As you scale your sales team, unless you are very careful whom you hire and how you train them, incentives being what they are in variable compensation, some negative behavior will creep in. Prospects will be … if not lied to … then told half-truths. Told that the product does something it doesn’t quite do. That a use case makes sense, when it doesn’t. This is pretty common, especially with struggling reps. (This and massive discounting.)
Many call it “Churn and Burn” or other variants. Salespeople, often intentionally, but sometimes through poor training and/or product ignorance, often way oversell a SaaS product.
It’s bad for everyone.
- It’s bad for the company. Your brand and reputation are damaged at least a tiny bit every time a paying customer churns out because they were mis-sold a feature set.
- You lose money, all-in. Yes, the rep gets a commission and the company might book a tiny bit of revenue in the short term. But the cost to onboard, close, manage, and market to a customer that churns almost immediately is almost always higher than the short-term revenue. At least, holistically.
- The rep learns poor practices — and does it again and again and again The best reps don’t do this. The best reps do learn how to hack a product so it can do more than you might think (e.g., by bringing in 3d parties to fill gaps, etc). But they don’t misrepresent products. But many mid/low-pack, lower quality, and failing reps will say anything to close a deal. Don’t let them also learn this is OK.
- The customer loses out. And then, you lose a chance to close them later. If you go long, you’ll often get another chance to close a prospect. 1, 2, 5, 10 years down the road. Don’t blow that second chance during the first chance.
So what can you do? A few thoughts:
- Implement clawbacks. Clawback sales commission for customers that churn quickly. This doesn’t always help that much (sales will protest when they lose a commission on a closed deal, but if they have enough deal velocity, it likely won’t change their behavior organically). But at least an aggressive clawback policy keeps churn topper-of-mind for the sales team.
- Tie bonuses to revenue and NPS, or even better, sales rep NPS. This can work if you do it aggressively. More on that here: It’s Time To Start Getting an Uber/Lyft Rating for Sales Reps. And Paying Them Based On It. | SaaStr
- Train your reps. As you scale from a handful of reps, you really have to train them. If you don’t, they may make things up. Most especially, the ones that are struggling. And build an internal learning system so the answers to the Top 100 questions are always close at hand.
- Pay part or even half their commission upon deployment, or perhaps a “bonus” instead. This is nonstandard, but it really works when you do it. You may have to increase commissions for a while to make this work in practice, but if, say, 20%-50% of their commission is paid once the customer goes live and into production … then churn-and-burn deals immediately don’t make sense. If there’s too much friction from splitting commissions up, you can perhaps do a 20% “bonus” on Go Live … and overall reduce commissions later to get to the same place.
- Use a tool like Gong or Chorus.ai or Salesloft or others to listen to sales rep calls. You can’t listen to all of them. But especially with newer reps, make sure they truly understand the product limitations.
- Require Customer Success to “accept” larger Opportunities before they are allowed to be closed out / marked Won. This can work well with slightly bigger accounts. Force Customer Success to agree that the Opportunity can be supported before the deal can be closed out in your CRM. So no commission or other activities are kicked off without CS approval. Sales won’t like this initially, but in the end, it will ensure all bigger deals are properly resourced and that fewer crazy commitments aren’t made. This won’t work if you close 10,000 customers a month. But it can work well for your Top 20%-25% biggest customers by revenue, maybe even more. For whichever customer segments have high enough deal sizes that Customer Success can be proactive instead of reactive.
- Bonus: consider holding back some commission until the customer successfully activates. This can solve a lot.
Get rid of insta-churn and “Churn and Burn” deals, and everyone wins. Even the reps. They just need help seeing it sometimes.
(note: an updated SaaStr Classic post)