The last decade was all about 2.0. To me, 2.0 trend was about how to re-think existing norms and behaviors, re-invent something well-known and to challenge existing axioms. Internet changed a lot in our life for the last decade. One of the places that remains very conservative is enterprise sales. If you are social web enthusiast, tech geek or iOS developer, try to speak to people selling to big enterprises. You can find yourself in the wrong territory after first 5 minutes of talk. However, I can see how changes are coming to this place too. In the beginning of this year, I tried to challenge my friend from enterprise sales department. If you missed my previous blog, navigate here – PLM, Viral Sales and Enterprise Old Schoolers. One of my conclusions after this post was that even enterprise sales has strong roots, the time is coming to challenge the current status.
I’ve been catching up on emails and social media during my long journey from Boston to Singapore this weekend. The following Gigaom article caught my attention – Enterprise 2.0: The science of inside sales. Take five minutes of your time and read the article. Freemium was a king of the road in consumer market for the last 3-5 years. It seems to me everybody read the “Free” bible by Chris Anderson. I remember my note back in 2009 – Is Free the future of PLM? What I found very interesting in Gigaom article is the idea of merging of two parallel models – freemium and direct sales.
At the end of the day, it is all about setting cost and price. If your cost of the sale is high, you have no chance to scale up and sale to mainstream market. I found the following passage important:
In contrast to traditional outside sales, which is done in-person and tends to involve extensive travel and time expenditures, inside sales is professional B2B sales done remotely via phone, email and chat. It is strategic selling that requires managing a deal through a multi-stage process, multiple touch points with the customer, establishing value and an ROI for the product and supporting complex purchasing methods, like procurement departments, but importantly without visiting the customer.
Another interesting snippet brings you cost vs. price model that can take you beyond the threshold of free online business and allows you to have sales people.
So how do you know if you’re ready to build an inside sales team? Truthfully, if the product is shipping it’s never too soon. A key test is the price at which you are converting free users to paid. There are a lot of apps that only charge 99 cents or $4.99 a month for the premium version. That won’t cut it – your margins won’t support a sales force. You’ll need a price point of at least $25 to $50 per user per month to validate the value of your product and make enterprise sales work. At that price or above, a workgroup of 10 to 20 users can be sold within a customer account for $5,000 to $10,000 per year. Over time, you’ll be able to increase the deal sizes through premium features like administrative functionality.
And finally, you can see an enterprise example, which probably can make sense for PLM sales too.
The typical inside rep will make $40,000 to $60,000 per year in base salary. Including bonus, their on-target earnings (OTE) will be between $100,000 and $120,000. Most Enterprise 2.0 startups are subscription businesses, so quotas should be tied to Annual Revenue Requirement (ARR) or Monthly Recurring Revenue (MRR) with accelerators for contract lengths greater than one year. A typical quota for your first rep is $500,000 of ARR. Over time, enterprise sales reps often settle around a $1 million quota.
The conversation about inside sales made me think about what PLM vendors potentially can do in order to step into the future of Sales 2.0. Here are 3 fundamental steps:
1. Delivery model. Your should be able to deliver your software without CD/DVD and people that need to come and install it. Call it cloud, online, distributed software – it doesn’t matter. You need to exclude a traditional delivery mechanism driven by traditional software development methods and long awaited releases.
2. Online configuration. After you learn to deliver software online, you need to switch an army of consultants, implementers and service providers to work online. Stop pay to airline tickets. All software configuration and tailoring must be done online.
3. Application and granularity. The nature of application is going to change. We should stop a monolithic nature of enterprise software. In the past, it was important to sell “all-in-one-box”. In order to support “inside sales” model, business software needs to have an ability to be deployed in a granular way. Some portions of applications can be provided for free, then configuration should allow to turn on licensing feature and Voilà - you converted your free customer into paying one.
What is my conclusion? The new technology is ready for enterprise. It proven by multiple startup companies and giants of consumer software business. However, enterprise companies are tricky and enterprise sales are even more tricky. Both sides – sellers and buyers are keeping an existing enterprise sales model. This is their life jacket to survive and keep an existing enterprise sales model afloat. The time is coming to disrupt it. Just my thoughts…