To be successful in the current market, companies must go beyond the initial contract signature to a maniacal focus on customer lifetime value. The most extreme manifestation of this idea is found in the Consumption pricing model, where your customers pay for their actual usage of your software, on a shorter time scale than traditional contract terms.
In June, Toby Balfre, VP Field Engineering at Databricks, and Brett Crane, VP Sales Engineering at Vivun, joined XC for a theoretical and practical discussion on how consumption models disrupt traditional PreSales techniques.
Whether or not your organization is considering the full switch to a consumption model, the following lessons are widely applicable:
Respecting PreSales as the Voice of Reason
This model’s emphasis on customer lifetime value presents an excellent opportunity to position PreSales at the center of influence. With a focus on use cases rather than features, Sales Engineers are key to driving adoption and expansion and helping your customers see faster time-to-value.
Not all consumption is healthy; customers need a personalized path to success, often a phased approach. “Unhealthy” consumption increases competitive vulnerability if customers aren’t equipped to get value from the SKUs they’ve implemented. With dual expertise in use cases and business needs, PreSales is critical to driving the “right” use cases and feature adoption for each buyer’s unique situation.
Therefore, Sales Engineers become the critical “voice of reason” to the rest of the business, with an aspirational but realistic outlook on forecasting and implementation/expansion timelines.
Toning Down End-of-Quarter Heroism
The critical consumption metric is Net Retention Revenue (NRR). Rather than a bookings mindset, NRR requires a longer-term lens for forecasting, compensation, and sales behavior. Businesses must anchor incentives and success metrics in what drives value to customers throughout their entire lifecycle.
Driving usage is truly a team sport, in which collaboration among SEs, Partners, Sales/Account Managers, Delivery, and other resources serves as a force multiplier. As such, compensation and headcount planning should incentivize collaboration among internal teams and with external partners.
Because headcount and capacity planning should emphasize the technical capacity required to hit targets, traditional AE:SE ratios can flip under this model. With PreSales playing a key role in driving expansion revenue, it might make sense to add more technical capacity (SE headcount) to the team before adding more salespeople.
Gaining Security with Accurate Forecasting
Efforts to achieve $1 of usage differ greatly from traditional measures of cost of sale. If properly incentivized, Sales and PreSales teams will focus efforts on acquiring customers unlikely to churn, rather than forcing unhealthy deals across the finish line for post-sales teams to deal with later.
By taking a wider lens on forecasting, and accounting for expansion opportunities, a consumption model can result in more accurate forecasting and more predictable revenue.
Traditional forecasting misses SE-created expansion pipeline and doesn’t consider the upside, timeline, and risk captured in consumption use cases. Though pipeline may seem smaller (from disqualifying non-ICP buyers), PreSales can find additional expansion use cases and SKUs.
However, CRMs are focused on bookings, rather than use cases, so forecasting may require some Sales Ops tweaks and additional fields to accommodate post-sale account growth and expansion opportunities.
Whether or not there’s a formal Consumption model, tracking use cases across opportunities and over time can start to prove PreSales impact on adoption, expansion, and retention.
With PreSales teams increasingly called in to prevent customer churn and aid with increasing expansion/upsell revenue, adding a long-term lens to forecasting and incorporating a use cases mindset can be useful for many teams.
Moreover, with customers demanding technical experts over traditional sales and support resources, Consumption model headcount and ratio models hold valuable lessons for companies looking to reduce costs, drive revenue, and satisfy customers.