What Sales Funnel?

For many years many people have been running their business by looking at the sales funnel. Traditionally, everyone from the executive team down to the sales rep and their managers utilize the sales funnel to understand the “health” of the business. This seem to make sense in traditional (on premise) software sales where the deal sizes were in the 10’s, if not the 100’s of millions of dollars. Today however with the shift into SaaS many organizations large and small are looking to get in what could be termed “wedge”products before they’re able to get the much larger deal. In this post I’m going to be talking about the change, or the shift, from the “sales funnel” to the “sales hourglass”.as we look through the shift we will realize how important customer experience (CX) will be and how every interaction counts!

Let’s take a step back and take a look at traditional software and the way it was sold.  Sales organizations had multi million dollar deals in the “sales funnel” and the touch points for these deals had to be very high, many calls, many emails etc.  Here are several points to consider for our discussion:

  1. Revenue: paid up front – Once the big deal is done within the traditional software purchase the largest part of the revenue was paid up front.  Companies then paid support and maintenance fees based on the cost of the initial software licenses.
  2. Implementation – A second factor in the creation of the sales funnel in traditional software was the implementation.  The implementation took a long time, and in many cases, the cost of the implementation would be at least the same as the software costs (if not double to triple the software costs).
  3. Hardware may be required – Another reason why traditional software would take so long was you would simply have to buy new hardware to run the software. This purchase could include different departments new people including the sale of these and how you’re managing the new hardware.
  4. Return on Investment – The cost between the software and the implementation would require somewhere between a 4 to 7 year return on investment. I currently have customers who bought software 16 years ago and are still looking to drive ROI through their initial software purchase and their pay multi-million dollars in annual support costs.

So if you look at all these factors it was really important to make sure that not only you took the time to select the right vendor with the right software but the return on investment be much longer.

Now let’s take a look at the SaaS software world, you will see that companies are buying small pieces and parts of an overall solution at a much lower cost.

  1. Revenue: paid as you go – Traditionally SaaS software has a term, for example 36 months. Payment streams vary from month, quarterly, annual, or the entire term.  The “payment terms” will usually enable customer to obtain larger discounts.
  2. Implementation – Professional services fees are much lower for SaaS solution because usually the following occurs:
    1. The functionality is the functionality and there is configuration but not much implementation OR
    2. The customer is only implementing a single module or component of the overall solution.
  3. Hardware not required – Customers do not have to purchase hardware because that the hardware is purchased and maintained by the provider
  4. Return on Investment  – Companies that implement a SaaS solution are most likely looking at a 6-9 month ROI.  If a SaaS company cannot show a quick ROI it will be very hard to close a deal.

With the implementation being low, no hardware and the ability to buy parts of an overall solution there is more willingness to buy small pieces of the overall software to test it out even if it is for a 1 to 3 year term.

Net/Net? The software industry is going through a HUGE evolution with the rise of SaaS however the business processes in many organizations (both the buyers and sellers) have not evolved at the same pace.  This gap in evolution is causing a lot of friction in the software industry which I predict will only get worse before it gets better because technology is changing fast today than it has in the past.  What does this mean for you as a salesperson – you will have to obtain small wins (wedge products), be your own marketer, and provide exceptional customer service because you are now managing an hourglass

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