Profit derives from usage – not initial purchase


Share on LinkedIn

Business customers have become increasingly used to as-a-service models, rather than outright purchase - and many of them have come to prefer it.

It’s hard to think of any reason why new software offerings would not be developed with a Software-as-a-Service model in mind, and many existing upfront licence software offerings have already migrated to SaaS.

This movement is not just about software - a growing range of business offerings, from Aero engines to Zithers (well, OK, guitars but allow me a little artistic licence) are being sold and consumed as a service.

But it’s not just the consumption model that has changed - it’s the profit model. And in an as-a-service world, profit is not guaranteed at the point of purchase, but earned as a result of ongoing satisfied usage...

Theodore Levitt is frequently quoted as saying “people don’t want quarter-inch drill bits. They want quarter-inch holes”. The drill is merely something you buy - but the quarter-inch hole is the desired outcome.

More than one hole

But of course, it’s more than that. Most buyers don’t want a single hole, but a series of precise quarter-inch holes. They want the making of each hole to be quick and easy. They want each hole to be consistent. They want the drill to stay sharp. They don’t want the drill to break. And if the current drill becomes unusable for any reason, they want a new one to be at hand.

There’s probably a business model out there already based on the number of holes drilled (and if there isn’t, there probably soon will be). I haven't personally bought any holes recently, but I’m already consuming printer ink not as a series of discrete cartridge purchases, but as a managed service that means I never run out.

My initial fee will inevitably be lower than what I would have paid as an outright purchase. And whilst - at face value - the headline lifetime cost of ownership might appear higher, in return I’m more confident that the outcomes I am seeking will be achieved. More on outcomes in a moment.

As a vendor in a lengthy and complex B2B buying environment, given my initial cost of sale I probably won't earn a profit until and unless my new customer has renewed and preferably expanded their use of my services. 

Compensating salespeople for holes, not drills

This has some profound implications for the world of B2B sales. How should compensation plans be structured when organisations are no longer immediately profitable when an order is taken and payment received, but only after a sustained period of successful customer usage?

How can we ensure that salespeople do not mis-sell, over-promise or are "economical with the truth" in order to get the initial order? How do we ensure that they are fairly compensated for the customer value they generate (and our consequent profitability) instead of the order value?

I’m already seeing some sales comp plans for as-a-service offerings take this into account, and observing salespeople being held at least in part accountable for their customers turning into satisfied and profitable users.

The old-school sales tactic of simply “chucking the order over the wall” for the post-sales team to pick up regardless of the consequences was already unacceptable behaviour under the old model and is even less acceptable in an age when actual customer usage is the key driver of profitability.

Working backwards from the outcome

This is why I believe so strongly that today’s salespeople need to work backwards from the business outcome their prospective customer wants to achieve, and not stop at the specification of the tool they are hoping to use to achieve it.

Understanding the customer’s desired business outcome is important at so many levels in successful B2B selling. If the outcome isn’t clearly defined, the customer is unlikely to take action. If the gap between their current situation and the desired outcome is small, the customer is probably going to stick with the status quo.

The customer is only likely to act if the desired business outcome represents tangible progress towards an important objective. It’s how the project sponsor is likely to justify the decision internally to the ultimate approvers.

And it’s how - particularly in an as-a-service world - the customer is likely to measure the success or failure of the project. In an upfront purchase world, many salespeople could get away without either understanding the customer’s desired business outcome or caring whether or not it was actually achieved.

But not any longer. In an as-a-service world, salespeople, sales organisations and the companies they represent cannot afford to allow that sort of cavalier behaviour. We can only be sustainably profitable by understanding, shaping and achieving our customer’s business outcomes.

What are you actually selling?

Are your salespeople still selling quarter-inch drills? Or are they selling the promise of the equivalent of a series of perfectly executed quarter-inch holes? And is your entire organisation - sales, implementation, customer success and beyond - set up to ensure that your customer achieves those outcomes?

Is your organisation motivated and incentivised to reward the necessary behaviours? Are your key sales systems - CRM and the like - set up to support them? Are your customers satisfied with their business outcomes, and do they demonstrate this through their growing usage of your “solutions”?

And if not, what are you going to do when your competitors demonstrate their superior mastery of these essential modern sales philosophies?

You can read more about outcome-centric selling here.

Republished with author's permission from original post.

Bob Apollo
Bob Apollo is the CEO of UK-based Inflexion-Point Strategy Partners, the B2B sales performance improvement specialists. Following a varied corporate career, Bob now works with a rapidly expanding client base of B2B-focused growth-phase technology companies, helping them to implement systematic sales processes that drive predictable revenue growth.


Please use comments to add value to the discussion. Maximum one link to an educational blog post or article. We will NOT PUBLISH brief comments like "good post," comments that mainly promote links, or comments with links to companies, products, or services.

Please enter your comment!
Please enter your name here