Technology companies built on a recurring revenue model need highly productive sellers in order to drive a strong net revenue retention rate and consequently higher market valuations. Alexander Group research indicates that on average, companies with a growth-margin index (GMI) greater than 40 (also known as Rule of 40) have 59% higher productivity per seller as measured by new and expansion bookings. Consequently, EBITDA margin which is driven both by seller productivity and cost of sales is almost three times higher in these same companies. The data doesn’t lie – managing cost of sales is important, seller productivity is critical!
Alexander Group’s research and experience indicate XaaS companies should focus on six critical practices to drive higher bookings productivity.
Driving salesforce productivity starts with revenue leadership: the chief revenue officer (CRO) must create and deliver the organization’s go-to-customer strategy. This message provides the salesforce the big picture roadmap on where the company is heading and their role in the journey. The CRO must be motivational, transparent and direct. Energy is contagious, and a motivated seller will more easily persuade a customer to buy. Sales organizations do not reside in a silo. In order to be effective, they need to interface with marketing, product, operations and service organizations. It’s the CRO’s job to collaborate with these organizations’ leaders to ensure effective and efficient processes that ultimately focus on seller productivity. Each management layer, including front-line sales managers, must cascade the sales strategy messages and provide ongoing guidance and coaching. Collectively, revenue leadership and management can focus seller’s time, keep morale high and attract & retain high caliber talent that ultimately leads to higher productivity per rep.
To reach their optimal productivity level, sellers need a robust pipeline of qualified opportunities from both new and existing accounts. Leading XaaS organizations are evolving the traditional lead generation role to become a digitally enabled prospect engagement rep that creates rich, interactive sales experiences for prospects and increases the number of quality conversations. In addition to traditional prospect lists, the digitally enabled prospect engagement rep leverages communities, sales intelligence and forums to target both new logos and new/unfamiliar buyers within existing accounts. To increase prospect quality, revenue organizations leverage propensity analysis tools, which predict the sales outcomes from specific customer characteristics and their responses to various company interactions. A high volume of well-qualified leads increases pipeline, close rates and sales velocity, all of which are major contributors to higher bookings productivity.
Revenue organizations can leverage a mix of resources to support their core sellers. Many revenue leaders strategize on how best to drive higher bookings—add more core sellers or get a force multiplier by adding overlay resources. Best-in-class organizations will incorporate the right mix of overlay resources to increase the core seller’s productivity based on their unique go-to-market model needs. Specifically, they use sales engineers and architects and/or solution, product or vertical specialists when additional technical or business expertise is required to meet customers’ needs. They also use lower cost resources like sales support, lead generation, contract and renewal teams to free up sellers’ time to focus on high-value customer-focused activities that ultimately drive higher productivity.
Enabling the core seller to drive bookings productivity is a core tenet of the successful XaaS organization. The sellers need to be continuously trained on the latest products and platforms, not just during the onboarding process. Codified sales playbooks based on business and product use-cases provide sellers with a script for success. Sales intelligence tools, such as CRM & contact management, customer and marketing intelligence, data visualization and analytics help sellers find, monitor and understand data that provides insights into prospects and existing customers’ business needs. Collaboration tools enable real-time problem solving and best practice sharing. For example, junior sellers can review top sellers’ calls to ramp quicker. Training, codified sales playbooks, sales intelligence tools and collaboration tools are all essential enablers to drive better engagement and productivity.
When customers are unable to maximize value from the previous purchases, they become an at-risk account and reduce the core seller’s productivity. Successful revenue organizations focus on adoption and consumption activities, often with specialized customer success organization and coordinated account management processes. Best-in-class XaaS organizations clearly articulate roles, responsibilities and rules of engagement between the core seller and customer success managers (CSMs). Customers often hold the core seller responsible for ensuring their purchased solution works and solves their problem. However, that does not mean the core seller does all the legwork. Core sellers must articulate the business objectives and customer expectations upfront. In coordination with their CSM, the core seller develops the ROI-based customer success plan that outlines adoption/consumption needs by use-case. The CSM is then responsible for executing the activities outlined in the customer success plan. Successful XaaS organizations clearly define adoption/consumption and customer health metrics and use automation, where possible, to quantify value and rank accounts based on churn likelihood and expansion potential. Sellers and CSMs use that intelligence to retain customers and drive growth.
Sales compensation plans are a critical tool to drive higher bookings productivity. The expression “new business is seven times harder to sell to than existing business” is true for most companies. These companies compensate new logos and expansion opportunities higher than renewals. For others, renewals are “resells” or migrations, and therefore require the core seller focus, creating a challenge to differentiate between new and renewal. Alexander Group’s recent article highlights additional ways to measure recurring revenue growth. Pay curve designs should drive incremental pay for incremental performance to continue to drive sellers to sell more and more. Quotas should include stretch growth objectives; however, they need to be fair and achievable. Overly high quotas will result in decreased seller morale and higher turnover. Motivational sales compensation plans and quota programs are two of the most important levers to drive strategic business goals and ultimately bookings growth.
Leadership messages, manager coaching and clearly defined goals provide sellers with a roadmap to success. Tools and support resources enable sellers to be more productive. Qualified leads drive the revenue engine while effective adoption practices prevent churn and shore up expansion opportunities, and sales compensation plans along with quotas reward sellers for growth. Sales revenue leaders that focus on these practices will be able to increase productivity per seller, increase their GMI and ultimately drive higher market valuation.
If you are wrestling with how best to drive your sales team productivity or any other challenges, contact the Alexander Group to schedule a complimentary one-hour session with one our technology practice leaders.