VC Perspective: The Risks & Rewards of Having a Transactional Sales Model

Given our focus on the expansion stage at OpenView, we often come across product-centric startups that have experienced fantastic growth despite not having any structured sales model or marketing engine in place. Explosive organic growth driven by inbound inquiries or word of mouth is usually an indicator of a killer product and product/market fit. Nonetheless, it sometimes creates the illusion — more commonly with technical, product-focused founders — that the business will continue to grow at the same rate with a great product alone.

In our experience, however, those cases are extremely rare. More often, businesses that have a clear path to $1m in recurring revenue will need to start seriously thinking about their sales model in order to achieve scale after the buzz (and cash) burns out. While which model you use is largely determined by your product, market, target buyers, and price point, understanding your model inside and out and knowing where to invest in order to make it more scalable and repeatable is key.

The SaaS Sales Model Spectrum

SaaS sales models

 

 

 

 

 

 

 

For more, see Joel York’s article, “3 SaaS Sales Models”

For B2B SaaS businesses there are three primary approaches when it comes to sales models. On one side of the spectrum is the more traditional enterprise sales — average sales price (ASP) usually in the six figures, a six-month or longer sales cycle, enterprise reps, customized solutions w/training, etc. On the other side self-service — ASP sub $50K, no sales support, one-size-fits-all solution.

In the middle falls a transactional sales model which is more broadly associated with inside sales organizations and characterized by short process-driven, high-touch sales cycles. Again, while product and market will primarily influence whether a sales org is more transactional in nature, it is important to be cognizant of some of the pros and cons of this approach (and to know how VCs and other potential investors are thinking about them).

Related: Learn how to Understand & Adapt Your Sales Model to Stay Out of the Startup Graveyard

Risks & Benefits of Transactional Sales Models

Risks:

  • On one hand, it’s easier for customers to sign up, but less complexity can also mean the product is less sticky. A smaller ticket price doesn’t require as much buy-in and approval to sign up, and fewer stakeholders can result in less vested interest in the product’s adoption and success.
  • An increase in ASP from self-service and added human touch points (reps/onboarding) could potentially alienate early adopters.
  • Unproductive sales reps will be a huge cash burn. Investing in automation tools, a CRM, etc. to support the model can drive up your costs, as well.
  • Processes introduced around contracts/payments may initially slow down the sales cycle.
  • Getting more contributors involved — reps, sales opps, account managers, etc. — increases the potential for communication breakdowns.
  • In order to maintain your growth rate there needs to be an extremely high velocity of sales. With more emphasis on hitting aggressive numbers you run a greater risk of burning sales reps out and losing them to turnover (get three tips for avoiding rep burnout here).

Benefits:

  • Increased repeatability during the sales process, making it easier to train/ramp reps and subsequently acquire customers.
  • Negotiations can usually be concluded in short order given the introduction of a trained rep.
  • Marketing automation tools can be more easily introduced for lead gen and nurturing efforts.
  • Transactional sales processes are relatively straightforward and highly scalable.
  • Better insight into the buyers journey and how to fine-tune conversion process via additional analytics and data.
  • Compatible with many SaaS orgs that are targeting the mid-market.
  • Bundles/prepackaged product sets can enable you to fine-tune an offering relatively quickly to fit a specific need, as opposed to building out a tailored solution to fit one client’s needs.

Bonus: Free Lead Gen Activity Calculator

Too often, managers hold their teams accountable to arbitrary numbers and goals. Determine the real conversion rates and metrics you should be establishing to set the right expectations, drive process improvement, and ultimately hit your quota on a consistent basis.

Photo by: Jo Christian Oterhals

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