10 minute read 12 Aug 2022
Aligning software go to market strategy with buyer behavior

Three ways software companies can align their go-to-market model with changing buyer behaviors

By Kumu Puri

Ernst & Young LLP US Strategy and Transactions Principal

Passionate about strategies to help technology companies grow. Balance innovation with the realities of execution.

10 minute read 12 Aug 2022

How companies can keep up with the evolving market for software-as-a-service offerings.

In brief

  • As more companies move to the cloud, they are finding a fundamental need to change the way they market and sell their solutions, according to an EY-Oxford Economics survey.
  • Software companies can adapt by redesigning the sales model, enhancing marketing with digital capabilities and building fit-for-purpose customer success functions to optimize potential.

As more companies introduce subscription and software‑as-a-service offerings, they are finding they must transform their go‑to‑market approach to achieve expected growth prospects.

Where the traditional on-premises model has relied heavily on sales representatives and personal relationships, subscription and software-as-a-service (SaaS) solutions are empowering customers to be more autonomous as they try, buy and use the software. This is changing the relationship between software sellers and buyers, and it’s creating attractive opportunities for both.

Software companies are changing the go-to-market model

80%

of respondents say they have changed or plan to change their go-to-market model to adapt to the evolving market.

The changes require more than superficial adjustments to the go-to-market model. Customer-led buying requires reorienting the company sales strategy, marketing initiatives and investment in customer experience. Software companies need to rethink sales and marketing from a customer-centric perspective, which in turn may entail new approaches to hiring and retaining talent and innovative use of new digital capabilities, such as machine learning and analytics.

Based on the survey findings and our experience, we’ve identified three areas that software companies can focus on to improve their go-to-market model and increase sales:

1. Redesign the sales model

SaaS offerings require a sales model that is customer lifecycle-led. This requires expanded collaboration with marketing and customer-success teams and an increased use of low-touch direct sales and channel-led programs. Companies should consider increasing multiyear contracts, introducing consumption-based pricing and designing effective sales incentives. Rebalancing the portfolio of channel partners can also help reach a broader ecosystem of agents, VARs, MSPs, integrators and marketplaces. In fact, this change is underway. High-touch direct sales have decreased in recent years, according to the survey data, suggesting that companies are relying more on channel and technology enablement tools. Nearly half of survey respondents also indicated 26% of sales are now coming from partner-led activities.

 

Figure 1. The evolving software go-to-market model is making greater use of low-touch direct and channel-led sales strategies. 

Source: Oxford Economics survey data, EY analysis

  • Chart Description#Hide Description

    Figure 1 shows survey results for the question: What percentage of your organization’s current sales model is made up of the following sales strategies? In 2018, 19% answered Direct sales with no touch (e-commerce), 21% answered Direct sales with low touch, 23% answered Channel partner-led sales, 36% answered Direct sales-led with high touch. In 2021, 17% answered Direct sales with no touch (e-commerce), 25% answered Direct sales with low touch, 26% answered Channel partner-led sales, 32% answered Direct sales-led with high touch. 

2. Make better use of digital tools to improve lead and demand generation 

Companies can reinvigorate lead and demand generation using digital tools and techniques such as campaigns that focus on buyer personas, supported by business development teams to develop qualified leads. Lost time with low-potential prospects can be a significant productivity issue. Companies can address this through better targeting and lead-qualifying. Sales teams can use social media to improve targeting by educating customers, nurturing leads and understanding customer needs. Many companies are using tools such as artificial intelligence, machine learning and predictive analytics to increase lead generation, promote upselling opportunities and grow sales. Most of our survey respondents cited outdated technology and lack of useful data as significant barriers to success, and over 80% said they have implemented or plan to implement new data analytics to improve insights and sales effectiveness.
 

Figure 2. Leading barriers have been identified by sales and marketing executives in the survey. 

Source: Oxford Economics survey data, EY analysis

  • Chart Description#Hide Description

    In Figure 2. a bar chart shows that in the Oxford/EY Economics survey, in response to the question “Which of the following are the strongest barriers to overall success for your function in your primary industry?” the majority of respondents selected “Slow/outdated sales and marketing technology.”

3. Rethink customer success and talent 

Successful companies are developing dedicated customer success functions to enhance customer experience, with metrics focused on adoption, use and expansion. The link between customer success (CS) and revenue is evident, as organizations continue to prioritize investments in dedicated CS functions. Nearly half of our survey population has also begun changing their recruitment approach to look for talent with SaaS sales experience. Coupled with this, adjustable sales compensation is an effective lever to promote subscription and SaaS sales, with 62% of companies citing total contract value as the most important sales metric, followed by cross-selling, upselling and renewals. More than 80% of companies use compensation incentives, such as sales performance incentive funds and cloud-deal multipliers, to help transition their business models.

Figure 3. Software companies are establishing dedicated customer success functions to focus on renewal, retention and customer lifetime value. 

Source: Oxford Economics survey data, EY analysis

  • Chart Description#Hide Description

    Figure 3 shows a pie chart shows the finding that software companies are establishing dedicated customer success functions to focus on renewal, retention and customer lifetime value. 57% responded “No” to the question “Does your organization have a dedicated customer success function” where 43% responded “Yes.” Responses to the question “Which of the following are the primary metrics for customer success manager performance assessment?” 60% responded Renewals/churn, 49% responded Expansion, 35% responded Usage consumption.

