In this article, we will discuss:
- Why Net Dollar Retention is Critical
- How Professional Services Can Grow NDR
- Before You Begin a Professional Services NDR Program
- How to Launch a Professional Services NDR Program
- Should Professional Services Be Paid for Upgrades/Expansions?
Net Dollar Retention (NDR) is one of the most critical metrics for SaaS companies. As SaaS companies scale, they can become more profitable and profitable. NDR is a critical metric that describes how effectively a SaaS company can grow its existing customers. It costs significantly less to win business from an existing customer than to win a net new logo.
Net Dollar Retention is a percentage equal to Annual Recurring Revenue (ARR) + upgrades & expansions — downgrades — churn all divided by beginning ARR. A healthy SaaS business has net dollar retention of over 100% because upgrades in the customer base are outpacing churn and downgrades. A recent analysis of 59 SaaS public companies that have IPO’d in the past two years found that the median NDR was 111% while the top performers are well above 120% (the top 5 averaged 151%).
Professional services personnel can play a major role in increasing Net Dollar Retention. Professional services can influence a customer in many ways to drive increased product usage, upgrades, and the purchase of add-on products.
In many SaaS organizations, professional services (aka consulting) is often part of a broader customer success team. Professional services can help onboard new customers, train users, customize implementations, implement integrations with third-party packages, support major upgrades, etc. Often these services are paid for by the customer, but sometimes they are included in the cost of the subscription. While non-recurring revenue like professional services revenue is important, professional services can make a significant contribution to recurring product revenue.
Professional services personnel are uniquely positioned to build close, credible, and effective relationships with customers. By focusing on delivering customer value (trained users, customizations that meet the customer’s unique requirements, etc.), professional services can become a true trusted advisor to the customer. This credibility can be leveraged to drive new sales – expansions, and upgrades.
What is the best way professional services can be leveraged to drive expansion and upgrade sales?
There are four topics you should look at before embarking on a program to drive professional services participation in follow-on product sales.
Sales professionals have different DNA than professional services consultants. They have different education and backgrounds, different life experiences, and different motivations. While some consultants are natural salespeople, most are not. You should not expect that they will think, behave, and be motivated the same way as your regular sales team. You need to prepare them effectively to contribute to your overall product sales efforts.
Consultants need basic sales training. They should understand and confidently be able to explain your product’s messaging platform (Key messages, value equations, and proof points). Proof points are critical. Proof points are the irrefutable pieces of evidence that prove the benefits your products offer customers. Proof points must be credible in the eyes of the prospective customer. Professional services consultants are uniquely positioned to deliver proof points to customers since they are seen as trusted advisors, not just salespeople.
Professional services consultants need access to Customer Relationship Management and Sales Force Automation tools like Salesforce.com and Hubspot. Additionally, they should have access to sales enablement technologies like Seismic, Highspot, or Showpad. If your company has tools to automate sales playbooks, consultants should have access to them too.
These tools can ensure that professional services consultants have access to the latest accurate information about products and services. Also, consultants can use these tools to record insights they gather from their day-to-day interactions with customers. These insights may be very valuable to other members of your sales team.
It is critically important to clarify the role of professional services consultants in the product sales process. Are they merely supporting cast members that act when called upon by a product salesperson? Are they responsible for identifying and qualifying upgrade or expansions opportunities? Should they ever discuss price or discounts with a customer? Are consultants entitled to commissions on closed deals?
Having a well-defined sales process with clearly delineated roles and responsibilities goes a long way to preventing problems. You should clearly define the steps in your sales process, the roles and responsibilities of each player in the process, and the tools and metrics you use to manage the sales process. A sales playbook is a great tool to make sure that everyone is on the same page and signals don’t get crossed.
There are many models of how professional services can be involved in the upgrade, expansion, and add-on product sales process. The needs of your market, customers, and your own ability to execute will determine what is the best model for you. A popular model is where professional services consultants develop the equivalent of a sales qualified lead (SQL) and pass it to the sales team. An SQL is a lead who has intent to buy and who seems interested in your company’s solutions. The PS team then acts as a resource as the customer moves through their buying journey, in support of the sales team. Professional services consultants often receive some incentive compensation for qualified leads they pass to sales that go on and close.
