Why you should incentivize sales people for customer retention

Edited excerpt from Why This CEO Will Never Hire Another Salesperson by Brian de Haaff:

Here are four reasons why emerging technology companies will not look to commissioned salespeople to drive their business:

1. Relationships. Growing a business is about fostering trust and relationships, not pushing product. The goal is to show the value of the product and build a relationship with the customer. The only thing that matters is the customer’s success.

2. Authenticity. People crave honest suggestions, and can tell when someone is pushing an agenda. They do not want to be cajoled to buy something, especially a product that is a poor fit.

3. Collaboration. It’s much more exciting to collaborate to understand the customer’s needs vs. making a disjointed pitch when there is a bad fit.

4. Information. Today’s buyers have access to endless information and peer feedback like never before. New data on B2B sales shows that 60% of a typical purchase decision is made before talking to suppliers and up to 90% of the buying cycle is done before buyers speak with sales reps. This brings transparency to a process that was previously veiled. They don’t need someone to connect them with products anymore. What they do need is to be engaged, surprised, and delighted on their own terms.

Don’t get me wrong. There will always be people who work with customers, but I doubt that in the most successful companies that their compensation will be tied to the deals they close.

(1) Brian’s right that the traditional commission structure for sales people misaligns their interests and their company’s and customers’ interests. But that in itself isn’t an argument against sales people. It’s an argument for fixing their incentive structure.
(2) Sales people are traditionally commissioned on closing a sale. That’s appropriate for businesses where the initial sale is the most important driver of profits. But in an increasing number of businesses, revenue per customer is spread out over a multi-year period, so lifetime customer value is determined more by customer retention than by the value of the initial sale. This isn’t only true of SaaS and subscription businesses, but of any business where growth will come from retaining customers as much as adding new customers.
(3) So how do you incentivize sales people for customer retention? Compensate them disproportionately for renewals vs. the initial sale.

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