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To increase customer lifetime value, stop motivating sales people for short term gains

Recently I have been thinking a lot about the role sales representatives play in organizations.

While researching the topic I came across this book review of The Observer: “Less a book about the conniving tricks of this slippery trade, and more of a human guide to how sales might work and be successful in the 21st century”. With such a review, it was hard not to buy “To Sell is Human”, by Daniel H. Pink.

One of the studies featured in “To Sell is Human” reveals that 40% of people’s time is spent selling something.

When thinking about this study, I realized how in start-ups this becomes really prominent. Every employee must wear the sales hat, whether it is in creating a client-centric product, selling your vision to early stakeholders and employees or actively offering solutions to clients.

As someone that was intimately involved in building a sales organization from the ground up, I studied the sales techniques of some of the largest technology organizations of the 90’s and early 00’s with the intention of learning from the best.

What I uncovered early in this journey can perhaps explain the tendency we have to not trust sales representatives.

During the internet and software boom, sales incentives were tied to customer acquisition only, after all the cycle was pretty much finished once a client acquired a software, the true “Land-and-Forget” sales approach. This way of selling yielded great revenue results when software companies were selling once-off packages, but also nurtured a destructive sales culture as a lot of the sales tactics became misleading and deceptive.

In his book, Daniel Pink makes a point about the information available to buyers and susceptibility to deception. Deception is only possible when buyers lack information or expertise. Today buyers have vendor and product reviews, product ratings, and comparison shopping at their fingertips. It’s “seller beware.”

As the market shifted to a more transparent format with an increased volume of information on products and services, the new-comers of the B2B industry picked up on the customer’s frustrations and introduced a new business model: Software as a Service. In SaaS, the new mantra is “Land-Adopt-Expand-Renew”, and retaining customers depend on your ability to make them successful first.

The market embraced the new model quickly as it not only gave clients a way-out from a lock-in strategy but also created healthy competition that promoted product and service innovation.

To meet the channel needs of the new landscape, a more sophisticated way of selling emerged. In “Solution Selling” rather than just pushing products out, the salesperson focuses on a more consultative approach where the customer’s problems are fleshed out to create an appropriate offering.

Overall it sounds like a great method, but when you take a closer look at what is happening, you can see a crack in the current model shaped as a disconnect between what we preach versus what we do.

The sales techniques have evolved, the title of salespeople were reinvented and now include “consultant” or “expert” in it in the hope to wash away the bad connotations and increase credibility. But the way we measure and compensate sales performance has remained the same.

You can quickly see how that has created a big problem.

It is human nature. When you motivate people for the short-term gains, you will get short-term results.

One of the most obvious ways this misalignment emerges SaaS organizations is in the format of customer churn.

Today when customers are promised something your solution cannot achieve, they will find a different provider and leave. For the SaaS company, it means that the entire acquisition and initial onboarding investment will be lost on a client that will likely share their experience with others.

So, if you are scratching your head trying to fix the churn problem, or have just started and want to succeed with the “Land-Adopt-Expand-Renew” strategy, start with the first problem that needs fixing: how we measure and compensate sales teams.

Only then we will be able to offer customer success programmes that will increase the customer lifetime value.

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