Are You Ready to Sell Technology Subscriptions?
Updated:
August 1, 2019
|
min read

Are You Ready to Sell Technology Subscriptions?

Over the last few years, one of the TSIA’s hottest query topics has been around how member organizations can cost-effectively grow revenues when their customers are changing the way they want to buy and consume their technology solutions.

In mid-2018, J.B. Wood and I carried out a series of interviews with over 30 senior sales leaders to get firsthand insight into what’s going on in their world and what plans they have to respond to these changing market conditions. We were careful to make sure that we spoke to a broad cross-section of organizations to ensure we had a representative sample of hardware and software manufacturers, as well as technology services companies.

The feedback we received was consistent. Almost everyone who spoke with us recognized that they are facing the greatest period of change in the technology industry in their lifetime. Everything is changing—what you sell, how you sell, and who you sell to.

How is the World of Technology Sales Changing?

There is an old analogy about having to swap out the engine on an aircraft while it is in mid-flight. This is clearly an impossible task. However, this is similar to what is expected of sales leaders during this time of change. The phrase we hear most commonly is that Sales is expected to perform (i.e., hit their weekly, monthly, and quarterly commits) and transform (change the profile of sellers, sell new offers, and retain their best talent).

It is, without doubt, a challenging time to lead a technology sales organization. The average tenure of a vice president of sales is 19 months, which is down from 23 months over the last five years.

In our discussions with the senior sales leaders we spoke to, there were three consistent themes that came up in most of the interviews that we conducted:

  • Revenue growth. Revenue growth was not living up to expectations. Whether or not that was new logo wins or growth from existing accounts, generally sales performance was not where it needed to be.
  • Moving from CapEx to OpEx. The move to the as-a-service economy and the delivery of technology that had previously been provided on a CapEx basis to a subscription OpEx basis was having a massive impact on income statements. It was also changing the way the sales organization has to engage with customers.
  • Outcome-based selling. All of the organizations we spoke with recognized that they need to have more outcome-based sales conversations with prospective customers, but they don’t know how. They also struggle with finding the best way to help their salespeople move away from feature/function-based solution selling to proactive outcome-based selling.

The Cost of Selling Technology is Increasing

In addition to these challenges, TSIA research has been noting for years that the cost of selling technology is going up. We see this in both TSIA’s Technology & Services 50 and Cloud 40 indices, which come from publicly available data gathered from a sampling of the industry’s top technology companies. This data shows that companies are spending more of their total revenue on sales and marketing than they have in the past. We also know that selling XaaS offers/subscriptions costs more than selling traditional transaction-based deals.

average sales and marketing spending
Average percentage of revenue spent on sales and marketing.

So, there’s real pressure on organizations to get their internal processes efficient enough to make sure they have the right skills, the right compensation models, and the right tools in place to avoid escalating sales costs. All this is what TSIA’s Subscription Sales research practice is helping companies to overcome.

Earlier in 2019, we conducted a survey to a combination of members and non-members of the Subscription Sales research practice. We asked specifically what levels of year-on-year growth companies were experiencing in relation to subscription revenues.

tech revenue growth rates
Revenue growth rates within the technology industry.

What was interesting was that when we looked at the different peer groups, or industry segments, we saw some significant variances in growth rates.

subscription revenue growth by segment
Subscription revenue growth by segment.

As part of the sales model transformation survey, we wanted to understand what practices and initiatives had the highest correlation to improving annual recurring revenue growth.
There were five factors that stood out:

  1. Develop a formal sales transformation plan
  2. Focus on pre-sales resourcing models for XaaS offers
  3. Organize your Sales teams by service type
  4. Work with Product teams to create customer-aligned offers
  5. Look to automate your proposal processes and production

In addition, we have looked at what practices and processes have a high correlation to improving win rates for subscription-based offers. There were also five areas that came out as having a higher-than-normal impact on helping companies win more bids, whether they were purely reacting to an RFP or if they were proactive or unsolicited proposals.
Measuring and reporting on win rates is a difficult exercise because companies use different methods of calculation. We looked at the overall win rate reported from participants, assuming that they have been shortlisted.

  1. Move resources to focus on proactive bids, not RFPs
  2. Create a dedicated subscription offer Sales team
  3. Focus on optimizing the following processes improves performance
  4. Costing, pricing, and quoting tools to improve RFP win rates
  5. Sales and Services handshakes to improve proactive bid win rates

The most important thing for any company to decide is whether they are going to adopt a “whole company transformation” or if they are going to focus on just the go-to-market elements of the business. This is not an uncommon approach, but ultimately the whole organization has to embrace the change.

Sales Readiness for Tech Subscriptions: Questions to Ask and Next Steps

Even if the company chooses to adopt an approach where they only focus on a sales transformation plan, they will still need to answer the following questions:

  1. What is the corporate vision and the rationale for the change?
  2. What is the planned future market positioning for the company?
  3. What is the envisioned economic engine profile?
  4. What are the revenue mix plan targets for the coming three to five years?

Once you have clarity on these four questions, you can then start to build a go-to-market plan that focuses on the following:

  1. What offers are you going to prioritize?
  2. What is your segmentation strategy (channels, offers, accounts)?
  3. What capabilities do you require within your direct and indirect channels?
  4. What structure do you need in place to effectively execute on the go-to-market model?

This will then lead to a broader debate on how the annual recurring revenues will be optimized across the customer life cycle using the Land, Adopt, Expand and Renew (LAER) framework.

Smart Tip: Embrace Data-Driven Decision Making

Making smart, informed decisions is more crucial than ever. Leveraging TSIA’s in-depth insights and data-driven frameworks can help you navigate industry shifts confidently. Remember, in a world driven by artificial intelligence and digital transformation, the key to sustained success lies in making strategic decisions informed by reliable data, ensuring your role as a leader in your industry.

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If you’d like to find out more about this and other topics related to the growth of subscription revenues in the technology and services industry please read my report, “The States of Subscription Sales 2019”. Also, be sure to reach out to TSIA to learn how membership in our Subscription Sales research practice can help you answer your biggest questions and overcome the challenges associated with selling subscription-based offers. I look forward to hearing from you.

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