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Each quarter, TSIA consolidates the results from 50 of the largest publicly traded technology and services companies; we refer to these companies as the Technology & Services 50. The purpose of this exercise is to establish performance data and understand the major trends impacting the technology industry.
We also conduct a similar exercise focused on 40 of the largest public SaaS companies, those that were “born in the cloud”; we call these companies the Cloud 40.
For some time, we have been highlighting one of the major differences between these two profiles of companies, which is the percentage of revenue that they spend on sales and marketing.
In Q1, we reported that the average of the T&S 50 spend on sales and marketing was 22.1% of revenue compared to 37.5% for the Cloud 40. What’s interesting is the trend that is emerging in the T&S 50 data over the last 12 months.
This blog will discuss some takeaways and trends in Technology & Services 50 companies.
The figure below shows something that we at TSIA have been predicting will happen. As traditional technology and services companies migrate to selling subscription-based offers, they will see an increase in what they spend on sales and marketing to manage the customer life cycle end-to-end.
(Click image to enlarge).
The software companies are the first to make significant investments in their transition from perpetual licensing to subscriptions, and you can see that they have experienced an increase of 4.3% of revenue that they are spending on sales and marketing.
We expect to see similar trends start to emerge in both hardware and services categories in the coming months and quarters.
From our engagement with members over the last 12-18 months, we see two very distinct and connected factors that are contributing to this increase in spending:
These “business buyers” want to engage on the topic of business outcomes and to understand how the proposed solution improves the efficiency and effectiveness of their business processes. They also want to understand how it ultimately contributes to their financial and strategic priorities.
(Click image to enlarge.)
These two factors, which may be weighted differently in different organizations depending on the nature of the companies offers, are both having a significant impact in the sales resourcing models, both in terms of net new roles and new skills that existing team members are required to develop.
Selling traditional, transactional offers was a relatively simple sales engagement. To win the deal, you needed a combination of Sales and Pre-Sales resources to respond to an RFP and negotiate the terms. Then, you would have some combination of Account Management and Service Delivery Management roles who would look after the relationship (including fixing things when they want wrong) until there was a need for a refresh or significant upgrade, at which point the Sales and Pre-Sales resources would re-engage.
When you make the shift to selling subscriptions or life cycle offers, you need differently architect capabilities (commercial, services and, potentially, new technical skills) in order to land the deal. You also need a new set of skills to drive customer adoption, expansion, and to ensure effective renewal.
Engaging with business buyers necessitates that salespeople up their game in terms of their ability to speak the same language as the buyer. They need to be able to relate to their business challenges, the strategies and tactics they use to optimize performance against their KPIs, and they need to build a strong narrative that explains the connection between their solution and the customer’s priority outcomes.
One other really important point here that is often overlooked is that these skills are not only required at the individual contributor level, but they are absolutely essential at the first- and second-line manager level. Without this, oftentimes sellers will revert to the behaviors and tactics that they have used previously, because they are what the organization feels comfortable with.
Hopefully, you’ve started to see the connection between these various trends and the implications on your organization:
The figure below describes what we believe organizations should be working towards, which is a redistribution of roles to reflect the need for stronger levels of engagement across the customer life cycle (Customer Growth Teams) and the investment in skills of their Sales and Pre-Sales resources to be more effective at selling outcome-based subscription offers.
And, as the chart shows, the key to reducing headcount in the “Land” function is increasing efficiency in landing new deals.
However, what we see happening consistently across the industry is indicated in the figure below.
Funding these new roles and the investment required for the associated capabilities development has to come from one of two places:
It may sound obvious, but the priority for Sales leaders in this stage of transition in the industry is to look at the medium- and long-term planning from the following perspective:
The organizations we’re seeing making most progress and accelerating their journeys have two things in common:
These two initiatives are intrinsically related, and we have seen that they have the ability to act as strong catalysts for change. They tend to force many of the other shifts in behavior and the development of the other capabilities that are required to improve sales effectiveness and drive efficiency in the Land stage of the customer engagement lifecycle.
These are two topics on which TSIA has written several papers, I would recommend these two as a good first place to start.
This then leads to the broader topic of sales efficiency across the customer life cycle which is all about allocating the right resources to the right opportunities at the right time across the customer lifecycle to slay the rising cost of sales.
But more on that another day. In the meantime, reach out to us to see how membership in TSIA’s Subscription Sales research practice can help you accomplish all of the above and more when it comes to optimizing your organization for selling subscription-based offers. I look forward to hearing from you!
Post Date: September 26, 2019
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.