Start-up businesses don’t remain start-ups forever, especially in the subscription economy where growth expectations of 50% or more per year are common. As your business grows, you will need to revise your plans and goals to ensure that you are accomplishing your core strategy. Typically the main shift occurs when you begin to establish your customer base and the need to engage with these clients becomes much broader than just signing a contract or setting them up on your service. We typically see three clear transition periods in the business that the leadership team must manage to drive growth. These transitions are defined as: (1) customer acquisition to (2) retention and eventually (3) profitability or monetization. As the criteria of success evolves, the tools designed for the old transactional economy can no longer help companies achieve results in the subscription economy. A Sales Performance Management solution aligns your sales initiatives at every stage of your business.
In the start-up phase, companies aggressively recruit customers with the expectation of having a long-term relationship with them and consciously decide to put short-term profitability firmly in the back-seat. New businesses want recognizable or market-leading clients to show that there is a strong demand for what they sell. From the operational perspective, during the acquisition phase, companies invest their incentive dollars into “hunters” – sales people who sign up more new customers, with longer contract durations. They also want to maximize annual contract value (ACV) to show investors that the product or service fits market need and that there is money to be made. The metrics that play the most important role in this stage that affect the design of compensation plans are the number of new customers, average contract value and the number of multiyear contracts.
Once a core base of clients is established, the company’s focus begins to shift towards retaining and expanding those clients in a meaningful way. The measurement of success now includes core items like customer utilization, enablement, and add-on products. This typically requires organizations to begin looking for way to drive these results and usually begins the move towards Account Management (vs hunters) and the introduction of Customer Success teams. These new teams add to the complexity of how an organization measures success and how you use your compensation dollars to drive the behavior that is good for your business overall. This is one of the places where old economy sales performance management tools just can’t keep up. Those tools were designed to pay commission on product sales (invoicing if you will) and when you add these new metrics and new back-end systems (think ERP’s for Professional Services, Customers Success, etc.), they fail! As a leader, it is imperative for you to have visibility to be able to effectively manage the entire engagement with the customer.
As businesses moves through the start-up phase into growth/retention and ultimately achieve profitability, their sales performance strategies must evolve. Now that you know your customers are using your product, we typically see companies add “farmers”, sales professionals who can cultivate relationships with existing customers and identify up sell opportunities. Typically these up sell opportunities are closely aligned to how your clients are utilizing your existing services and directly ties into the tools and systems that you will be using for technical support, customer success and even your own products. All of this additional knowledge makes you significantly more effective in growing your relationship with your customer and will result in adding new users, selling more add-ons and modules and potentially expanding into new locations with the customer. In this stage, metrics such as annual recurring revenue (ARR) growth rate, sales volumes to existing accounts and collections (ensuring all accounts are paid and cash flow is good) define your success.
As your business grows, the metrics that define your success change. In the upcoming blog posts, we will discuss how a robust Sales Performance Management solution specifically designed for the subscription economy can help you optimize your sales strategies at every stage of your business. Stay tuned!
Originally posted in Obero SPM: https://oberospm.com/evolution-of-your-subscription-based-business/