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Minute Monday #4: Landing small to win big
Deliberate underselling to drive higher LTV and NDR
The key to unlocking effective Product-Led Sales (PLS) contradicts all conventional wisdom from saled-led businesses.
Why? I hear you ask!?
In traditional enterprise sales-led businesses, you incentivise and reward the largest (ideally multi-year) lands, and worry about user adoption and engagement later.
The focus is on pulling forward an artificial ramp based on some projected (or often perhaps more accurately described, imagined) future usage ramp.
This often results in what later becomes clear as OVERSELLING.
Overselling leads to
🔻 Low user adoption
🔻 Low user engagement
🔻 Low user retention
These are all leading indicators of down-sell, churn and lower revenue retention.
So what’s the solution here?
Product-led Sales (PLS)
PLS is a long-term game.
PLS prioritises the health and longevity of the customer relationship and hence customer lifetime value (LTV) and Net Dollar Retention (NDR).
With PLS, you intentionally defer revenue today for greater revenue tomorrow.
Self-serve lands will typically self-right-size or purchase at a lower volume than anticipated future usage.
Sales-assisted (driven by Product Qualified Accounts - PQAs) deals should similarly land low.
Put another way, you UNDERSELL confident in the product’s ability to drive retention and acquisition.
✅ Smaller lands
✅ Less churn
✅ More expansion
For this to work well, two things should be present:
1. Product-led retention and acquisition.
2. Sales incentives that support the behaviour you want to encourage.
Compensation plans must reward future expansion revenue at some greater-than-1 multiplier of the reward for net new land revenue.
Nothing prevents those with enterprise sales-led motions from adopting this approach.
However, the cost of nurturing the account to drive future expansion is significantly higher when the product cannot do that for you.
CJ Gustafson of Mostly Metrics (please subscribe if you don’t already!) says:
"The enterprise motion not only "oversells" but then kicks it over the fence to a customer success team (who the P&L also has to find a way to pay for) with the tough job of then backing off previous promises and trying to deliver value in an unreasonable timeframe. A lot of times (like with a Netsuite purchase), there are hidden implementation costs (and opportunity costs re: time) that the customer has to pick up and builds ill will over time."
To caveat - exceptions do exist; there are many sales-led businesses with strong net dollar retention because of things like high switching costs and outstanding post-sales / CX teams, but eventually, they will face tough competition and risk of disruption from product-led entrants where the product does most of the heavy lifting.
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