Revenue is the fuel that powers the engine of any business. It enables movement, acceleration and maneuverability. Without revenue, there is no profit and eventually you run out of gas. While venture funding may provide a startup with a temporary reprieve from this harsh reality, confusing revenue with cash will only result in failure and loss of what might be your lifelong dream. You can borrow cash, but you cannot borrow revenue.
So, it would seem like building a sales operation that generates sufficient revenue to cover costs and scale profitably would be axiomatic and there would be no need to include it in a list of tips for SaaS sales executives. Unfortunately, the characteristics of the software-as-a-service rental model–vertical integration requiring more up-front capital investment combined with low pay-as-you-go subscriptions–have conspired to obscure this unavoidable economic fact. The challenge of the SaaS sales executive is more subtle than that of the traditional enterprise counterpart. While large up-front enterprise license deals support an expenses-be-damned all out attack on revenue, the SaaS model requires a more measured approach that maintains a lock on acquisition expenses, high capital efficiency and a relentless drive toward profitability.
SaaS Sales Tip #10 – Match Supply to Demand
Selling enterprise software in 1995 was like expanding into a vacuum. Innovation was everywhere, business productivity leaps were huge, and new product categories were emerging everyday. If you sold well and could demonstrate immediate ROI, then you could close the deal. In many sectors, the sales rep could show up cold and single-handedly unleash latent demand. This is rarely the case today with SaaS. Most SaaS businesses are built on the premise of expanding to underserved market segments, e.g., SMBs out to the long tail, or replacing traditional enterprise systems for lower TCO. Either way, the sales hurdles are higher and they create scenarios where acquisition costs can overwhelm revenue potential. The secret to SaaS sales success is not selling harder, it is selling smarter.
Selling smarter entails distinguishing between where you can profitably create demand versus where you can only profitably service it. Then, matching that demand with the nominal sales investment required to close. For example, if you go to a trade show where there are too few prospects too early in the purchase process, then you may be pushing on a string. However, if your website brings in highly qualified prospects, then your sales investment should be well worth the return. Similarly, cold calling to a purchased list may return nothing, but calling to a targeted group of current customers or registered prospects with a specific offer might just work. Every SaaS business has a unique and complex mix of target prospects that vary by revenue potential, pain level, product understanding, reachability, etc. Knowing where to push and where to pull is not easy, but it is essential.
SaaS Sales Tip #11 – Consistently Increase Contribution
Assuming that you have mastered the art of knowing where to push and where to pull in your market, you still have the challenge of applying the exact amount of force required to close each individual deal. Apply too much, say too many reps or too much experience for the job at hand, and your acquisition cost exceeds the deal value. Apply too little, and you miss opportunities or lose deals that could have been won with just a little more effort. Stray too far too often in either direction and you cannot scale profitably.
This tip is your CFO’s perspective of the previous SaaS Sales Tip # 6 Qualify Ruthlessly, Convert Proficiently. When you are knee deep in the sales strategy for a specific deal or the details of your latest improvement to your pipeline management process, you should never lose sight of the fact that these activities are only the various means to a single financial end. The ultimate goal is to maximize sales contribution, i.e., revenue – selling cost. It is impossible to scale profitably if the operation that supplies the fuel for the business burns more than it provides. As the SaaS sales executive, you must show the same ownership of contribution that you show for revenue. Otherwise, your short term success can spell long term failure for the business. And, don’t fall victim to the recurring revenue mirage. Keep it simple and be accountable. Increase revenue while consistently increasing revenue per rep and lowering fully loaded sales acquisition cost, and profitability will take care of itself.
SaaS Sales Tip #12 – Fearlessly Face the Risk
Don’t think you can control it. This is the claim of Dont #8 of the Top Ten Dos and Don’ts of SaaS Success. It is as much personal counsel for SaaS executives as it is strategic advice for the business. It is also perhaps the most difficult tenet of all for the SaaS sales executive to digest, especially when coming out of a traditional enterprise software background where the sales rep has maximum, albeit never complete, control over the deal. In SaaS, as much or more control lies in the sales process, and the boundaries of that control are defined by your market–it is a numbers game. But, managing by numbers and process metrics often feels like gambling. Kaizen does not offer the same level of managerial comfort as putting your top rep on a plane to bring in that million dollar deal before the end of the quarter.
Nonetheless, it is your job to bring in those numbers. Whether or not the company has fuel for growth, profitable growth, depends on your performance. Foolish attempts to eliminate risk by exercising control beyond the natural limits that your market, your sales process or any individual deal allows will cause you to over invest in unqualified demand, over spend on customer acquisition and spiral into long term unprofitability. You cannot buy control with cash. And, there is no room for doubt or hesitation. You must motivate your team, maximize their chances of success, and fearlessly face the uncertainty that remains.
This is the fourth and final post in a series of tips for SaaS sales executives. The first three posts focused on designing an effective SaaS sales organization, SaaS sales process efficiency, and accelerating revenue growth.