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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

#21

Post by jehb »

mox1 wrote: post #9
Closi wrote: post #7

I 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.

Came here to say this. I'm sure there are situations where this strategy may work, but where I've worked (which is primarily outside of line of business operations) budgets can be inflexible in the short term and just as often trend downward as upward. And people move on. Just because you developed a business justification with my the person who owned a budget before me doesn't mean I'm going to identify that need as a business priority, particularly if my first interaction with understanding that piece of our operations is that it requires a ballooning cost allocation.

Re: How to structure your sales compensation plan to deliberately undersell

#22

Post by notahacker »

thisismyusrname wrote: post #16

Problem 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…

I guess the tradeoff is that underselling allows you to juice your CLV estimates even more with inflated upsell figures.

From a purely cynical perspective, which is best probably depends on the market and maturity of the business and cost of sale: can you tell more convincing stories about ability to keep doubling the number of new customers walking through the door like you did over the last few months, or how your product is so good larger customers are going to keep doubling their spend every few months like most of them did recently...

Re: How to structure your sales compensation plan to deliberately undersell

#23

Post by jjk166 »

Rastonbury wrote: post #13
mox1 wrote: post #9

Earlier quoted context omitted.

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

There's a big difference between compounding past success and ameliorating past shortcomings. If implementing some improvement goes well, we accomplish our goals on time and within budget, it's easy to say let's do it again. If a vendor makes me go in front of my boss and say the budget I previously requested was not sufficient and the thing I said would get done wasn't, I will never stake my professional reputation on that vendor again.

Re: How to structure your sales compensation plan to deliberately undersell

#24

Post by throwawaysleep »

Closi wrote: post #7

I 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…

"hated" doesn't matter unless customers actually change their behaviour. Companies will get screwed over on low cost RFPs again and again and again and do nothing about it but whine.

Customer satisfaction only has value if it drives additional sales, but plenty of orgs do not care.

Accenture and IBM have been doing this for decades. They do it because it works.

Re: How to structure your sales compensation plan to deliberately undersell

#25

Post by waynesonfire »

Closi wrote: post #7

I 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…

I have never seen anything remotely to your ideal.

Did you forget how competitive and cut throat the world is? You don't sell, you don't eat. Sales is a race to the bottom, a competitor will eat you alive by undercutting or over-promising just the right amount to win the deal.

Re: How to structure your sales compensation plan to deliberately undersell

#26

Post by sitkack »

Enginerrrd wrote: post #12

In 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 the…

I have given customers discounts because they wrote great docs, prepared for meetings, didn't mess around with paying, etc. And I tell them, I am giving you a discount of xyz because of zzz. Half the time they denied the discount but were thankful that I recognized their professionalism.

Problem customers just aren't worth it unless that is all you have.

Re: How to structure your sales compensation plan to deliberately undersell

#27

Post by thaeli »

safeimp wrote: post #17
Closi wrote: post #7

I 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…

I think you may be talking about two slightly different things.

Land and expand in the sense of "land a small, right-sized solution for one group within a large company, then leverage that successful deployment to expedite expansion to other groups, and maybe eventually convert to an enterprise agreement" is great, and often the only way to get in the door at a large org. From the org's perspective, being able to adopt an "existing" solution/provider is often much faster and can even skip some RFP processes. I don't think anyone is saying this is bad.

Land and expand can also mean "deliberately undersell/underbid on a large RFP, take an initial loss, then as soon as the customer's locked in slap them with large change orders and annual increases". I don't think I need to elaborate on why this is scummy.

The article isn't very clear about which scenario it's advocating. In the simple case of per-seat licensing, I've seen it both ways. From the customer's perspective: If we're looking to buy your product, and say hey, this has some long-term upside, we think it might be used by 500 people within two years, but our initial group is 20 - that's an undersell of sorts. Typically the concessions we would be asking there are less around unit license cost and more around waiving migration/setup charges or sometimes even negotiating a new license category/SKU. (Hey we use 50 seats right now, we'd like to buy 200 more but they're only going to use this one new side feature you implemented, let's find a discounted rate to only license that feature. It's an ethical undersell because it was done with the customer fully aware.)

But I've also seen some groups get stuck with the reverse. Sales promised them that oh yeah, this tier will work for you, and then hit them with massive usage-based overages. That's "land and expand" too, but it's scummy.

Re: How to structure your sales compensation plan to deliberately undersell

#28

Post by aaaaaaaaata »

mox1 wrote: post #9
Closi wrote: post #7

I 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.

Do you have a discretionary budget?

Re: How to structure your sales compensation plan to deliberately undersell

#29

Post by iseletsk »

I think there are two conversations going on at the same time. One is "per project" fee, where charging less upfront to charge more later on is just ... wrong. I don't think the article is about that case.

Yet, in SaaS world, when you sell per seat to a large company, you can either: 1. get a small deal / a few seats, and then expand (because your product is great) 2. try to land as big of a deal as possible from the get go.

The typical sales comp structure is forcing salespeople to go for #2, as they don't get as much money for expansion. My understanding is that the article is arguing for changing the comp structure to make #1 as exciting as #2 for the sales person. And that is the whole point. The chances to get the deal, and time to get the deal when sales person goes for #1 are much better than in case #2. IMHO: Makes a lot of sense.

Re: How to structure your sales compensation plan to deliberately undersell

#30

Post by [deleted] »

waynesonfire wrote: post #25
Closi wrote: post #7

I 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…

I have never seen anything remotely to your ideal. Did you forget how competitive and cut throat the world is? You don't sell, you don't eat. Sales is a race to the bottom, a competitor will eat you alive by undercutting or over-promising just the right amount to win the deal.

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