As we B2B sales practitioners and leaders enter a new decade, here are some bold predictions that I envision transforming the B2B sales world:
Radically change how sales quotas are derived. According to CSO Insights 2019 World Class Sales Practices Study, only 57% of B2B sales reps are attaining their quota. Yet the same study showed that overall B2B company plan attainment is at 101%. Sound like a rigged system? Sure does to me and as a long time B2B VP of Sales, I have lots of first-hand knowledge of how compensation plans and quotas are created.
The dirty little secret is that comp plans and quotas are driven by the investors. All of the Venture Capitalists (VCs) have their proverbial revenue scale spreadsheet that magically arrives at how you are going to grow the business to $100M in ARR in 4-5 years. The “strings” that are attached when you accept a large VC investment of millions or tens of millions of dollars in a round, should really be viewed as impenetrable steel cables. You sign up and commit to a revenue growth plan that is predicated on getting to $100M in ARR.
And if you miss out on hitting the revenue numbers, they will fire you and bring in someone else that will commit to hitting those growth numbers. Comp plans and sales quotas are reverse engineered off this basis. The CRO/VP of Sales adds a sales quota “buffer margin” so the company achieves their overall revenue plan. What that means is it is common practice to add a 15%-20% buffer in assigning individual sales contributor quotas. That means if you added up all of the individual sales contributor quotas, it would be at 115%-120% of what the actual company overall revenue plan.
Then if you factor in the Pareto principle (aka the 80/20 rule), where you model that 80% of your revenue will come from your top 20% of sales performers…you have created a framework designed so that only 57% of your sales reps will attain their quota. What’s the problem with this model? It creates an abnormally high sales rep attrition rate. The aforementioned CSO Insights study revealed that seller attrition last year was at 18%, which is up 5% over the 2017 seller attrition rate. This means sales leaders are spending too much of their time recruiting and on boarding new sales reps to back fill open sales positions.
Sales reps are hard wired to compete and win. No sales rep that I know wants to come in at less than 100% of quota. Rather, they all want to blow out their quota and earn the maximum accelerators in their commission plan. This is the root cause of the high seller attrition rate.
Radically change how B2B Company valuations are derived. We have formally become a subscription economy. Netflix, Amazon, Google, Microsoft, Facebook and Disney are concrete evidence of this. Yet we are still using anachronistic models to value a company that have no subscription economy basis. Companies should obsessively focus on customer acquisition, customer retention, customer acquisition cost (CAC) and the lifetime value of a customer (LTV).
In the subscription economy, there are new metrics and KPIs that would reveal the true health and value of a company. Net Promoter Score (NPS) is one example of such a metric. Shouldn’t we reward companies that treat their employees well and have high employee engagement scores and retention rates? Wouldn’t that inherently be a more valuable company than one that treats their employees like crap and has a huge attrition problem as a result? CAC and cost of sales tends to be really high, particularly in the B2B technology sales world. Why are we not measuring and rewarding companies that retain their sellers for longer average tenures? All of the empirical data proves that when you have B2B sales reps that are tenured for at least 3-4 years with the same company, they have their highest performing sales years. Most B2B companies hide key performance metrics like employee engagement, NPS, retention rates, average seller tenure rates, etc. because they are receiving failing grades.
I’d submit that these are paramount KPIs that measure the true health and quality of the company. You could make the argument they are at least equal in importance to revenue growth, profitability, etc. Why? Because these are new and intrinsic things that must be measured and reported on in our subscription economy to truly understand how healthy the business is.
Do away with sales quarterly reporting and the dreaded sales quarter end. It’s all a silly game that we continue to play with our customers. Customers hate it. Smart customers exploit our silly quarter end game and use it against us to get ridiculous discounts. This only serves to cheapen the value of our product/service/solution to our customers.
Coming back to the subscription economy, customers buy when we’ve done a good job of proving the value of our solution to them as sellers. Until we’ve proven the value of our solution to the customer’s satisfaction, they are not ready to buy and no quarter end discount is going to motivate them to meet our arbitrary deadline.
There is a natural and organic average sales cycle length for every B2B product that is sold. There are always outliers, but B2B sellers should know how long on average it takes to prove their value proposition to the customer and inspire them to action. There are variables such as the complexity of what you are selling and the price point, etc. that means it will simply require more time on average to win a new customer deal.
Trust me when I say that customers will find it incredibly refreshing when B2B sellers stop trying the quarter end or fiscal year end approach to get a deal to close. Old habits die hard. But this one needs to die fast.
Do away with sales quotas altogether. We started off by calling out that our B2B sales quota system is failing and only getting worse. Why not blow it up and try something new? Commission plans are all about incentivizing the right sales behaviors we want execute in the field with customers. Revenue is a byproduct of sound sales behavior and execution. Why not reward and incentivize based on the right sales behaviors and the resulting business outcomes we want to achieve?
Customer retention is paramount in the subscription economy. Let’s reward sellers that have the highest customer retention rates. Let’s reward sales managers that have the highest seller retention and performance rates. Let’s reward sellers that have the highest customer LTV rates. Let’s reward sellers and sales managers that have the lowest CAC. Let’s reward sellers and sales managers that have the shortest average sales cycle lengths and use less of the companies resources on average to win a new customer deal compared to their peers (i.e., sales efficacy metrics)? Let’s reward sellers and managers that win huge competitive displacement deals? Aren’t those types of deals inherently more valuable? Shouldn’t we model out what the ideal set of sales behaviors and business outcomes looks like and incentivize our sellers and sales managers against that?
Do away with complex pricing. Often, B2B technology companies create pricing models that are incredibly complex and confuse the customer. This only adds to the length of the sales cycle. Customers love simple pricing models. It removes a ton of friction in the customer buying journey. If it requires a PHD from MIT to explain your pricing model…then you’ve failed.
Simple pricing models should be based the customer’s actual value levers. What is most important and valuable about your product/service/solution to the customer? You should absolutely know the answer to this question and that is your fundamental value proposition. All pricing should be based solely on the value levers that are quantifiable. Don’t ever try to create an ROI model with a customer that is not based on any elements that are not easily quantifiable by the customer themselves.
This may too radical for most B2B technology companies, but don’t be surprised if someday soon a truly disruptive B2B technology company lets the customer decide how much to pay for the value they are receiving from their product/service/solution. Obviously this would require an ROI model that quantifiably can measure the value provided that the customer agrees with. Wouldn’t that be powerful and cool if your B2B technology company was the first to offer this to customers?
My admonition to all B2B sales leaders as we enter 2020, is think outside the box and disrupt. Try new things that have never been tried before. Aspire to build lifelong relationships and partnerships with your customers. Offer a “frictionless” buying journey to your customers. Dream big and insist on being the B2B technology company that your customers refers to as the model example of who they want to work with and how they want to work with you. Just be simple and drop dead easy to work with in all of your customer interactions. It will pay huge dividends, I guarantee you.