The software as a service (SaaS) model continues to be popular in the tech sector, but many of the companies that adopt this model struggle to get their sales function working properly. On the surface, the differences between the traditional software model and SaaS appear to be small, so why does is it so hard to get the sales approach right? Because from a sales perspective selling SaaS is fundamentally different than selling traditional licensed software.
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There are three things that make selling SaaS different from selling traditional software.
1. Complex vs. Simple Sales – It is intuitive to assume that the relatively low monthly subscription prices on a SaaS offering, mean the sales function can be staffed by junior reps, but this is not always the case, especially with enterprise software where there might be 100’s of users. Software that might have a $49 per seat monthly subscription across 200 seats will not be viewed as a $10,000 sale, but an infinite commitment and will require senior level buy-in, which in turn lengthens the sales cycle and implies the need for a more senior rep. Furthermore, the SaaS purchase hits company budgets differently than traditional software purchases and for many companies it looks like a very large operational purchase rather than a modest capital expenditure so even beyond price, the buying and justification process is different than what many reps are used to.
2. Hunting vs. Farming – once a new account is closed, the company begins to generate ongoing revenues from the account, but there is not much for the rep to do other than periodically check in. Traditional software reps who are used to closing an account and then working the account for upgrades and renewals are often surprised to find that to be successful in SaaS sales means to be hunting for new accounts 100% of the time (which in turn often requires a different skill set).
3. Commissions and Sales Costs – given the sales effort curve mentioned above, a company cannot afford to incent its sales reps to do anything other than find and close new accounts. Consequently commissions on a SaaS sale trail off considerably after the first year. Conversely, the high incentive paid to the rep for closing the account throws off the cost of sales in the first year which is tough for many companies to manage.
Many of our clients have achieved success in building sales machines for their software as a service offerings. Here are some of the most common approaches to SaaS sales success:
1. Define Ideal Candidate for the Sales Role Regardless of Compensation – It may seem counter intuitive to pay someone $150k or more per year to sell a product with a $49 per seat price, but unless you selling “onesies” and “twosies” you are after large enterprise deals, and you will need to hire someone who can close large sales. Plus they will need to be able to engineer large multi-year operational purchases. This is not typically the domain of a junior rep. Every business is different so don’t make assumptions about what you need but analyze how your sales is different from a traditional software purchase.
2. Build the Team for Complex Sale – Following the example above, remember that your rep is not selling a $49 product even though that is the seat price per month. If you want your rep closing large deals, they should be supported by a team that enables them to focus their time on high level selling activities and closing deals rather than preparing call lists, qualifying leads or doing demos. Best in class SaaS companies often have one, and in some cases, two dedicated inside sales reps finding and developing leads for the senior rep.
3. Create Incentives for the Reps to Always be Hunting – Best in class SaaS companies don’t stand still. Growth is the key to success, so in spite of how it looks on the books, these companies figure out how to compensate their reps to bring in new accounts. Comp plans need to compensation reps for SaaS contracts over a limited number of years and tail off after the first year. On the other hand there should be bonuses and higher commissions paid for bringing on new clients.
There are many more nuances and we will continue to write about this topic. If you have any specific questions, feel free to leave the in the comments below.
To your success!
Eliot received his B. Comm. from Carleton University and has been honored as a Top 40 Under 40 Award winner.
He co-authored Sales Recruiting 2.0, How to Find Top Performing Sales People, Fast and provides regular insights on sales team management and hiring on the Peak Sales Recruiting Blog.
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