Let’s travel all the way back in time to 2012. Netflix had just launched in the UK and if you wanted to watch the latest film, you either purchased it or rented it from a local DVD shop. Both of these involved capital outlay.
It was the same with your mobile phone contract – back then, you paid as you went, whereas now you pay a monthly subscription. This monthly fee includes minutes, texts and data that you’ll never get through, but for the peace of mind, you keep paying.
If you look around, you’ll find many more examples of this in everyday life, as more and more companies look to increase their recurring revenue. Even though we all know it would be cheaper to buy that DVD outright and cancel our Netflix subscription, none of us do that for one simple reason: convenience.
With more businesses converting their products to subscription-based offerings, a dilemma arises for the sales team selling those products.
But what’s the problem? Shouldn’t it now be easier to sell, as products seem cheaper and the salesperson no longer has to break down the outlay, by month and then by day? I’m sure we’ve all heard the “it’s only ‘x’ more per day – you spend more than that on teabags” close.
That’s not the issue. The issue is: how do you reward said salesperson? In the pre-Netflix age of sales, the salesperson would convince the potential prospect to part with capital outlay and the commission on this was simple: you’d give the salesperson a percentage of the profit and the company would keep the rest to cover any overheads.
A “sell it once and bill multiple times” method can be very successful for many businesses, but to conquer this approach, you’ll need a new commission plan to reward the sales team. So here are four key things to consider:
Reward the correct behaviour
You won’t get rich by selling to just one customer, so ensure winning new business is part of the plan. Allowing the salesperson to build a pot of recurring commission for themselves may not be the most motivating.
Contract length
If you’re selling a product at £10 per month and you sign a customer up for 12 months, you’ve contracted £120, but if you sign them up for 36 months, you’ve made £360. So make sure your commission plan rewards salespeople more for a higher total contract value (TCV).
Churn rate
If you’re incentivising correctly, your sales team will always be focused on winning new business, but with a high churn rate, you will only just be breaking even. So, either include a low churn incentive in your plan, or consider splitting your sales team into “hunters” and “farmers”. That way you have people continually looking after existing customers and you can reward them when churn is below a certain percentage. Bear in mind that churn doesn’t always relate to the farmer or product, so keep track of which hunter has the most churn as you may need to consider the information being presented at the sales stage.
Upselling opportunities
Existing customers are the easiest to sell additional services to or persuade to upgrade to the next level of product. If a customer is already spending £100 a month with you, getting them to spend an extra £10 isn’t such a stretch. And if you repeat that process multiple times with 500 customers, you’ll be making an extra £5,000 per month or £60,000 per year. Just make sure you have someone to maximise this opportunity and that the rules of engagement are clear. Nothing’s worse than an in-house squabble.
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