Gartner, Inc. estimates the worldwide public cloud services market to grow to $266.4 billion in 2020, which is causing companies to shift from OnPremise to Cloud-based go-to-market models. As this shift continues, the business must evolve—from the selling model to the compensation plans—to meet the everchanging needs of the customer.

“Curiosity killed the cat” is an old proverb used to warn of the dangers of unnecessary investigation or experimentation. Now, replace “curiosity” with “complacency,” and this new phrase will resonate with many businesses that cease to exist.

 

In 2000, Reed Hastings was denied by then Blockbuster CEO John Antioco after requesting $50M for his online streaming service—Netflix. His reasoning? Netflix, which at the time was a DVD mailing service, was a “very small niche business.” As of April 1, 2020, Netflix is valued at $159.7B.

 

There are countless other examples where one company missed out on an opportunity that could have led to a paradigm shift in the business world:

 

  • Verizon turning down Apple for the first model of the iPhone
  • Comcast passing on Disney
  • Friendster refusing Google
  • Yahoo missing out on Google and Facebook

     

The next big opportunity may be public cloud services, where Gartner, Inc. estimates the worldwide public cloud services market is projected to grow 17% in 2020 to total $266.4 billion (up from $227.8 billion in 2019).

 

According to a study by the International Data Group, 69% of businesses are already using cloud technology in one capacity or another, and 18% say they plan to implement cloud-computing solutions at some point. And as the number of benefits continues to increase, it is expected that these numbers will continue to grow.

 

This opportunity is forcing organizations to make the switch to a cloud-based business model—while others are unable or unwilling to change–instead of relying on their tried and true legacy solutions in a declining market.

 

Do you want to be etched into the history book for the opportunity you didn’t seize?

 

For the Customer – The Benefits of Moving to the Cloud:

 

According to a study by Dell, companies that invest in big data, cloud, mobility, and security enjoy up to 53% faster revenue growth than their competitors.

 

  • Reduced Costs: OnPrem solutions require costly infrastructure costs, while Cloud-based solutions allow organizations to pay as they go and avoid maintenance and upkeep.
  • Scalability: For traditional legacy products, adding resources can be costly and slow, while cloud solutions allow organizations to scale up and down as business demands.
  • Automatic Software Updates: Organizations are required to maintain OnPrem systems and apply updates. For cloud, you benefit from software updates as they are released.
  • Data Security: While cloud breaches continue to be a concern, cloud-based solutions allow organizations to wipe sensitive data to avoid it getting into the wrong hands.
  • Disaster Recovery: Natural disasters can damage equipment and incapacitate critical IT functions; hosting and cloud storage provides a safeguard in the event of emergency.
  • Flexibility: Provides an organization’s employees the flexibility to work from any location—while also giving organizations the ability to monitor operations effectively.
  • Collaboration: Because of the added flexibility, cloud-based workflow and file sharing apps enable employees to make updates in real-time, allowing them to do more, better.

     

Click here to better understand how to evolve your go-to-market strategy as your customers shift to the cloud.

 

Refer to our Acceleration Summit Toolkit to transition your organization into the future. This toolkit features content on Purchase Intent Modeling, Coverage Plan, Territory Design, and Compensation Planning.

 

Download the Acceleration Summit Toolkit Here

 

For the Provider – What This Shift Means for You

As companies transition from a CapEx (e.g., OnPrem) model to OpEx (e.g., Cloud) model, the organization must evolve with it.

 

A Quicker Sales Cycle and the Impact to Your Sales Team

 

On-premise solutions typically require signoff from the IT department and business user. The increased number of one-on-one interactions with decision-makers and influencers drives a longer—and more expensive—sales cycle.

 

This requires sales individuals that can develop long-term relationships with C-Suite executives and other sales executives.

 

SaaS sales are typically departmental; these companies do not need to go through a centralized IT department to purchase and implement the software. Because of the fewer number of decision-makers and influencers, the sales cycle is shorter—and customer lifetime value estimations become higher.

 

In SaaS organizations, the ability to develop relationships with C-Suite executives is still critical. So too is the ability to communicate the value of offerings both strategically and financially.

