which takes away time from selling. (For small customers, most companies have developed skinned-down support functions that are often inadequate for the more complex needs of the middle market.)
Second, middle-market sales reps usually have to wait in line — far back in line — for help from subject-matter experts in the business units, such as technical specialists who could describe how to get the most out of cloud-computing services. Access to SMEs is often a crucial factor in closing deals for complex B2B software and services.
Weak connections between the sales force and business units can create problems in both “hunting” (bringing in new customers) and “farming” (cultivating existing customers for up-selling and cross-selling, and to ensure their loyalty).
Lack of talent
If middle-market sales are an organizational afterthought, the salespeople themselves become organizational orphans. People on national-account teams see a career path; those selling to middle-market companies don’t. The result is a less-motivated sales team that can become a less-capable one.
In addition, middle-market sales teams are often understaffed (and therefore overworked) because the segment isn’t profitable enough. But the segment isn’t profitable enough because it’s insufficiently served, creating a vicious circle that can be broken only by top-level intervention and a strategic decision to grow the middle market.
How to Sell to the Middle Market
What would such a strategy look like? In our work, we’ve identified three distinctive strategic approaches.
Focus on fast-growing middle-market companies. In this approach, a seller views the middle market as the place to find companies it can feed up to the major account enterprise level, using simple segmentation criteria based on revenue and growth.
For example, a data-security company we worked with struggled to sell its highly complex product to the middle market using an inside sales team (that is, by phone, email, and other online channels). Further, the economics didn’t justify fielding a direct sales team for the whole middle market. But the numbers did work for an approach where the company’s sales and marketing teams identified high-potential clients that were a) fast growing and b) likely to buy several products. Success is measured here by the movement of mid-tier customers up to the enterprise level.
Companies often create a large mid-market bucket when in fact it’s made up of a diverse group of companies with unique sets of needs. This highly segmented approach identifies specific middle-market segments and products: this product to this kind of customer. The idea is to keep account managers and the sales teams focused on identifying and serving fewer key customers in areas where the seller has a strongly differentiated product or service.
Unlike the first strategy, which seeks to identify fast-growing customers, this strategy emphasizes penetration into focused, even niche markets. Profitability is the number-one goal, not gross revenues. This model works well in mature industries where it’s clear to the sales team whom to target and where to focus growth. For instance, one publisher we worked with had clear and distinctive segmentation criteria between enterprise and middle-market customers, as well as separate and distinct sales strategies for each. Furthermore, the company provided clear career paths within each sales team to continue to foster and develop the teams’ capabilities.
Middle market optimizer
The first two strategies are about targeting specific customers and segments. This strategy aims for the whole middle market, but ruthlessly and programmatically addresses operational efficiencies.
To lower the cost-to-sell and cost-to-serve for middle-market customers, start by organizing a separate middle-market sales team of business development and inside sales people. Equally important are standardizing product and service offerings and aligning the sales team’s processes to the buyer’s journey. Finally, ensure sustained momentum by putting in place midmarket-specific metrics for success and prioritizing not just wins, but operational readiness to respond to unique needs and challenges.
. . .
There’s no one-size-fits-all solution when designing a go-to-market model for a middle-market customer segment, so pick the strategy that best fits your product line and competitive position, aligning it with the overall commercial and sales strategy — and resist the temptation to drift back to an undifferentiated approach.
Companies that customize their sales approach and organizational capabilities to tap into this market often realize rapid and dramatic results. The media company we worked with opted for a hybrid model that focused on a targeted specialist approach while growing accounts within specific parameters. The outcome was a 5% increase in revenue within two quarters, as well as a 10 to 15% improvement in service efficiency.
For large, multinational companies, the middle market represents a large, often untapped opportunity for profitable growth. Pivoting the organization and implementing a new model can be a challenge and often requires transformational efforts, but the rewards can be compelling, both in terms of profitable growth and operational cost and alignment.
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