How Can We Shift Our Business From Transactional Product Sales to Anything as a Service?

Alignment to Your Revenue Roadmap and Driving the Right Behavior

Shifting a business from traditional products and services to SaaS and XaaS requires a laser focus on the upstream disciplines of the Revenue Roadmap and a refocus of your business in five key areas.

Anything as a service, XaaS, is accelerating as companies navigate the shift to solution sales to meet and exceed customer requirements. XaaS describes a general category of technology-focused products and services delivered via cloud computing and remote access. The X signifies various products, tools, and technologies that can be delivered to users as a service over the internet.

As the pace of the shift accelerates, organizations want to know whether XaaS is right for them—and if so, how best to adapt to the technology. To address this challenge, we asked our consultants at SalesGlobe what they’ve been hearing from clients and learning about XaaS across various industries. Then we did problem-solving in SalesGlobe style. Whiteboarding and open discussion around The Revenue Roadmap to arrive at five areas that companies should explore and refocus to prepare for a new strategy launch.

1. Legacy Product Offerings
2. Voice of Customer and New Product Offerings
3. Go-to-Market Changes
4. Finance and Sales Alignment
5. Sales Incentive Compensation

The Revenue Roadmap is a snapshot of the four competency areas and associated sales disciplines where successful companies do well, and provides a comprehensive framework that can be leveraged to help companies in the midst of change. So let’s take each consideration one by one and explore what companies are doing that has been successful, pitfalls to watch out for, and questions you should answer for your business as you plan for what’s ahead.

Legacy Product Offerings

There are two counterchallenges here that can cause internal and external strife and misalignment.

• Customers prefer not to abandon products into which they’ve heavily invested time, money, or footprint.
• Legacy products that have had a positive impact to the balance sheet, pitting customer requirements against a company’s strategic direction. This becomes magnified in the face of quarterly earnings cycles.

The key to countering these opposing forces is good planning on the right priorities for customers and the company.

Planning for your customers means incorporating change methodology that includes:

• Clear articulation of a new value proposition.
• Providing the right internal resources to assist in a transition.
• Identifying in advance risks and mitigation plans.
• Employing a strong communication plan with internal advocates.

Acknowledgement and understanding that not every customer is on board or on the same timeline as your business is best addressed with voice of customer insight from your strategic alliances. You should walk away from those conversations with a clear understanding of how you will support existing customers based on where they are today, what a transition plan will look like, and if and when you will sunset your legacy business.

Planning for your business includes:

• Financial modeling built on targeted opportunities and account-based planning to provide a forecast baseline to achieve targets during the evolution from legacy selling to XaaS solution selling.
• Beyond the financial component, consistent executive sponsorship, and messaging in support of the migration from legacy products to XaaS is a vital component to successful execution.

New Offerings and the Voice of the Customer

No matter who is driving the change, these elements converge at the point of customer requirements and a company’s innovation. In XaaS-based solution selling, the paradigm shifts from customer to company ownership as services are offered through various consumption vs. possession models such as:

• Total Contract Value (TCV), a longer-term fixed commitment.
• Annual Contract Value (ACV), a shorter-term commitment.
• Reoccurring Revenue, which takes the form of a set usage amount or post consumption (pay by the drink) are some of the most prevalent models.

The impact of this shift can mean a lower entry price point for customers and a shift to an OpEx vs. a Capex expenditure approval. Companies can drive product enhancements, fixes, and security through centralized rollouts for greater control and efficiencies. As the transition begins, companies need to thoroughly evaluate the readiness of portfolio offerings, implementation, training, and customer service to address challenges.

It’s critical to bear in mind that whether you’re a buyer or a seller, the driving force for the adoption of any new offering is the commitment of both parties.

Go-to-Market Changes

Your GTM strategy should reflect a coverage model based on the overall XaaS solution. As companies make the shift, GTM elements of value propositions, core and industry-based messaging, account targeting, revenue motions, and pricing are core workstreams. But a key aspect of the GTM for the effective transition to XaaS involves changes to the field coverage and resource models. This requires an organizational design evaluation to determine the right roles and possibly new roles as well.

Some of the big questions the business should answer with clarity and have a plan to address:

• Where does the legacy product team and the different sales roles fit in the new strategy?
• What is the team’s primary behavior that you want to drive to grow XaaS?
  • Winning new business at all costs?
  • Account management and maintaining all business?

Today there are many different roles to consider based on your company’s strategy around your offerings. A few examples to consider:

• SME Role Name. This role has a greater technical acumen than the primary sales executive and account manager and can help problem solve with the sales organization to provide the best solutions for your customers.
• Customer Success Manager. The CSM is responsible for retention selling. This role would provide after-sales support for the successful adoption of the application, identifying opportunities to penetrate new organizations and drive customer satisfaction.
• Inside Sales. A successful inside sales team provides greater direct selling motion than seen in traditional product sales. This role can also support traditional field sales roles as they work their way through a long sales process.

Once a new organizational design and roles are determined, companies must pivot to evaluate their readiness to support the new sales model and the need for new skills through training, tools, and potentially new talent acquisition.

