Co-authored by Marc Metzner, Vice President at Alexander Group.
Software companies continue to promote Cloud & subscription offerings, often with smaller initial deal sizes that they expect to grow in subsequent years. But achieving ongoing growth within customer accounts can be both challenging and costly. To be successful, leadership needs an effective post-sale growth model, one that invests significantly in post-sale roles.
Investing in a High-ROI Post-Sale Coverage Model
The framework for how companies can best approach the challenge of building an effective post-sale growth model begins with the realization to spend significantly more after the initial sale.
Compare traditional software, in which companies engage in “sell and renew” activities, selling a big perpetual license deal upfront, with minimal post-sales activities beyond renewing maintenance. On the other hand, in the Cloud & subscription world, companies sell smaller deals with shorter contracts, and then grow the recurring revenue in the out-years (i.e., after year one). In this model, roughly 15 percent of the customer lifetime value comes in the first year, while as much as 85 percent comes in the out-years1, as vendors expect to grow revenue by 20-30 percent per account, per year.
In the traditional software world, sales leaders focus sales budgets heavily on the “close,” deploying expensive resources (e.g., technical specialists and product experts) to aid field hunters in closing large perpetual license deals. Lower-cost renewal representatives manage maintenance renewals; the customer support group manages customer satisfaction. As a result, traditional software sales models typically invest less than 5 percent of overall sales expense in their post-sale roles, instead focusing 90+ percent on the “close.”
In the Cloud world, companies are shifting their investments towards post-sales, investing 3-4 times more in post-sales headcount than traditional software companies. The Alexander Group’s (AGI) 2016 Cloud Sales Index found that some companies invest as much as 15-20 percent of total sales expense on post-sales headcount. In fact, 65 percent of the study’s pure-play Cloud companies spent more than 10 percent of sales expense on post-sales in 2015, and 100 percent say that investment is growing.
Picking the Right Post-Sales Roles
As pure-play Cloud companies run out of low-hanging fruit (new logos) and have to drive growth within the customer base, they need specialized post-sale roles. Similarly, many hybrids (i.e., traditional software companies transitioning to Cloud), recognize the need to sell Cloud to their customer base.
Many Cloud companies have deployed a “Customer Success Manager” (CSM), a sales & support resource with limited pay at risk that is focused on driving adoption, satisfaction, and in some cases, renewals. That is a positive first step, but after a short period companies typically realize that their CSM is unable to drive much focus on upselling or cross-selling.
Some companies will then explicitly tie their hunter representative to post-sale account growth in addition to their hunting—called “hunting in the zoo”—and often augment with sales specialists who can sell into existing accounts (as distinguished from traditional hunting—i.e., “hunting in the wild”).
However, for some vendors, this approach of using multiple sales representatives who upsell or cross-sell elements of the company’s solutions can be difficult to coordinate and can confuse customers. In these cases, companies may choose to deploy an account manager with significant pay at risk and a large growth target to coordinate everything from adoption through cross-selling. This role, sometimes called a “zookeeper” because of their deep knowledge and coordination of the account, may also team with a Customer Success Manager, so they can stay focused on growth activities.
The decision on which roles a company should include in their post-sale coverage model depends on several key variables, including the opportunity for new logo acquisition, upsell growth, cross-sell potential, renewal stickiness as well as average sales cycle length and deal size.
When evaluating a company’s need for post-sale capabilities, consider these questions:
If you’d like to learn more about optimizing your post-sale model and driving towards consistent Cloud growth through best practices, benchmarks and advisory services, please contact an Alexander Group Cloud Sales practice leader.
1 From the Alexander Group 2016 Cloud Sales Index; based on a five-year customer lifetime.
Schedule a readout of the 2016 Cloud Sales Index with an Alexander Group sales leader.