We recently published a post about how Slack is moving upmarket by tailoring its product to the needs of larger buyers. For many businesses, especially SaaS ones, this strategy is perfect for accelerating revenue growth and fattening profit margins.
But it’s not the only method SaaS companies are using to bring in more from each deal. Our recent benchmarking analysis of the tech industry revealed why it may be more important to close bigger deals than it is to close more deals. Our data shows that companies with higher ASPs are more likely to have higher bookings totals and more successful and loyal customers. You can view the results of our study here.
See how your company stacks up against others in your industry by exploring our filterable Sales Performance Benchmarks.
And lately, there’s been a host of established SaaS companies aiming to do just that: raise their ASP by selling bigger, multi-year packages to their largest accounts.
None other than SaaS pioneer Salesforce.com is the latest to exemplify this growing trend. Two years ago, Salesforce hired former Oracle sales executive Keith Block to help grow its bookings revenue. According to Businessweek, those two years have been characterized by a unified push to start selling comprehensive packages to larger and larger companies. Where Slack made the upmarket push by tweaking its product, Salesforce’s strategy revolves around evolving its sales execution.
“Block oversees a team he assembled to manage major accounts,” Businessweek reports. “That group includes staffers coding industry-specific software, the salespeople telling clients why they need it, and the customer service reps talking them through each click.”
This new push marks a dramatic shift for Salesforce. Historically, the company gained massive market share by selling flexible (and relatively inexpensive) packages to tens of thousands of SMBs. This strategy cemented Salesforce’s position in the industry, but it didn’t give them the massive, multi-year, comprehensive contracts from the biggest companies that would put them in the same class as giants in the industry like Oracle (Block’s former employer) and IBM.
But the new mission to make larger packages for enterprise companies has one specific objective: increase sales price for the biggest of the big deals, ultimately increasing Salesforce’s share of “multiyear megadeals with the likes of Coca-Cola and Barclay’s instead of pitching software in bits and pieces to businesses of any size,” according to Businessweek.
“The goal is to sell more stuff to Salesforce’s top 30 customers, who each pay the company about $10 million a year, and get them to spend five times that,” the news source notes.
This strategy ‒ selling more expensive contracts to companies that can afford them ‒ is not groundbreaking, but it’s also a lot easier said than done. In order to get the plan in motion, Block and the rest of Salesforce’s sales team have had to change the way they operate.
Here are some of the lessons they’ve learned and how they can help your sales team raise its ASP.
“Disciplined Operational Rigor”
Telling your sales team to sell bigger, longer contracts does not guarantee that they will. There’s a reason buyers tend to opt for shorter contracts ‒ the flexibility ensures that they won’t be saddled with an unwieldy contract for a product they may not even be using.
So what is Salesforce doing (and what can you do) to increase deal size?
The answer isn’t glamorous: Tighten your sales process and instill a mindset in your reps that multi-year, feature-heavy contracts are the default option.
“What Keith [Block] brought that we frankly always struggled to get at Salesforce was a disciplined operational rigor that was unyielding, unforgiving,” Jim Steele, former head of worldwide sales for Salesforce, told Businessweek.
Instead of being happy to slowly but surely gain market share by sharking up thousands of SMB contracts, Block is making sure every part of the sales process is geared toward a hard-nosed push for the biggest of the big.
The difference between a successful, quota-crushing sales team and an average one is often the thinnest of margins. The best sales teams don’t only do the big, obvious things to ensure success ‒ like accurate forecasting and individualized rep coaching ‒ but also the small, nitty-gritty, easy-to-overlook stuff. Consistently finding ways to get longer contracts and setting the stage for up- and cross-sells are some of the ways that the best, most detail-oriented sales teams separate themselves from the pack.
In fact, a recent study about sales effectiveness conducted by sales expert Steve W. Martin revealed that a structured, detail-oriented sales process is the most important part of consistent revenue growth.
“Fifty percent of study participants from high-performing sales organizations responded they had sales processes that were closely monitored, strictly enforced or automated compared to just 28% from underperforming sales organizations,” Martin wrote recently in the Harvard Business Review.
“Not Every Dollar of Annual Contract Value is Created Equal”
Bigger contracts are better for clear-cut reasons, but they’re also superior in some less obvious ways, especially for SaaS companies like Salesforce. Block knows that Salesforce’s bigger customers are also its most stable, so the strategy to rely more on revenue from these customers is doubly appealing.
According to a recent article from Diginomica, Salesforce is intensifying its efforts on the biggest of the big not only because it means higher ASP, but also because it helps reduce churn and increase Lifetime Value, two of the most fundamental SaaS metrics.
This fact has helped Salesforce define its short-term sales strategy and its investment in specific sales development projects.
“In the past couple of years, that spending can be seen in the recruitment of company president Keith Block and the team of high-performing salespeople he’s added; the launch of a dedicated ‘pod’ for US government customers; the initiative to develop and market vertical industry solutions; and the creation of the Ignite team of business transformation consultants, tasked with helping customers develop ambitious new projects,” Diginomica reports.
“These have all added costs but are designed to increase the number of seven- and eight-figure deals the company lands.”
Clearly, Salesforce’s new sales strategy was selected to help improve those all-important SaaS metrics. According to the article, Salesforce’s biggest 100 customers (out of its 150,000 customers total) account for a whopping 20% of the company’s total revenue. The math, then, isn’t too complicated: getting more customers in that range (and more money out of those 100 customers) will have a massive impact on Salesforce’s bottom line.
Does this strategy make sense for your company? The only way to answer that is to analyze your sales numbers. Is there a big difference between your biggest and smallest customers? Is churn crippling your profitability? Answering these questions is instrumental to developing the right strategy to help you hit your number.
“What Maturity Looks Like for a SaaS Business”
Salesforce’s new push for bigger deals is not uncommon in the SaaS space. In the beginning, most SaaS businesses fight tooth and nail for every deal they come across. In the beginning, bookings is the gold standard, maybe even the only important metric, but that changes over time. Salesforce is recognizing that if it wants to really compete with IBM and Oracle, it needs to organize its sales strategy around its biggest clients.