The reality of this strategy is that as soon as the customer realizes you undersold them, they will take their business elsewhere unless your offering is so unique and tough to reproduce.
How to structure your sales compensation plan to deliberately undersell
11–20 of 36 posts
Re: How to structure your sales compensation plan to deliberately undersell
#12In my consulting business, I've found the opposite strategy to be true.
I, if anything, deliberately slightly overbid/oversell. Then when I deliver the product that they asked for less than I quote them, I get REAL word of mouth, glowing recommendations.
I also have found that this practice really weeds out the people that would otherwise give me endless problems like delaying or fighting payment, poorly defining their requirements, changing their mind dramatically half-way through, or failing to take my advice on things that will give them legal problems or cost them an enormous amount of money down the road. (And then come back and try to blame me for them not taking my advice.)
I also have the budget to deliver what they actually need at the quality they actually want.
Being proud of deliberately misleading people in a way that negatively impacts them feels really gross to me.
Re: How to structure your sales compensation plan to deliberately undersell
#13I 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.
Expansion and addons are really common though, the stakeholder has to push for more budget, not too difficult if the product really drives business value
Re: How to structure your sales compensation plan to deliberately undersell
#14It'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 get the idea behind it, but the numbers have to make sense. You forgo revenue now for more revenue later, taking into account revenue now can be reinvested and SaaS companies typical grow really fast. If you undersell by 20%, you don't have that 20% right now to spend on more sales/engineers.
If the customer is really going be happy with 30K worth eventually, get them there now instead of 18 months later.
Re: How to structure your sales compensation plan to deliberately undersell
#15Sales compensation is one of the most interesting, difficult and high leverage things a company can get right.
The way I've traditionally thought of "under-selling" is:
- You have multiple teams that could maybe use your product, and you can maybe get their common manager to sign off on many seats - But you start with the team most likely to be successful, sell just those seats. Once they are firing on all cylinders they'll be very helpful training the other teams - Negotiate the discounting curve for the extra seats ahead of time and agree on expectations for timelines - Co-term the new seats, make it very easy to expand - But of course customer cash is king, and if they want to do procurement exactly once and are ok with seats sitting idle for a while, that's what you'll do
One of the great strengths of the SaaS billing model is how you can map the buying process to the the actual use of the tool.
Re: How to structure your sales compensation plan to deliberately undersell
#16Problem is if venture capital is valuing companies as a multiple of revenue then management has an incentive to juice revenue right now because every dollar of revenue will increase the value of their stock by that multiple which is (1) often quite high (10-40) and (2) likely a more profitable strategy for management than the incremental cost of annoyed customers.
Not to say this sales structure isn’t good. It sounds good. I’m just not sure it changes one of the biggest incentives to aggressively sell with a shorter term time horizon than some subset of shareholders might have.
Re: How to structure your sales compensation plan to deliberately undersell
#17I 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…
> In reality, 'land and expand' is almost universally hated by customers
Honest question but do you have any source for this or is it primarily your personal experience?
In my experience land and experience has been leveraged to help get a foot in the door sooner than later, it was never anything more than that. If we had the ability to walk into a shop and start with 100% of the clients environment we'd have done that but the problem was typically tied to the customer not being ready to rollout from 0-100 overnight. For us the best approach was to start small and work with the customer on gradually rolling out as they were comfortable.
Regarding your other point:
> 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.
I'm in complete agreement, this is the best case scenario and is certainly the best way to build long-term trust and relationships but universally it doesn't happen or when it does it's not transparent. The customer really has to push to make this happen only leading to anxiety, relationship damage, etc.
Re: How to structure your sales compensation plan to deliberately undersell
#18Also known as sandbagging... Just a way to game the next round's valuation if you find strong demand.
Re: How to structure your sales compensation plan to deliberately undersell
#19Off topic, this site is pretty much unreadable on a 2020 iPhone SE. The fixed sized header takes up 40% of the screen. On load I can't even see the entire headline, let alone any of the article. My phone isn't even 2 years old, and my wife still uses the old SE that is much smaller.
Why is this stuff still so hard?
Re: How to structure your sales compensation plan to deliberately undersell
#20I 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…
> In reality, 'land and expand' is almost universally hated by customers Honest question but do you have any source for this or is it primarily your personal experience? In my experience land and experience has been leveraged to help get a foot in the door sooner than later, it was never anything more than that. If we had the ability to walk into a shop and start with 100% of the clients environment we'd have done th…
> If we had the ability to walk into a shop and start with 100% of the clients environment we'd have done that but the problem was typically tied to the customer not being ready to rollout from 0-100 overnight.
On top of that, there's a handful of people, maybe less, who actually have the juice to be able to make this happen even if they wanted to in any given organization. You're likely not talking to them.
Teams who need to get shit done today and are ready to roll out are much quicker to transact and less of an organizational risk (time to value vs. contract amount)