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There’s an age-old categorization in technology Sales between “hunters” vs. “farmers”. Account executives, who go out and land the “big deals” are known as the hunters. The salespeople who look after the accounts after they’re signed, and try to keep and grow the revenue from their install base, are thought of as “farmers”.
Having grown up in rural Nebraska and having spent my career in technology sales, I’m one of the few people who has been not only a metaphorical “hunter” and “farmer”, but I’ve actually hunted, and I’ve literally farmed.
In both business and real life, one of these actions has stayed basically the same for generations, the other has seen huge gains in efficiency by applying process and technology. Effective farming, or expanding your relationship with existing customers, is the key to cost-efficient revenue growth.
The act of hunting hasn’t changed much since my dad and I used to go into the fields looking for pheasants or deer, or even since my grandfather did the same thing with him. The parallels to the “Land” selling motion in LAER aren’t too hard to see: hunting is a high-cost, labor-intensive and inherently inefficient act.
Its 8-10x more expensive to find a new customer than to keep and grow an existing one.
In business, hunting for new business is necessary to be sure. Obviously, you need new customers, and while you can do some things to make the process incrementally more efficient (such as leveraging data and organizing by industry vertical), there are only so many efficiencies to be gained. Plus, remember that the average size of a team that makes a technology purchasing decision is over 10 people. According to TSIA research, win rates are somewhere around 1 in 3.
Hundreds of man-hours are spent on landing new enterprise customers, often including exhaustive efforts from Sales, Finance, Services, and everyone else involved in the deal. And commissions paid to the salespeople are also high—in some cases 10% or more of the contract value. In fact, its 8-10x more expensive to find a new customer than to keep and grow an existing one. In summary, hunting is hard and expensive.
If your company is reliant on hunting to make its numbers, it’s unlikely that you’ll be able to grow without tremendous effort, high costs, and a disproportionately large number of hunters out in the field. It’s like trying to feed a village of people with only hunters to feed everyone based on what they can find. It’s time for companies to start “growing their own food” by increasing spending with existing customers.
Farming (real farming, anyway), has become an industry transformed by technology. According to the USDA, since 1950, the average amount of milk produced per cow increased from 5,314 pounds to 18,201 pounds per year (+242%). The average yield of corn rose from 39 bushels to 153 bushels per acre (+292%), and each farmer in 2000 produced on average 12 times as much farm output per hour worked as a farmer did in 1950. These advances have allowed for tremendous growth at a far lower cost and with far less human effort.
The biggest reason is that companies usually apply the same techniques to farming that they do to hunting—we treat every deal like it’s a new sale.
So why haven’t we seen the same type of growth in the “farming” motion for Sales? Why don’t we always get the same sorts of efficiency gains that we should merit from selling more to our existing customers? The biggest reason is that companies usually apply the same techniques to farming that they do to hunting—we treat every deal like it’s a new sale.
Often, the account executives are the ones driving all sales, clinging to the notion that Sales “owns the customer.” However, TSIA research also shows that most account executives don’t pay attention to a deal unless it’s worth more than $250,000 USD. That means that those smaller opportunities with existing customers, which can really add up, are often left on the table. It’s also why TSIA has a core mantra of “The process owns the customer”. You simply can’t have the same processes for selling to existing customers that you have for new customers.
The potential for gains are real, and it’s not all that complicated to start capitalizing upon them. Most companies haven’t started utilizing data and analytics to find new opportunities. For example, it’s still very much a minority practice for companies to utilize consumption data to find upsells and cross-sell deals, but those that do are growing their service revenues from existing customers by more than 2x those that don’t.
Companies also need to turn on their listening engines on their Services Delivery and Customer Success teams. TSIA members who utilize their Services teams to generate leads for sales get almost 3x their services revenue from existing customers than those who don’t.
Finally, companies need to optimize their offerings for existing customers. Companies that have offers specifically created for upsell and cross-sell grow their customers dramatically faster than those who haven’t taken this step. The more you can design and optimize your offers, processes and intelligence around existing customers, the more efficiently you can grow your revenue.
Now that you know that your Sales organization needs to start “farming” and do more to sell to your existing install base, here are some recommendations for getting started.
Culturally, Sales organizations tend to speak derisively of farmers, as though their activities have lesser value than those of the hunters. It’s time to stop saying things like “She’s just a farmer”, or “He couldn’t cut it as a Sales guy, so he moved to Customer Success”. The activities that go into growing existing customers may be different than those that go into finding new ones, but that doesn’t make them less important or less valuable.
As we often remind people back in Nebraska, “Farmers feed the world”. They can also fuel your company’s growth in a far more cost-effective way.
You already know a lot about your existing customers. When you factor in the Sales, Services and digital touchpoints, you’re having thousands of interactions with them that should lead to actionable account Intelligence, but usually doesn’t hit anyone’s radar. For more on how to go about this, take a look at this white paper on how to take a different approach to Data-Driven Selling.
At the recent Technology & Services World Conference in Las Vegas, I led a keynote panel on the best ways to grow existing customers. This video will give you some ideas on how to set up your initial deals for success in expanding them later, how renewals can lead to growth, and how your channel partners can play a big role.
At TSIA, we refer to the concept of “farming” in technology sales as “expand selling”. As the head of TSIA’s Expand Selling research and advisory practice, it’s my mission to help technology organizations like yours optimize your sales motions, get your Sales and Services teams working together to work smarter, not harder, to increase revenue with your existing customers. Schedule a call with me to learn more about how we can help you start unlocking new revenue potential with existing customers today.
Post Date: December 19, 2019
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.
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.