During the transition period, significant change is needed in the sales and marketing function, even as customers may continue to use legacy processes in purchasing. Many software companies find it necessary to manage legacy and new processes in parallel, especially in cases where there have been acquisitions of SaaS start-ups that have not invested significantly in large account coverage and channel partners.

Traditional, in-person sales aren’t dead. In fact, as the online experience empowers customers with do-it-yourself capabilities, the customer relationship remains paramount. Companies navigating the change successfully are learning to combine low-touch, online capabilities with a steady, ongoing customer relationship approach.

Vikram Rao, Shane Odegard, Ranjan Rath contributed to this article.

  • EY-Oxford Economics Survey: background and other findings

    Technology companies are increasingly turning to software-as-a-service to improve operational efficiency and position themselves for future growth. Unfortunately, many software companies struggle to transform their go-to-market models to fit the changing customer environment, according to a recent EY-Oxford Economics survey — and many may not understand how much change is required.

    Technology companies spend more than 40% of revenue on sales, marketing and customer success, according to the joint survey, which focused on challenges faced by 500 senior leaders at software organizations in North America. So, the stakes are high, and it’s important to get it right. Companies that delay or underestimate the need stand to miss important opportunities to increase customer stickiness, sales and market share.

    The good news is most software companies recognize the need to adapt their approach: 80% of respondents say they have changed or plan to change their go-to-market model to adapt to the evolving market. However, there is still a long way to go. More than 54% of respondents say their current business model is still based mainly on an on-premises approach, and software companies are typically taking five to seven years to make the transition to subscription and SaaS. 

    Figure 4. While on-premises offerings continue to drive significant share of revenue, companies are increasingly moving to subscription and as-a-service business models. 

    Source: Oxford Economics survey data, EY analysis

    • Chart Description

      Figure 4 shows that while on-premises offerings continue to drive significant share of revenue, companies are increasingly moving to subscription and as-a-service business models.

    Figure 5. To support the shift, organizations are making changes to their go-to-market model, including sales models, marketing efforts, analytics and sales incentives. 

    Source: Oxford Economics survey data, EY analysis

    • Chart Description

      Figure 5 shows that based on the Oxford/EY survey analysis, organizations are making changes to their go-to-market model, including sales models, marketing efforts, and analytics and sales incentives. Most are planning to begin or have already begun while a minority of organizations has fully implemented changes.

    Figure 6. Changes to the sales model improve business outcomes in terms of customer experience, satisfaction, efficiency and growth. 

    Source: Oxford Economics survey data, EY analysis.

    • Chart Description

      Figure 6 shows responses that indicated “significant positive impact” or “somewhat positive impact” from sales model changes. 68% selected that customer experience had “significant positive impact” or “somewhat positive impact” from sales model changes, 61% selected customer satisfaction “significant positive impact” or “somewhat positive impact” from sales model changes, 49% selected business growth “significant positive impact” or “somewhat positive impact” from sales model changes, and 47% selected workforce efficiency “significant positive impact” or “somewhat positive impact” from sales model changes.

    Figure 7. Software organizations are shifting their business model in response to market dynamics. 

    Source: Oxford Economics survey data, EY analysis

    • Chart Description

      In figure 7, 9 circles show the percentage of internal (company-driven) and external (market-driven) drivers in making the decision to shift or plan to shift respondents’ business models. Respondents could select multiple answers. The results were 37% increasing employee productivity; 36% increasing product/service innovation; 32% for ease of deployment/updates; 15% increasing resiliency of our bottom line; 42% changing customer demands; 42% in order to reach new customers; 39% increased competition from existing competitors; 38% disruption from new market entrants; 18% changing government regulation.

  • Methodology

    • Chart Description

      The methodology chart shows that our insights are based on a survey of 500 senior executives with specific knowledge and influences over sales, marketing and customer success functions. Findings were produced in association with Oxford Economics, June 2021. 90% of executives were from the United States and 10% were from Canada; 40% held the title Chief Revenue Officer, 40% held the title Chief Sales Officer, 10% held the title Chief Marketing Officer, and 10% held the title VP or SVP of Customer Success. 44% worked for companies with an annual revenue between $100m-$500m; 29% annual revenue between $500m-$1b; 18% annual revenue between $1b-$5b; 9% had an annual revenue of $5b or more.

      A pie chart shows that the primary industries included technology (26%), software (23%), software-enabled services (20%), cloud-enabled services (17%), cloud software services (14%). A second pie chart shows that the current business model of respondents included on-premise (term of perpetual) (33%), on-premise (subscription) (21%), sofware as a service (SaaS) (28%), other as a service (PaaS, IaaS, etc.) (18%).

Summary

As software companies shift to subscription and SaaS business models, many will need to update their go-to-market model from an on-premises-only approach as customer buying patterns and needs change. Companies that redesign the sales model, enhance marketing with digital capabilities and build fit-for-purpose customer success functions to optimize potential stand to generate greater customer loyalty and stronger sales. Organizations that have successfully adapted are seeing positive impacts on growth, customer experience, renewals and win rates.

About this article

By Kumu Puri

Ernst & Young LLP US Strategy and Transactions Principal

Passionate about strategies to help technology companies grow. Balance innovation with the realities of execution.