The first step is to formalize the roles and responsibilities in your sales process and sales playbook. Clarify who is responsible for each step. Define how each part of the organization is expected to participate. For professional services, are they responsible for maintaining intelligence about customer using buyer roles? Passing qualified leads to the sales team? Leading product demonstrations? Developing and presenting proposals and pricing? Define the specific handoffs between professional services and sales.
Next, conduct a brief assessment of the professional service team’s sales skills and competency. Does the team understand the basics of your sales methodology? Are they comfortable describing the benefits of expanding the usage of your products? Can they appropriately position your products against the competition? Are they familiar with the respective roles and responsibilities during each stage of the sales process? Are they familiar with the tools the sales force uses for sales force automation and sales enablement?
The goal of the assessment is to develop a training and apprenticeship plan to increase the sales skills and capabilities of the professional services team.
Next, train the team. You can leverage the self-directed virtual training tools that are used to train the sales team. Sales coaching technology can also be very helpful, like video reviews of sales presentations and AI-assisted analysis like that provided by Gong.io, Chorus.ai, and Salesloft.
On an ongoing basis, one of the most important contributions the professional services team can make is to continually capture intelligence about what is going on with a customer. Have the using buyers changed since the initial deployment? People get promoted, change jobs, leave, or get hired all the time. By continually updating the contact info on the using, technical, and economic buyers the professional services team can make life easier for the sales team. Has the customer deployed a new piece of software that could benefit from integrating with your solution? Has the customer experienced a merger or acquisition that presents an opportunity for your company’s products?
The greatest opportunity for professional services to impact NDR is to spot and develop opportunities for product expansion, upgrade, or add-on products. It is critical, however, that they do this in a manner consistent with the agreed-upon sales process, sales playbook, roles, and responsibilities. Opportunities should be defined using agreed upon standards and passed to the appropriate team for prosecution, development, and hopefully closing. The PS team can support this process as appropriate.
An inevitable question that arises is should professional services personnel be paid for opportunities they discover, share, develop, and close with the sales team?
Imagine this scenario. A professional services consultant is having a discussion with a customer prior to their regular Monday morning status call:
Customer: How was your weekend?
PS Consultant: Great. (Shows a picture of his 5-year-old daughter in a Disney Elsa outfit) My daughter Mary went to a Disney princess party
Customer: Aww so cute
PS Consultant: I told her if your company buys the new analytics add-on package by the end of the month Daddy would get a commission and take her to Disneyworld to meet the real Elsa!
Customer: Uhmm . . err . . . isn’t our call about to start?
Professional services personnel should receive some compensation for opportunities they identify, qualify, and pass to the sales team AND the deal closes. Some may argue that paying the PS team a commission on passed opportunities drives up customer acquisition costs and lowers gross margins. These opportunities, however, did not incur any upfront demand generation costs. There are no Google or Facebook ad costs, email campaign costs, webinar costs, etc. so the net profit impact is probably minimal if anything. The valuation lift from more recurring revenue would outweigh any short-term costs.
It is reasonable to expect that the professional services team has a pretty good idea of what the comp plan for the sales team is. There is usually some jealousy and envy. If professional services personnel are not compensated in some manner, they will have little incentive to develop and pass opportunities. Sales incentive compensation plans are the ultimate expression of what management considers to be important, and not important.
One tactic you can consider is to pay the professional services consultant a one-time bonus when a deal closes. Something more than a nominal $100 or $200. Perhaps a percentage of the anticipated first-year billings, like 2% or 3%. The rules should be explicit and consistently applied. You can expect the same type of shenanigans that you run into with your product sales force regarding who is responsible for a deal and whether or not there should be splits.
Net Dollar Retention is a key metric that describes the health of a SaaS company. A recent analysis of 59 SaaS public companies that have IPO’d in the past two years found that the median NDR was 111% while the top performers are well above 120% (the top 5 averaged 151%). Professional services can play a critical role in identifying, developing, and even closing product expansions, upgrades, and even add-on sales.
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Also published on Medium.