The maturation of the software industry hasn’t simply changed the type of products that come to market, it’s also changed the companies that sell them. Product teams have gone agile. Marketing teams have turned digital. Even HR has become predictive and self-service.
Indeed, the past decade has seen every department in the modern software company adapt traditional business practices to the new world of tech-enabled, data-driven, nimble business management.
Well, perhaps every department except one.
Even in the tech world, sales has somehow seemed to be outside of these changes. Some tech industry insiders have even gone as far as to say that, while every other department innovates, sales leaders appear to cling to outdated sales training principles that are older than most SaaS founders.
Is this perception right? Are SaaS sales teams failing to evolve even as every department around them modernizes?
The Customer’s Always Right Ahead
I’m going to dispense with the suspense early: SaaS sales is changing.
While the arguments laid out above are understandable, there is no denying the fact that, on a very fundamental and pervasive level, sales management is evolving every bit as much as the other departments in a tech company.
Just as product teams have developed processes to help them react to customer feedback quickly, and marketing teams have found new ways to get in front of fragmented audiences, SaaS sales teams have begun changing the way they manage opportunities to reflect changes to buying process and the need for more technical expertise during the sales process.
And these changes aren’t merely cosmetic ‒ they affect every level of the sales organization, from training and mindset to execution and measurement.
So why do so many people continue to argue that sales is standing still while the tech world innovates around it?
The short answer is that sales continues to be perceived as more art than science (who, after all, knows what makes a rainmaker?) and, therefore, all but opaque to an outsider. The longer answer is that sales is largely acting in response to changes — both to the buying process and to the evolution of the departments that surround them — so the changes are easier to miss.
But none of this changes the fact that software sales is evolving.
As marketing teams get better at generating and nurturing leads, and SaaS products become more effective and dynamic, software sales teams have started designing their process to fit more snugly into the software procurement process.
As part of our 2016 Tech Benchmarking Analysis, we analyzed the sales management processes of both SaaS and non-SaaS companies to see what we could learn about how SaaS sales management is changing.
In this article, we’ll look at the specific, data-supported ways that software sales is changing, and what it means for how tech companies should think about pipeline management.
The New Face of SaaS Pipeline Management
The Changing Role of the SaaS Salesperson
When Evan Blake first started selling enterprise software deals for firms like Cisco and BMC, he made a habit of promising prospects the world. Blake would spend weeks creating an airtight pitch that showed how perfectly his product would work for the big fish on the other end of the line. Like a pro, Blake would get the signature, earning himself a big paycheck in the process.
Less than a year later, like clockwork, he would offer his condolences when the product he sold didn’t live up to his promises.
“Six to 12 months after doing the deal, you’d go on the apology tour,” he told Bloomberg Businessweek recently.
Selling for the Long Haul
Blake’s story (and his broken promises) highlight a key way that the sales process at SaaS companies differs from traditional inside sales, and how this fact is changing the way SaaS sales manage their pipelines.
Because SaaS clients are typically locked in for no more than a year (and because upfront costs are low), it is critical that SaaS companies are actually adding value to their customers, not just selling them a bill of goods. Especially because it typically takes more than a year for SaaS companies to even recoup the money they invested in acquiring the customer.
More on Pipeline Management
The lesson that Blake learned ‒ and that all SaaS businesses eventually learn ‒ is that it is more important for a sales rep to spend time making sure that a new customer fully understands (and will be satisfied with) his company’s product than it is to close every deal that crosses his desk.
This has a huge effect on how SaaS sales teams manage their pipelines. In essence, the sales funnel at SaaS companies is backloaded. Relatively little time is spent discussing the product with early-stage opportunities (for them, trials, demo videos, and marketing collateral will do) and a lot of time is spent working with late-stage opportunities toward the bottom of the sale funnel.
The modern software sales rep is not a gatekeeper of basic information about the product, she is a technical expert showing prospects exactly how her technology can change the way they do business.
“Technical and Smart”
All of this makes it clear that selling software doesn’t just mean dressing the sales process up in a new outfit, it means actually changing the sales process and changing the way sales reps behave.
In other fields, sales reps are expected to spend a fair amount of time explaining the virtues of their product, a lot of time persuading their prospect to buy, and a relatively small amount of talking through implementation.
In SaaS, though, this equation is flipped on its head. Shifts in the buying process mean that prospects typically come to the table with significant knowledge about the product and its benefits (and even about competitors and price). When they finally talk to a sales rep they’re looking to see a proof of concept and an explanation (and demonstration) of exactly how the solution will fit in their tech stack.
This means that the traits of a good SaaS salesperson are deviating from those of a traditional inside sales rep. Or, as the Bloomberg article puts it, “The personality of the technology salesperson has shifted from aggressive and persistent to technical and smart.”
