Software pricing and sales incentives create tension, facilitate churn, and limit growth. Here’s how to fix them.
As you plan quotas, territories, and strategies, ask yourself this question:
Are you incentivizing the right behaviors from customers and sellers?
I’ve worked with a ton of software sales teams and designed several pricing and comp plans.
I usually take pieces from plans I learned from past companies, mentors, and peers. It seems to work ok. But there are little consistencies in every plan that cause big problems.
Let’s start with customers. It’s most common to price and discount based on user. A company shows interest, sales performs a demo, and serves up pricing for a group of people in that organization to have access to the software.
This model incentivizes more users.
The customer typically wants to mitigate “risk” so they request the minimum number. The salesperson wants the most MRR so they promote the maximum. Early in the process and there’s already tension between buyer and seller.
This model leads to additional problems for the software company as well. Look at any software company’s user base and you’ll find plenty of “inactive accounts”. Users or licenses that were purchased but just collect dust. Customer pays the bill and software provider just prays they still renew the unused licenses.
Sure this problem can be solved with exceptional Customer Success work. But why not try to avoid it from the start? Here’s an easy way to address all of it:
Don’t incentivize more users. Incentivize good behaviors.
By good behaviors, I mean things like feature adoption, time spent in the application, usage, training, deployment planning, SLAs, etc. These kinds of behaviors ensure value gets extracted from the software. Users and licenses actually get used.
I tell clients all the time, “You aren’t selling software. You’re selling behavior change.”
One of my clients receives orders by email and by Salesforce. Orders by Salesforce see improved accuracy, efficiency, security, and transparency. It helps them help their customers better and provides a “stickiness” as it represents a deeper integration with their customers’ workflow. We’ve installed a bonus for each order the customer sends through Salesforce.
Sounds like a win-win, right?
You can create more win-win scenarios. Discount ARR for companies that agree to C-level led rollout meetings or quarterly business reviews with department heads. When procurement demands a 10% discount (and we know they will), exchange it for an integration, feature, or commitment that drives adoption. Be creative and test ideas that help both you and the customer.
Getting customer pricing better positioned to promote good behavior is a great start. Next, get the sales team aligned with good behaviors to help the process along.
Typical comp plans reward MRR above all else. But we’ve already shown that solely focusing on MRR leads to problems. You might also see incentives for multi-year deals or payment terms. Forget all that. Instead,
Reward sales for ensuring customer behaviors that increase value and promote growth.
Take single sign-on as an example. If data suggests that your highest functioning accounts use single sign-on, why not pay sales to ensure every customer uses it? It just may be the trick to getting a three-year commitment that actually leads to three years of value for the customer.
There’s an extreme version of this dynamic where sales (and the software company) get rewarded for customer achievements (ie: increased sales, improved hiring, better retention, etc.).
A customer goes through all the song and dance to improve a tangible, internal metric. They certainly don’t do it to accumulate software licenses. I’d like to see company’s take a true “partnership approach” where they and the sales team get compensated once the customer improves that metric. The compensation should be substantial given the impact it represents. I’ll dive deeper into this idea another time.
You don’t need to rework your entire pricing and comp strategy by next week. Start small. Add a bonus or discount for good customer behavior as I did with my client. You can do the same with sales compensation. Just establishing clarity on what customers and sales can do to help increase value (not just users) goes a long way.
Got more ideas? I’d love to hear them. Please comment or email me at firstname.lastname@example.org
I help software sales professionals sell (and live) with intention. When we embrace practice and align our efforts, we can rise above the deal.
We can operate #quotaless