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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.
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:
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 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.
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.
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:
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.
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.
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:
Once you have clarity on these four questions, you can then start to build a go-to-market plan that focuses on the following:
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.
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.
Post Date: August 1, 2019
Martin Dove is the vice president of subscription sales research for TSIA and brings a unique set of experiences and insights on outcome-based selling and subscription sales methodologies. In this role, he works with TSIA members to help them navigate the journey to being more outcome-based in the way they sell and to optimize their organization’s sales of subscription, or “as a service” offers, to both new and existing customers.
The Technology Services Industry Association (TSIA) is dedicated to helping technology and services organizations large and small grow and advance in the technology industry. Find out how you can achieve success, too. Call us at (858) 674-5491 or we can call you.