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Expand Selling and Subscription Sales
Steve Frost and Martin Dove
Outcome selling and solution selling are the same thing, right? No, they definitely are not. One of them is an outdated approach that leads to heavy customization, unsolicited requests for proposals (RFPs), and a state of general reactivity. The other is highly valuable, highly prescriptive, and lends itself to success in selling recurring revenue offers. Read on to find out more about outcome selling vs. solution selling, and how you could benefit from an outcome selling approach.
The two authors of this blog cut our teeth in sales back in the latter part of the 20th century. We were both trained in the sales methodology of the day - something called “solution selling.” And, honestly, when someone mentions solution selling, the first thought is that they couldn’t be more stuck in the 1990’s if they were sipping a Zima and watching an episode of “Friends.”
Ok, maybe that’s a little harsh. In fairness, solution selling was a big improvement on the other sales methods that were available at the time.
A lot of tech sales, like most other types of major sales, were relationship-based and highly personality-driven. When there wasn’t a relationship in place, tech salespeople would often use the “show-up-and-throw-up” method of selling, spouting off presentations about speeds-and-feeds, features-and-functionality, and making the sale all about what the vendor could do and how much it would cost. And the reality is that there is still too much of this happening today.
Solution sales took a different approach. It put the focus on the customer rather than the vendor. The idea behind this “new” method (though it was actually first introduced in the 1960s) was to think of the client more holistically and match the features and functionality of your offerings with a problem the customer was having.
Most of us who were schooled in the art of solution selling were trained how to ask probing questions and “get to the pain” that the customer was feeling. We would ask the customer all sorts of open-ended questions, as though we were TV detective Columbo, trying to uncover a problem urgent enough to cause them to spend money with us. Exaggerations were made and assumptions were undertaken. Eventually, we would propose a “solution” to their problem, linking our offering - including our services - to their pain points.
One of the by-products of the growth of solution selling was that buyers would often issue a request for proposal. Rather than waiting for the vendors to show up and ask them about their needs, the customer would spell out their business requirements and technical specifications in great detail.
The vendor, of course, responds. Ideally, the seller was doing insider work with the customer before the request for proposal was issued, so that their particular features or services would be the requirements outlined within the RFP document. The challenge here was that if you didn’t influence the request for proposal beforehand, your chances of winning were incredibly low.
The worst-case scenario, which actually happened in around 60% of cases, was that the customer would issue an RFP, vendors would scramble to respond (often at great cost), and then the customer would end up choosing someone else.
Regardless of whether you’re responding to a request for proposal or working on a vendor-initiated opportunity, solution selling has three main shortcomings when it comes to selling subscription-based offerings, such as Technology-as-a-Service (XaaS) or Managed Services:
Why would they? They can already find everything they need to know about your offering online, and they can start using your baseline version with just a credit card. They care about solving a business problem with as little friction as possible.
This leads to lower gross margins, less opportunity for growth, and endless cycles of blame when things go sideways.
Sure, they can call support if something breaks, but otherwise, sales will be back in touch when it’s time for the renewal or when they aren’t meeting their numbers and want to try to sell you something else. The problem is that the customer may not have a problem at that point, and the seller is not equipped to help them figure out what they might be missing.
Maybe the best way to understand the difference between solution selling and outcome selling is this: Solution selling says: “How can we help you?” Outcome selling says: “This is how we can help you”.
Outcome selling is about leading with insights - sharing your knowledge of what other similar companies are doing and then building the connection between your offering and their highest priority business outcomes. And here’s the thing - you (the vendor) are providing insight and input as to what those outcomes should be. You’re in a position to do this because you’ve done it dozens, or even hundreds, of times before. It is obvious why this approach would be far more strategic and valuable to the customer.
If you’re doing outcome selling the right way, you already know what business outcomes the customer is likely to care about. And, you know how your offering can actually help them achieve those outcomes. That’s a big difference between solution selling and outcome selling. You know which key performance indicators (KPIs) that you can influence and measure, and which ones the customer should be thinking about and prioritizing.
There’s no more showing up and saying “What do you need?” The customer may think they need something that doesn’t make any sense for what they’re trying to do. They may try to order off-menu. You know what they need. You know the industry. You know where you can actually make a difference and prove that you made it.
When you sell around outcomes, you’re the one leading the dance, so to speak. And for a business buyer, who probably doesn’t understand the nuances of technology the way an IT professional does, this is incredibly important.
The other key insight here is that when it comes to technology subscriptions, the contract signature is only the beginning, rather than the end, of the process. TSIA’s LAER (Land, Adopt, Expand, Renew) model teaches us that what happens in the initial (LAND) sale has a huge impact on every other part of the customer lifecycle.
If you don’t do a good job of establishing and documenting the outcome the customer is trying to achieve with your technology, or if you can’t measure and track progress toward those outcomes, then it will be very difficult for your customer success team to drive adoption of your technology.
In consumption-based pricing (which is becoming more and more common for XaaS offers), if the customer doesn’t use your technology, you don’t get paid. And they certainly won’t buy more of it.
Expansion, by the way, is a critical motion for XaaS, where customers often make smaller upfront purchases based on narrowly-defined outcomes. You need to have a plan and capability to grow the account after the initial sale. And you can’t do that without knowing what outcomes the customer should be trying to achieve. If a customer expands their spend with you, they are far more likely to renew. In fact, mid-term expansions (increasing their order at some point between the initial purchase and the renewal) are the number one predictor of contract renewal success.
Finally - and this point is critical - outcome selling has a huge impact on the entire customer lifecycle. TSIA research shows that when there is a formalized pre-sale review of the outcome the customer is trying to achieve, the initial win rate skyrockets from 40% to an astounding 53%. The percentage of contracts that have a mid-term upsell goes up 10 percentage points. And the overall technology subscription growth rate increases an average of 7 points.
In short, good things happen when you align and sell around defined, repeatable outcomes, and you hold yourself accountable for doing so.
First, read this white paper by Martin Dove: “Making the Move to Outcome-Based Selling.” It will give you a primer on the basics of how and why to base your sales approach on customer outcomes.
Next, start thinking about what outcomes you know you're offering can influence and that you can measure. If you can’t do both, then it’s not something you should be anchoring your outcome-based approach around. If you need help figuring this out, talk to our friends at OutcomeChains.
Finally, don’t wait until everything is perfectly in place to get started. Just make sure that you document what outcome(s) the customer is trying to achieve. Write it down. Set up a warm hand-off to Customer Success.
If you are in Customer Success, you should insist that sales provides you with this insight. If you don’t get it from sales, set up a kickoff meeting with the customer as early as you can in the post-sales cycle to get the desired outcomes on record. You need to know what outcome you’re helping the customer drive toward, or they can’t be successful...and neither can you.
Or, you can just stay in the 1990s and keep on solution selling. Put on your flannel shirt and crank up the Pearl Jam CDs. You probably won’t do very well at selling subscriptions or XaaS, and your company will likely fail, but you’ll look and feel comfortable while you do it. After all, if the movie “Titanic” taught us anything, there’s nothing more 1990s than going down with the ship.
Post Date: February 11, 2021
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Steve Frost is the vice president and managing director of revenue research and advisory for TSIA. He also serves TSIA’s vice president of expand selling research. Throughout his career, he has held various leadership and business development roles at companies like Google, Netscape, and Loudcloud, helping them define their go-to-market strategy and business development tactics. Steve is dedicated to helping technology organizations grow their services, subscription, and XaaS revenue by optimizing their practices for growth throughout the customer lifecycle.
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.