 

The Role of Customer Success

 

From the customer perspective, high infrastructure costs are a downside for OnPrem solutions—for the provider, these costs are a retention mechanism and make it difficult to switch between providers. These upfront costs do not exist in the cloud environment, which brings customer satisfaction to the forefront. Customer success is a proactive function ensuring customers achieve the desired outcomes while using your products or services.

 

Why is Customer Success important?

 

 

  1. It is 5—7x more expensive to acquire a new customer than it is to retain an existing one.
  2. Companies that prioritize CX generate up to 60% higher profits than their peers.
  3. Satisfied customers tell 9 people how happy they are.
  4. Dissatisfied customers tell 22 people about their poor experience.
  5. A 5% increase in customer retention equals up to a 95% increase in business profits.
  6. A 2% increase in customer retention is equivalent to a 10% reduction in costs.
  7. On average, loyal customers are worth 10x as much as their first purchase.

     

Refer to this article by Laura Hall to understand how Salesforce invested in Customer Success to reach new heights during the last recession.

 

An Evolving Comp Plan – How to Drive the Right Behaviors

 

As companies shift from OnPrem to Cloud, they must evolve their compensation plans to align with the company strategy—and drive the right behavior.

 

  • Strategic Alignment: Common cloud business objectives include a) booking recurring revenue, b) collecting cash upfront, c) signing long-term contracts, d) ensuring customer satisfaction and e) driving expansion revenue with existing customers to have a revenue retention > 100%
  • Performance Measures: total contract value, annual contract value, and recurring revenue (e.g., monthly or annual) are the most prominent measures. The total contract value is most appropriate when the cash is paid upfront.
  • Plan Mechanics & Payout Tables: both commission (e.g., the rate per dollar) and quota-bonus (e.g., percent of target) are common in cloud models. Accelerators above 100% may vary between the two models because of deal predictability and lumpiness.
  • Quotas: there are four common approaches to developing sales quotas as companies make the shift from OnPrem to Cloud-based solutions. The key is to find the right balance between short-term and long-term business needs.
    1. Sales Growth Accelerator – the rep is assigned an on-premise and cloud target; Increased acceleration above 100% if both measures are achieved.
    2. Sales Multiplier – the rep receives a total sales goal representing OnPrem and cloud solutions; the rep earns a multiplier on any cloud revenue sold.
    3. Sales Modifier – the rep receives a total sales goal, and cloud sales goal with earnings modified based on overall cloud achievement.
    4. Distinct Measures – the sales rep has two distinct sales goals with the weighting of each dependent upon the strategic importance of the cloud.
  • Crediting: there are thee common approaches to crediting the sales rep for a sale. The company can pay on the booking, the ship to date, or the activation. To increase selling time—and rep productivity—it is recommended that companies pay on the booking for acquisition-focused roles. For large deals, companies may use a combination of the booking and activation to provide additional financial protection in the event of a cancellation.

     

 

Refer to our Acceleration Summit Toolkit to transition your organization into the future. This toolkit features content on Purchase Intent Modeling, Coverage Plan, Territory Design, and Compensation Planning.

 


Download the Acceleration Summit Toolkit Here

 

“Carpe Diem” is an essential and symbolic quote in the classic film Dead Poet’s Society. The phrase means to look for opportunities in life and make the most of them.

 

Each day, more providers are shifting to a cloud-based model in hopes of capturing a fractional percentage of the $266.4B market. As your company transitions from an OnPrem to a Cloud-based model, understand the reason behind the market shift—the benefit to the customer. And understand how your business must evolve to meet the everchanging needs of the customer—from your Sales team to the compensation plan. Contact SBI to ensure a more efficient and effective migration, positioning you to win sooner and more often.

 

I leave you with “Carpe Potestatem,” Latin for seize the opportunity—this opportunity.

 

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ABOUT THE AUTHOR

John Marcsisin

Enables sales and marketing leaders to make the number through rigorous data driven analysis and implementation of emerging best practices.

John has nearly six years of consulting experience focused on sales force effectiveness, incentive plan design, executive compensation and broad-based rewards aimed at helping clients achieve short and long-term business objectives.

 

John’s experience includes working with organizations in varying levels of change, including: start up, wholesale transformation, and merger & acquisition. He is tasked with developing sales force effectiveness strategies and processes that attract/focus/motivate/retain top talent.  Specific areas of focus include: sales coverage model, performance benchmarking, sales compensation design, account segmentation and financial analysis/modeling.

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