The shift from gatekeeper to tech expert affects pipeline management in several ways, most importantly in how SaaS reps behave at the top of the sales funnel. A typical SaaS sales rep is likely to prioritize qualifying out early-stage opps much more than a traditional inside salesperson.
As a result of increased lead flow from marketing and self-qualification of prospects, SaaS reps need to weed out tire-kickers and unqualified opps stringently to avoid wasting their precious time on unlikely customers.
Indeed, the benefits of qualifying opportunities out of the sales pipeline has become so important in SaaS that companies have started baking it into their compensation structures and sales training.
Mark Roberge, CRO at SaaS pioneer HubSpot, actually changed the way he structured his sales rep commissions to incentivize better (and longer-lasting) customers over merely more contracts.
“We used to pay based on acquisition,” Roberge told InsightSquared in a recent in-depth interview last year. “You sign up a customer, you get $500. That worked early on when we were primarily concerned with getting lots of customers. And we did. But then, two years later, we had a churn issue, so we changed our commission structure to emphasize low churn, which had an immediate effect.”
HubSpot now pays some of a rep’s commission upfront when the deal is signed, but a significant portion only after the customer has stayed for a year or more.
The changes to how reps are compensated and trained has immediate implications on how they manage their pipelines. It encourages reps not only to “say no” to opportunities they believe will turn into unsatisfied customers, but also to get good at identifying those opportunities as early as possible. SaaS reps learn to handle a higher number of opportunities at one time but to be ruthless about qualifying out the bad ones.
This emphasis on qualifying out opps quickly can be seen in how quickly SaaS sales reps’ pipelines are replenished. In our 2016 Tech Benchmarking Study, we separated tech companies from the rest and uncovered some very compelling findings about how quickly SaaS sales reps receive new opportunities.
SaaS sales reps get 7 more new opportunities added to their pipelines each month than non-SaaS reps.
In our study, the average SaaS sales rep received 18 new opportunities each month, while the average rep in other industries added only 11 new opportunities.
The fact that SaaS reps get nearly twice as many new opps each month as non-tech AEs is strong evidence that pipeline management at a tech company emphasizes opp turnover much more heavily than non-tech sales inside sales teams.
See how your company stacks up against others in your industry by exploring our filterable Pipeline metrics.
Because SaaS reps are more likely to kick unready opps back to Marketing, they need more opportunities each month to make sure they have enough more qualified opps to hit their quotas.
Some of these opportunities are self-sourced (or created by a Business Development team), but many are generated by marketing, which is hints at another huge reason SaaS sales teams are evolving.
When Opportunities Knock
As we’ve discussed, marketing has been one of the most transformed departments in the tech industry. In only a few short years, the marketing department at most software companies has gone from a brand-building advertiser to a data-driven pipeline-generator and nurturer.
As a result, marketing has taken on a big chunk of what has traditionally been sales territory ‒ namely pipeline creation and top-of-the-funnel nurturing. SaaS marketing teams are able to keep prospects engaged with content and product demos while the sales reps focus on really demonstrating the power of their solution to a smaller number of prospects.
SaaS marketing teams help nurture prospects so reps can focus on later-stage opps.
This pushes much of the real sales work down the funnel to proof of concept and getting more stakeholders on board. Consequently, SaaS sales reps are able to carry more opps at a time, as marketing chips in to help keep early-stage opps engaged.
It’s not just early-stage opps, though. When SaaS sales reps work an opportunity down the funnel toward an evaluation but don’t close the deal (due to timing, need, or another common objection) they often keep the opportunity in their pipeline and have marketing nurture it with content or promotional items until the prospect is ready to re-engage with the sales rep.
Our benchmarking study bore this out. We found that SaaS sales reps carried, on average, 122 open opportunities while non-SaaS reps carried only 87. With marketing helping keep opps warm, SaaS sales reps are able to juggle more and still give enough attention to the opportunities that are likely to close soon.
SaaS sales reps reps manage almost 1.5x as many opportunities at a time as sales reps at non-SaaS companies.
When Opportunities Get Knocked Out
The flipside of getting a steadier inflow of new opportunities from marketing and business development is a steadier outflow of opportunities from AEs.
The fact that prospective SaaS customers can educate themselves about a product (both through marketing-created content and through actual interaction with the product, via free trials) means that SaaS sales reps can be much more liberal in closing an opportunity out if the timing is not right.
Indeed, in SaaS pipeline management, marking an opp as closed-lost is not the death knell it is in other types of sales. More so it is a way for SaaS sales reps to separate the tire kickers from the real buyers, knowing that easily accessible free trials and marketing automation will alert them when the (temporarily closed) opportunity is ready to re-engage.
Again, the data confirms this.
We found that the average SaaS sales rep closes out nearly 10 opportunities each month while non-SaaS reps close 8.9.
When SaaS reps manage their pipelines, they are looking for lots of movement: closing out opps that aren’t ready or properly qualified, winning ripe opps as quickly as possible, and replenishing their pipeline as much and often as they can.
