Your Sales team is where your company’s efforts meet the world. They’re where the rubber meets the road. Your organization’s efforts can live, or die, based on the performance of your Sales team. The happier they are, the more positive they feel, the more confident they are in your offerings, the better they sell. And the better revenue flows.
But what if the apple cart gets upset?
This is a challenge currently facing a lot of companies, particularly in the B2B (business-to-business) space. As SaaS offerings become more common-place, traditional software sales models are being upset.
Two things need to happen at the same time.
- Compensation: How Sales teams are paid must change to reflect the new delivery mechanisms; and,
- Education: Your sales teams (direct and in-direct) need to understand the benefits of moving from selling traditional licenses requiring on-site installation, to (typically) lower-cost web-based equivalents.
- Fortunately, the transition has been under way for a while now. The initial transition took the form of moving from selling traditional licenses, upgraded annually, to selling Maintenance or Subscription contracts. In the following discussion, we’ll discuss Compensation first, Education second.
While I have been in sales organizations, I have not led them. So I asked Ed Flaherty, President at Flaherty Advisory Services, if he cared to comment. Ed has been involved with SaaS for almost 10 years.
On compensation concerns, Ed notes:
…there are key components to balance the Company and sales team’s interests—there must be:
A reward for signing a contract upfront (although it can be small);
TCV (total contract value) must be considered in the compensation;
Commissions should be paid over the contract term based upon cash collected; and,
[consideration toward] paying a higher rate in year 1 vs. later years.
Other areas requiring careful consideration can include, "…rewarding new contracts more than renewals which is always a difficult conversation." Harder yet, Ed notes, "…is what structure to use for new contracts within the same corporation to different business units or divisions.
Ed described how one of their compensation experts compared licensed software sales vs. SaaS contract commission structures, to that of the insurance industry with life insurance contracts vs. automobile insurance contracts.
"The challenge is that most software sales team members have grown up selling traditional licenses making the discussion of commissions over time and more contract closes vs. less an "interesting" conversation."
My own experience with this migration occurred while at Autodesk. We migrated from selling purely perpetual (traditional) software licenses, to selling ‘maintenance’ or Subscription services. The transition was certainly awkward at first, and a number of iterations occurred, before the ‘change’ started to feel comfortable.
Maintenance (aka Subscription) deliverables became important for two reasons. First, they smoothed out annual cash flow. We became (over time) less dependent on ‘Big R’ annual releases causing most of our annual revenue to occur in a single quarter. Second, the new ‘term’ contracts let us engage our customers more persistently compared to simple one-time transactions.
And, today, given the very strong similarities between Subscription sales and SaaS, those are still very valid reasons why any company today might want to consider SaaS.
The SaaS delivery model smooths annual cash flow and changes customer revenue engagements from a one-time transaction to a recurring revenue model.
Beyond compensation issues you still need to help your in-house sales teams, and your extended teams (e.g. VARS, Distributors) understand the changes. And, you need to do it in a way that motivates them.
Rather than write a book on the topic, I’ll skim the high points for your sales teams…
The first one, is touchy. Migrating from traditional (physical) products to SaaS will directly impact your distribution channels. These can include managing channel inventory, Cost of Goods, staffing levels, and perhaps even the very makeup of the channel itself. In my past, sales spent significant amounts of time simply managing the channel. Decreasing the amount of channel-focused effort may be motivating for your in-house staff.
SaaS updates are quicker, more frequent, and generally far less expensive than with on-site equivalents. This might not be exciting if a lot of your on-going revenue is derived from on-site maintenance.
On the other hand, being able to sell an Operational Expense item, rather than a major Capital Expense, might outright eliminate certain road blocks in your sales process.
Business solutions are increasingly mobility oriented. Outline how your solution can do more, go more places—anywhere network connectivity is available. iPads, iPhones, and Android solutions get your customers excited—finally having an answer will likely get Sales excited too.
As I allude to above, the Channel has its own host of concerns. Here are a couple thoughts to get you started, some will vary by country of course:
- SaaS frees up space previously set aside for inventory.
- No annual property tax due for inventory maintained in stock.
- SaaS offerings may make possible supporting ($$) more customers, with fewer staff.
- Commissions (situation dependent of course) can be paid faster. No waiting for customers to register software, pass along payments, etc. It can be done in a more seamless, more easily accounted-for manner.
Sales/Partners will trade off some of their past points of friction. For instance, they will worry less about customer compute infrastructure. Instead, they’ll become acutely focused on things like network bandwidth, redundancy, and saturation. Prepared for the ‘new’ potential ‘gotchas,’ the issues will be largely disarmed when they occur.
These are some items I’ve been involved with in the past. The key is education, transparency in communication, and a modicum of hand-holding.
SaaS let’s you see what your customers are truly doing with your product.
This gives both parties (sales, customer) strength in future negotiations. Every customer I’ve had, with more than a handful of licenses, was hard-pressed to accurately identify their usage. Oh, the time lost trying to validate licenses/use. Being able to do away with the ‘guesses,’ negotiating for a mutually acceptable number, and move to hard cold facts is really nice.
Special thanks to Ed Flaherty, President at Flaherty Advisory Services, for his contributions.