Your sales team is crushing it. They’re closing deals left and right. Revenue is way up, and your growth looks off the charts. At this rate, that huge valuation you’ve been dreaming of seems well within reach.
Three months later, it’s all fallen apart. Half of those new clients have canceled their subscriptions, they’re badmouthing your product, and your churn rate is through the roof. You’re no longer meeting your revenue goals, let alone exceeding them. And that valuation you were hoping for? Not going to happen.
It’s a classic sales mistake. In their haste to close all those deals, your salespeople didn’t stop to think whether they were the right deals. It’s only natural. They’re hustlers—the idea of turning away a willing customer and leaving a commission on the table offends them.
But, selling to the wrong customers is toxic for your business. It’s your job to get your salespeople thinking about the company’s health beyond the immediate deal.
What happens when you sell to the wrong customers?
Selling to the wrong customers will kill your SaaS business in several ways, not all of which are obvious:
- Customers who don’t get value from your product will have extra training needs, frequent support requests, and endless complaints. In addition to costing time and money, constantly hearing bad things about the product will crush your team’s morale.
- Those customers will leave sooner rather than later, which will lead to high churn. Churn will make it nearly impossible to hit revenue goals since you’ll constantly need to replace old customers. Plus, churn rate is one of the first things investors will ask about—if it’s too high, your company’s valuation prospects are doomed.
- It’ll destroy your company’s brand. Customers who leave will tell their friends and colleagues about their bad experience with your product. And believe me, nothing will be more frustrating than hearing people who should have never been using your product in the first place go around telling everyone how much it sucks.
Kayako, a startup which provides help desk and customer service software, knows firsthand the pain of a wrong fit:
“We had a big contract in hand, sure. But we were spending way less time building value that would help our many other customers advance. […] We ignored all the warning signs that BigCo was trying to fit a square peg in a round hole, and we were helping them mash it in.”
Kayako eventually cut the cord early and parted on good terms with BigCo but not without significant cost to team morale and productivity.
This is what really differentiates SaaS sales from sales in any other industry. Other businesses can thrive selling a product to someone just once—it’s a transactional sales process. But with SaaS, your customers have to continuously justify paying you each month and can cancel their subscription at any time—in some ways, you’re reselling the product again and again.
You need to build relationships with customers who will grow as you grow, and you can only do that if you’re reaching the right people.
3 ways to get your sales team selling smart
As a leader, you need your salespeople to understand that their job is about more than just maxing out sales quotas. It’s about giving real solutions to real problems, providing expertise, and finding the right customer fit. They need to look at how the sales they make affect the overall health of the company and learn to pass up customers who aren’t a good fit. That’s the kind of team that will get out there and sign up a roster of committed clients you can build your company on.
1. Educate your team
Education is an important part of building a successful sales team. Your whole team needs to understand the metrics upon which your company is built—not just their individual numbers.
This requires a change in the way your reps think:
“For sales reps – especially veteran ones who largely operate on autopilot – this ownership of the churn rate SaaS metric requires a mindset shift. They need to migrate their thinking from one of ‘Let’s sell software to every potential customer we can,” to one of “Let’s sell software to customers who truly need our product and will derive real value from actively using it.'”—InsightSquared
Drill in the importance of lifetime value (LTV) and churn, and how the decisions your sales team makes affect them. Make them understand why SaaS companies that only focus on short-term sales fail.
Beyond that, make sure that finding the right customers remains a priority in practice as well. Here are some ways to keep the whole team focused on the big picture:
- Keep score of how many of each salesperson’s customers unsubscribe. To play off salespeople’s natural competitiveness, lots of companies keep a scoreboard of everyone’s sales. By reapplying that concept and keeping score of how many clients they lose, you communicate that it is an equally important number.
- Track each individual’s churn rate for the customers they sign up. By viewing it alongside the company’s overall churn rate, salespeople can see their impact on the larger health of the company.
- Have each salesperson talk about their most recent customer who unsubscribed during sales meetings. The team can discuss why they think the relationship didn’t work out, which will help them learn what signs to look for in the future about whether a customer is a good fit for the product.
Your sales team has to understand that success at your company is measured by more than the sales they make.
2. Demonstrate how it’s done
It’s not enough to just teach your salespeople to sell to the right customers. You also need to lead by example. The team needs to see you turn away bad business: “I’ll be 100% honest with you. We’ve been talking for a while, and I hate to say it, but our product just isn’t right for you. Let me help you figure out a better direction to go.”
Think about it—a company’s values mean nothing if the people in charge don’t act on them. At that point, they’re just something nice to talk about. If you’re going to tell your salespeople that setting customers up for success matters more than getting a quick sale, then you need to show them that the rule applies from top to bottom. You’re not asking your team to do anything you wouldn’t do yourself—and when they see this, they’ll go the extra mile.
Take responsibility and show your salespeople that finding the right customers is an expectation for everyone, regardless of job title or tenure.
“Lead by example, not by title.”—Ross Kimbarovsky, the founder, and CEO of Startup Foundry
3. Incentivize long-term thinking
If your salespeople are only rewarded for the volume of new business they bring in, then guess what? They’ll sign anyone under the sun.
“I often hear business owners complain that their sales team is not selling the products and services they would prefer. For example, the sales team appears to be spending their time on less profitable products and on accounts that aren’t in the company’s best interest. Business owners are sure the problem resides with the sales team and their lack of focus on what is truly important. Often, after reading the sales compensation plan, I realize the problem is in how the sales plan was written [emphasis added].” — John Lee, VP of Sales at Sales Xceleration
Building a commission structure that reflects your company’s values is important because people’s actions are driven by their incentives. Yes, you should give sales commissions. But, compensation has to align with the company’s primary objective: providing customers a great long-term value.
- Give bonuses to salespeople whose clients have the highest renewal rates.
- Take away commissions from salespeople whose customers churn within five months.
Think about it from the salesperson’s perspective—if she’s only rewarded for the sheer amount of upfront revenue she brings in, then why bother asking if the customers she closes are the right ones? She’ll ask herself, “Well, if the company really cared about this, wouldn’t they pay me for it? Wouldn’t they reward that behavior?” And she’d be right!
Money talks louder than anything else. It doesn’t make any sense to tell your sales team to do one thing but then pay them for another. Adjust your compensation plan to match the behavior you want to see and, as the startup mentor and angel investor Gordon Daugherty advises, “identify loosely defined rules or ‘gray areas’ that can be exploited.”
Hungry for the right customers
Hungry salespeople will enable your team to grow. But left to their own devices, they’ll sell to customers who will actually hurt your business. They need proper management to fully tap into their potential and spread your product to the people who need it.
After all, why did you start a SaaS company in the first place? You saw a problem and knew you had a great product to solve it—you didn’t get in this game to sell people stuff they don’t need. So don’t do it! Cultivate this problem-solving, customer-centric mentality in your sales team, and you’ll achieve the best kind of success possible in SaaS—sustainable success.