I start most of my presentations with a statement that I believe the technology and services industry is undergoing the greatest period of change in the last 50 years. I give examples of how everything about selling technology is changing—who you sell to, what you sell, and how you sell are all becoming unrecognizable from how they were 5 years ago.
We have Sales leaders from the world’s largest technology companies asking us all the time what they can do to improve sales performance. When we talk to these Sales leaders, they all tell us the same three things:
- Sales performance is not meeting expectations, either with new logos or existing accounts, and the old tactics aren’t working as well as they used to
- The ways in which customers are consuming technology is changing; the move to XaaS is real and selling is becoming a more complex team activity
- Business buyers are increasingly involved in the buying decision; there is an increasing need to be able to explain how a technology solution is going to deliver against a business outcome
In this post, I will outline where Sales organizations need to improve in order to address these challenges.
Traditional Sales Interactions and Processes Are Changing
Fundamental change in how technology companies engage with their customers is required in order to deliver a more consistent and coherent customer experience. This is also necessary in order to make sure that revenue opportunities are optimized across the account base.
There is another significant challenge that most companies are facing, which is an escalation in their sales and marketing costs. If you look at traditional technology companies using a transactional method of selling products and attaching basic services, they typically spend 22% of their total revenue on sales and marketing. The new XaaS and Cloud companies are seeing the percentage of their sales and marketing spend increase to an average of 37% of total revenue. There are very public examples where this is over 50%.
The reality is that to sell more complex solutions with a greater degree of accountability for delivering business outcomes costs more money—there are more roles involved in generating the demand, identifying the opportunity, pursuing, and closing the deal.
The new XaaS and Cloud companies are seeing the percentage of their sales and marketing spending increase to an average of 37% of total revenue.
When most of us started in Sales, the landscape was clear; Sales owned the customer relationship and everyone else in the organization rallied behind the account executive to win new deals. Selling was a heroic act, and the problem then sat with the Services organization to install and support the technology.
Sales, Services, Customer Success, and Renewals Teams Now Share Responsibility for the Customer
Most technology firms have now introduced a Customer Success function, and there’s often a potentially ambiguous matrix of customer engagement responsibility between Sales, Services, Customer Success, and in some cases a Renewals function. Between all these parties, there is a shared responsibility and accountability for winning, growing, and retaining revenues.
Despite these organizational changes, what has remained constant is that Sales retains absolute accountability for “landing” the new business number, whether that’s in net new logos or winning new deals in existing accounts. So, it’s not surprising that Sales leaders are looking for new approaches and innovation in the way in which they are directing their Sales teams to perform.
Tactics for Optimizing Sales Performance
As part of TSIA’s Subscription Sales Research Practice, we have identified over 30 core capabilities that companies need to develop as they optimize sales performance. These capabilities will all exist to some extent within every company, and we can help to assess and prioritize each area that requires development. Most conversations with Sales leaders within our member companies lead to the very simple and logical question, “What should we do first?
TSIA has identified one change that every company can make with limited investment that will make a significant and immediate impact to performance across the following metrics:
- Reduce the cost of sales
- Improve win rate
- Increase point of sale gross margin
The change we’re talking about is best described in the following graphic:
The traditional way in which technology companies have sold, known as “Reactive RFP Selling”, is going to result in the following when compared to a more modern “Proactive Outcome Selling” approach:
- Higher cost of pursuit as a result of higher levels of competition
- Lower gross margins as a result of more bespoke services (a lack of alignment to your standard offers)
We also know that typically, companies that use a combination of Sales and Services resources to sell proactive outcome-based solutions achieve a 42% higher win rate than those that don’t. I should make it clear that this data doesn’t suggest that companies stop responding to RFPs. But, you need to be far more selective about which RFPs you respond to and where you direct your Sales resources.
When interviewing TSIA member companies, we find that on average the profile of “Sales resource time allocation” looks something like this:
We know that most Sales organizations are resource-constrained, so adding any new headcount is not really an option at this stage. Therefore, we have to look at redirecting the most appropriate resources to the activities that will offer the greatest yield.
With the right focus from management and strong executive leadership, it is possible to change the picture to look more like this within 12 months (and in some cases, even sooner):
This shift can result in a more than doubling of revenue bookings and a trebling of gross profit with exactly the same number of bids being submitted.
Need Help in Improving Sales Performance?
If you need help in optimizing your Sales team and strategy to achieve these goals, contact TSIA about membership in our Subscription Sales research practice. We have a Strategic Services engagement that is specifically designed to help companies looking to make this transition through focused advisory, workshops, and more. The process involves some initial hand-holding through the early stages but is largely about empowering the company to drive this change in behaviors and focus. I look forward to hearing from you.