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This model provides a framework for discussing the business capabilities required for technology companies to sell, onboard, and then grow and renew customers, which plays out differently for the traditional capital acquisition sales model than for the XaaS sales model.
As companies adopt the recurring revenue model they experience a shift, where the customer has the power to make a smaller initial investment in products and services, subscribe to the products and services over the life of the relationship, and then change the solution with a relatively lower barrier of exit.
This power shift has given rise to a renewed focus on value selling. Sales professionals can no longer cast the sale from a solution perspective and move on. They must provide continuous engagement and alignment to outcomes promised and outcomes delivered. Profitable relationships typically exist when a customer subscribes to a company’s products and services over a long period of time. Early cancellations and deep discounts drive high-growth profiles, but they also result in negative net operating incomes (NOI). Therefore, we see a shift in the fundamental business capabilities required to sell the solution and then to renew.
Over the past 10 years, TSIA has tracked the source of revenue between product sales and service sales, and the trend is very clear: Product revenue is going down and service revenue (recurring revenue) is going up.
Understanding the need to address customers' outcome expectations and acknowledging that selling today is a team event is important, and requires a tight handshake between Sales, Customer Success, Solutions Engineering, and Renewals teams. In an XaaS model, additional capabilities and steps are required, including:
Time to value is critical in an XaaS model, and any misstep in the Sales to Customer Success handoff can quickly lead to an abandoned relationship.
In an XaaS model, the renewal motion begins at the point of sale. Leading technology companies deploy customer success managers earlier in the sales cycle to ensure customers are receiving their services, and accessing the value purchased.
Delivering on the promise is central to building long-term relationships in the XaaS model. CSM’s run onboarding plays, adoption plays, and health-check plays to assess the customer's usage of the product and to adjust and assist as the customer journey continues.
In an XaaS model, renewal specialists continue the value journey beyond the initial transaction by reconnecting with the promise.
Did the customer achieve the desired outcomes?
This question sets the tone for the renewal. The renewal specialist, whether a CSM or a dedicated renewal role, will pivot to the customer's needs during the renewal process. If the customer indicates a failure to deliver, they need to ask why. What adjustments are required to recalibrate the solution to the customer? Do they need additional training? Better support? Did they purchase more than needed? Perhaps the customer is thrilled with the solution but needs more. This is a clear buying signal to the renewal representative and a pivot to upsell or cross-sell the solution.
The renewal specialist is not the end of the road for the relationship, but a next step towards the second phase in the lifecycle. TSIA refers to this business model as Renewal Value Management, the process of connecting to the promise, recalibrating to new value desired, and positioning the customer for the next product that supports their emerging lifecycle needs.
The Renewal Specialist must achieve sales goals, just like the Land Sales Executive, but the output should be an aligned solution and positioning for the next purchase. Once the Renewal Specialist completes their activity, the CSM should continue the day-to-day care of the customer, and the Land Executive is positioned for their next opportunity.
At the executive level of the company, form the strategic understanding, alignment, and commitment to a recurring revenue strategy and a culture of customer outcomes. With aligned leadership and commitment, you may access tremendous growth opportunities to your traditional lines of business and increase company value and resiliency for the future.
Every journey starts from your current state. Benchmarking your sales and business operations can provide valuable insights and greatly shorten the time to outcomes when partnering with experts such as TSIA.
By organizing and grading all elements of your business capabilities towards the capability to design, measure, sell, and deliver outcomes, you position your business model to sustain long term relationships with your customer base; a fundamental requirement for profitable XaaS businesses.
Post Date: June 25, 2020
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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.