Part 7 of 9
It can be very difficult to get traditional salespeople to focus on selling subscriptions. The reason is money. Salespeople tend to be “coin operated.” They are motivated by money and will sell the product or service that generates the biggest commission check. Given the choice of selling a project for $100,000 or an IP subscription producing $4,500 per month, they will focus on selling projects.
Companies that are transitioning to building repeatable IP that they can sell as subscriptions, quite naturally want to use their existing salespeople. The simple answer is that you shouldn’t. It is better to hire salespeople who are dedicated to selling subscriptions and services. The profile and skillset tends to be different and it can be difficult to retrain an existing salesperson. However, for many smaller companies this might not be an option because there isn’t budget for a new hire.
But this isn’t an issue that affects only small companies. It is something most companies have to think through, regardless of size. Large software companies, for example, will often have key account managers who are responsible for everything sold to an enterprise client. They don’t want separate sales calls for Cloud solutions.
The question a company of any size should ask itself, “Is the IP solution strategic or opportunistic?” If it is an opportunistic move (e.g. having an IP offering just in case a client or prospect is interested), there is no need to have SaaS salespeople. The more strategic it is, the more compelling it will be to hire dedicated sales resources.
Another question that will need to be answered is: Do you incentivize your salespeople to focus on account management? It is not a question for born-in-the-cloud ISVs, because their business model is almost always based on having hunters (salespeople who close the sale) and farmers (account managers). There is a good reason for that. Pure hunters aren’t interested in account management; it isn’t in their DNA. If you offer your salespeople some form of bonus compensation tied to renewals, they will see it as a nice bonus when renewal time comes up, but they are unlikely to do anything during the year to earn it.
Farmers have two primary responsibilities. The first is to ensure customer satisfaction and license renewals. In an earlier blog we highlighted the top four reasons for churn. The first three can all be addressed by having account managers who are working with your clients.
The second responsibility is to get more revenues from existing clients, to maximize the return on the initial customer acquisition costs and to help achieve negative churn. This means farmers need to have a sales mentality and a compensation package that rewards them for the growth in usage.
There has been a big move toward replacing more expensive field salespeople with less expensive inside sales for SaaS solutions. The lower the ARR (Annual Recurring Revenues) and the more standardized the solution, the more sense it makes to use inside sales. This also ties in with the change in marketing, where prospects move further along the sales funnel through self-education and self-qualification.
Another issue is how, or whether, to assign territories. According to a survey by The Bridge Group, a firm that specializes in sales consulting, the approaches used by SaaS ISVs are:
While assigning territories by geography is still the most widely used, it is becoming less popular. Having “no territories” and “round-robin” (sequential assignment of leads to the next salesperson as they come in) are becoming more and more common.
The type of territories used is often tied to the price of a subscription. Lower-value subscriptions lend themselves more to round-robin or no territories because the level of engagement with a prospect is relatively low, while higher-priced subscriptions are more likely to be assigned based on named users.
Previous blogs in this series
- Every SI should be an IP company
- Repeatable IP – strategic or opportunistic?
- Overcoming the cash flow chasm
- Managing your customer acquisition costs (CAC)
- Minimizing churn
- How marketing changes for SaaS solutions
- Sales compensation
- Customer support
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