This type of turnover is de-emphasized in non-software sales, where a closed-lost opportunity is a failure to be avoided at all costs. With opportunities entering their pipeline so much more slowly, non-SaaS reps are incentivized to wring the most out of every open opp they have. They work them more aggressively, give up on them less frequently, and essentially do everything in their power to push opps past the finish line.
The Extra Stage
We’ve seen that SaaS reps carry more opportunities at a time, qualify them out more stringently, and replenish them more quickly ‒ but one important question remains: If SaaS reps are spending so much more of their energy at the bottom of the funnel ‒ answering technical and implementation questions ‒ shouldn’t that be reflected in how SaaS companies manage their pipelines, from a structural perspective?
The answer is yes. Our benchmarking analysis showed that SaaS companies, on average, have 10% more sales stages than non-SaaS companies ‒ 6.7 to 6.1. It’s reasonable to assume that many SaaS companies, therefore, are dividing up the bottom of their sales funnels into more granular stages to account for more distinct stages like technical fit, procurement and implementation.
SaaS companies have, on average, an extra stage in their sales funnels compared to non-SaaS companies.
Because there is so much left do even after a prospect decides to buy a Saas solution (like negotiate contract details and fit the product into the tech stack), it’s easy to understand why the SaaS sales process is relatively low-impact toward the top but balloons toward the bottom. SaaS sales reps bridge the gap between traditional AEs and tech specialists, so they work to winnow the list of opportunities they’re really working down to later-stage, implementation-focussed prospects.
This bottom-of-the-funnel work often manifests itself in the “extra sales stage” mentioned above. Most SaaS companies have a procurement / tech fit stage toward the end of the sales process that requires reps to invest a significant amount of time walking presumptive buyers through the implementation of the product.
Customers expect SaaS solutions to work from day one, and it is now part of a SaaS sales rep’s job to ensure that this happens.
All of this helps explain why the SaaS sales process is relatively low-impact toward the top but balloons toward the bottom. SaaS sales reps bridge the gap between traditional AEs and tech specialists, so they work to winnow the list of opportunities they’re really working down to later-stage, implementation-focussed prospects.
This fact also supports why, even as e-commerce is expected to gobble up sales jobs, SaaS companies are hiring more and more sales reps. SaaS products are not only technical solutions, but services as well. This means that buyers expect sales reps to walk them through the complex procurement and implementation processes.
A recent Harvard Business Review article points to this very fact as one reason that B2B SaaS sales jobs are expected to grow in the coming years ‒ officially marking the evolution of the tech sales rep from gatekeeper to tech expert.
“As certain buying steps move from salespeople to online and other channels, new complexities and uncertainties for buyers will emerge,” the news source states. “Innovation within companies within companies and across entire industries will continue to produce new offerings and new ways to buy that are not yet apparent to buyers.”
“This knowledge gap will create a need for salespeople to help buyers navigate unknown waters. Companies such as Facebook, industries such as cloud services, and the many hundreds of B2B SaaS startups are furiously adding salespeople.”
These new roles and responsibilities mean that, as the job description of a SaaS sales rep evolves, so do the ways that software companies manage their sales teams and their pipelines.
Conclusion: The New Face of SaaS Sales Management
All of this should make it pretty clear that the people who accuse software sales teams of living in the past haven’t been paying close enough attention. But to be fair to them, it did look like that for a while.
With all the strides SaaS product and marketing teams have made, for a while it looked like sales teams weren’t only being left in the dust, they were being left for dead.
In fact, as recently as a few years ago, many prominent SaaS companies were publicly trumpeting their lack of a sales team.
A 2011 Adventures in Capitalism article discusses how Dropbox famously pursued a strategy that essentially eliminated a traditional sales team.
“Dropbox doesn’t have salespeople,” the article states simply. “Rather, it’s product (and its marketing) drive millions to try out the service. Enough of those users choose to buy the product support a thriving business.”
But that fad didn’t take long to reverse course. Recently, Dropbox announced that it would open a NYC office to spur a “big sales push.”
This and similar reinvestments in inside sales teams makes clear that, instead of moving away from direct sales, software companies are embracing them more completely than ever before.
Or, in the words of a recent Entrepreneur article, “[Tech] sales teams are back in a big way.”
But, crucially, not back in the same way. As we’ve seen in this article, tech sales teams are taking the traditional inside sales playbook and modifying it to adapt the structural changes of SaaS.
Through a combination of technology, process improvements and philosophical shifts, tech companies are helping SaaS sales reps adjust to the new world ‒ manage a large stable of opportunities and become a technical expert for those toward the end of their journey.
“[Tech companies are working to] help salespeople spend more time having meaningful conversations, so they can focus on becoming the teachers, consultants and thought leaders that companies need them to be,” Entrepreneur explains.
And through this process, SaaS pipeline management is catching up with the times.