Finance and Sales Alignment

Aligning Finance and Sales ensures the fiscal impact and the strategic impact of moving to a XaaS solution model support growth goals. The shift from legacy products to these types of new service offerings is transformative to a balance sheet. XaaS may be easier for customers with a lower cost of entry and the ability to adopt new technology solutions without upfront CapEx requirements, but the new XaaS model shifts much of the financial responsibility and risk to a company. There is a new nomenclature for how to do business with new or different service models, each with specific financial impacts to bookings, revenue, and margin which must be balanced with legacy products’ effect on financial performance. Revenue recognition skills of the finance team can help structure deals and pricing to optimize revenue and margin for profitable growth. The alignment of Finance and Sales during this transition is also critical to understanding targets for the sales team. As companies move to a XaaS portfolio, financial modeling is essential to TCV, ACV, booking quota targets to achieve an organization’s revenue, margin, and cash metrics both quarterly and annual. The partnership between Finance and Sales, ideally the CFO & the CRO, is central to the customer buying experience and the sales team’s ability to succeed.

Sales Incentive Compensation

An XaaS solution/legacy product hybrid environment should follow The Revenue Roadmap fundamentals. This will require a clear understanding of a company’s overall strategy and the sales strategy. This not only drives value to the customer, products, financials, and GTM, but it also underpins the sales incentive compensation framework. The XaaS consumption models (TCV, ACV, Reoccurring, Bookings) are a new aspect of plan design and quotas requiring alignment with the Finance and Product teams. As companies transition from legacy product to a hybrid XaaS solution sale, trying to sell both will require consideration of several methodologies:

• Team Segmentation. Maintaining two sales teams—one with a focus on legacy and one dedicated to XaaS products, each with different plan designs—may be appropriate for companies in the earliest stages of the transition with most customers staying on legacy products and the financial goals of the organizations requiring the revenue/margin of those legacy products. But one thing to consider: the two-team approach could be cost prohibitive for some organizations, so starting with a small XaaS sales team may be a viable approach.
• Product Segmentation. This can be built into the plan design. It enables the sales team to sell all products and is intended to make the sales organization product-agnostic. This methodology maintains just one customer-facing team. But it comes with a risk: due to the difference in products, target setting, and opportunity, plan designs, quotas, and administration can get complicated. To mitigate this risk, it is critical to confirm readiness of Finance, Sales Ops, Marketing, and most important, the front-line Sales Organization in support of the plans. Product segmentation will need to consider how best to address payment, product, crediting, and the expectations of the team. These hybrid methods should provide some direction.
  • Hybrid payment on revenue for legacy product and fixed commission on XaaS solution sales. This ensures sales for each product is incentivized at the appropriate level based on product strategy.
  • Hybrid product with separate or combined quotas for legacy products and XaaS solution sales. Trying to ensure focus on both targets may employ thresholds, accelerators, or hurdles as part of the design, but with a cautionary tale. The biggest challenge that we have seen particularly in early stages of a new product launch is the ability to accurately forecast legacy from new products. A single (combined) quota where “all sales count” works best in this scenario. It also ensures that your sales rep is selling what the customer is asking for, rather than trying to push one product over another based on where they are relative to their different targets and potential thresholds to accelerators. The Capex Opex decision is often in the hands of the CFO. It’s a corporate business decision that the sales rep cannot overcome. A lesson learned from a large global customer that implemented separate quotas and thresholds on both to achieve accelerators in either created turnover of some of the best sales reps. There was frustration as one quota was “blown out of the water” while the threshold on the other quota could not be reached, therefore preventing any meaningful accelerators to any sales. It was the first and last time that high achievers did not achieve sales incentive earnings that were aligned to their level of effort and overall sales results.
  • Hybrid crediting rules supports making sales achievement similar or the same and addresses the new consumption model financials. The use of multipliers or uplifts to balance the move to XaaS from product maintains the sense of keeping the sales team “whole” while creating focus on the transitional business and the customer requirements. With the financial structure of XaaS deals, companies may consider limiting TCV to a specific number of years or offer a bonus for out years or ACV crediting plus a multi-year award. When thinking about contract length, align to your business strategy. For example, another global client of ours did an internal financial impact analysis on contract length and determined that their “sweet spot” was for three-year contracts. Anything less than that did not yield enough margin for the company relative to their investment in the customer, and five-year contracts were associated with significant price breaks. The sales rep was paid for all deals, but accelerations applied to three-year deals that decelerated with longer contracts. The key to crediting rules is understanding the strategy of transitioning from product to XaaS solution sales and the financial impact.

With any sales incentive compensation plan, it is important to acknowledge that with a new model comes some unknowns. There needs to be flexibility and a mechanism in place to address the dynamic nature of shifting from products to XaaS solution selling. Companies can manage this by being transparent with the sales organization, monitoring results, and establishing triggers for action with a compensation committee of key stakeholders to act as needed.

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For further insights around this challenge, email info@salesglobe.com.

SalesGlobe is a leading sales effectiveness and data-driven creative problem-solving firm. We specialize in helping Global 1000 companies solve their toughest growth challenges and helping them think in new ways to develop more effective solutions in the areas of sales strategy, sales organization, sales process, sales compensation, and quotas. We wrote the books on sales innovation with The Innovative Sale, What Your CEO Needs to Know About Sales Compensation, and Quotas! Design Thinking to Solve Your Biggest Sales Challenge.