How to structure your sales compensation plan to deliberately undersell
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Re: How to structure your sales compensation plan to deliberately undersell
#2It's not explicitly mentioned in this way here, but I feel like the underlying assumption is something like "If you think they need the $20k plan, and you sell them on $10k, they'll increase to $20k based on usage then expand into $30k [(this is basically the chart in the article)] - but if you sell them on $20k, they'll stay there."
I don't see why you would intentionally undersell. How does that have any bearing on whether or not they expand into higher tiers, or whether or not they refer new customers to you?
Re: How to structure your sales compensation plan to deliberately undersell
#3>>There’s a trade-off to this commission plan: the company may pay both the customer success managers & the AEs for expansion. Also, if customers expand by themselves, salespeople may receive commissions without expending more sales effort.
Managers often try to minimize these trade-offs, and it is insanely myopic.
Just because a customer increases their spend without an explicit action by your rep does not mean that you should pocket the commission for yourself/dept/company. Even if the rep actually did absolutely nothing, allowing an occasional "unearned" commission will build loyalty & motivation. More likely, it'll get your reps to focus more on customers who are likely to eventually expand, and also doing the kind of ongoing 'soft' follow-up and account maintenance/monitoring that makes customers more likely to up-convert.
Management, if anything, should be about seeing the long view and incorporating it into the plans. Why it is so rare to do so continuously amazes me.
Re: How to structure your sales compensation plan to deliberately undersell
#4It's not explicitly mentioned in this way here, but I feel like the underlying assumption is something like "If you think they need the $20k plan, and you sell them on $10k, they'll increase to $20k based on usage then expand into $30k [(this is basically the chart in the article)] - but if you sell them on $20k, they'll stay there." I don't see why you would intentionally undersell. How does that have any bearing on…
I imagine there's a psychological barrier to upgrading a plan. Make the customer break that barrier on their own, due to the necessities of their current usage, and they'll have less compunction to upgrade later on. Psychological barrier already broken.
Whether the decreased initial revenue is outweighed by the increased number of upgrades later on is a different question. Personally, I'm skeptical the strategy pays off.
Re: How to structure your sales compensation plan to deliberately undersell
#5It's not explicitly mentioned in this way here, but I feel like the underlying assumption is something like "If you think they need the $20k plan, and you sell them on $10k, they'll increase to $20k based on usage then expand into $30k [(this is basically the chart in the article)] - but if you sell them on $20k, they'll stay there." I don't see why you would intentionally undersell. How does that have any bearing on…
You are underselling TODAY, building satisfaction with the purchase and desire to get more, as opposed to resentment at having overpurchased and now seeing you as yet another vendor who oversold us a bunch of stuff and is now worth less than the spend, and is now pinching the budget. The former is likely to turn you into a valued provider, and the latter is likely to have the customer looking elsewhere in the future.
Typically, existing customers business costs only 20% of acquiring new customers. To succeed, you want to maximize ongoing relationships, not keep churning for new customers at 5x the acquisition cost.
Re: How to structure your sales compensation plan to deliberately undersell
#6It's not explicitly mentioned in this way here, but I feel like the underlying assumption is something like "If you think they need the $20k plan, and you sell them on $10k, they'll increase to $20k based on usage then expand into $30k [(this is basically the chart in the article)] - but if you sell them on $20k, they'll stay there." I don't see why you would intentionally undersell. How does that have any bearing on…
It's not explicitly mentioned because this is a followup to a post where the author does explicitly mention this (linked from the first line of the article): https://tomtunguz.com/deliberately-underselling/
Re: How to structure your sales compensation plan to deliberately undersell
#7I think this is a particularly rose-tinted glasses view of the sales process, which sells underquoting as a great thing for your customers that they will love ('When you tell them they need to pay more, they will love you and will recommend you to others!').
In reality, 'land and expand' is almost universally hated by customers and this just appears like an excuse to under-quote to win the commercial point on an RFP and then screw the customer over when there is some lock-in later down the line.
How about neither of these - how about selling solutions that you honestly believe are right-sized, being transparent about the sizing/requirements assumptions you have made, and then being flexible contractually if reality turns out different? This is how you actually build trust and consumer satisfaction, not by deliberately underquoting.
Re: How to structure your sales compensation plan to deliberately undersell
#8>>There’s a trade-off to this commission plan: the company may pay both the customer success managers & the AEs for expansion. Also, if customers expand by themselves, salespeople may receive commissions without expending more sales effort. Managers often try to minimize these trade-offs, and it is insanely myopic. Just because a customer increases their spend without an explicit action by your rep does not mean that…
For businesses where a significant percentage of customer LTV is in the expand phase, I'm surprised it's not more commonplace to have AEs take on the role of customer success. The AE usually has a lot of context about the customer that is likely to be lost in the transition to a CSM. Doing this also has the benefit of not needing to pay two people for the expansion.
Re: How to structure your sales compensation plan to deliberately undersell
#9I think this is a particularly rose-tinted glasses view of the sales process, which sells underquoting as a great thing for your customers that they will love ('When you tell them they need to pay more, they will love you and will recommend you to others!'). In reality, 'land and expand' is almost universally hated by customers and this just appears like an excuse to under-quote to win the commercial point on an RFP…
Yea, at my F500 sized company we set budgets year(s) in advance. I literally have a line item (that gets reviewed monthly!) for each major SAAS product my team uses. We estimate like a 5% inflation YoY into these budgets.
If a vendor purposefully under-quoted / undersold me and then asked me to pay more $$ 6 months in, I literally couldn't do that if I wanted to.
Re: How to structure your sales compensation plan to deliberately undersell
#10>>There’s a trade-off to this commission plan: the company may pay both the customer success managers & the AEs for expansion. Also, if customers expand by themselves, salespeople may receive commissions without expending more sales effort. Managers often try to minimize these trade-offs, and it is insanely myopic. Just because a customer increases their spend without an explicit action by your rep does not mean that…
There should be someone tasked with doing the ongoing 'soft' followup and account maintenance in most businesses of this scale anyway. It's just often a different person. Hence the authors' point that compensating two units of the sales team can work out if there's more revenue generated overall (otherwise it probably works out by the initial commissions offered being smaller...)