I'm very much attracted by technical sales engineer position, how can I land myself that role ?
I start by attending industry trade shows and other industry specific events (i.e., conferences). Typically the upper management of these companies (VPs and Project Executives) attend these events since some of the events are in the day time and regular people have to work at that time. These events are great for networking and gathering new clients because the people who you meet are either the decision-maker or they can quickly introduce you to the decision-maker in their organization. One thing that I learned from selling to companies is that you should start as high up the organization as possible. A new employee or some in middle management is much less likely to pass your message along to their boss.
The most difficult part of enterprise sales is setting the right price. Typically enterprise software does one of two things. It either (1) increases revenue or (2) decreases cost. For both situation you need to quantify the client's current process - what they are doing now without your software. I typically measure labor hour saving per year per employee or new revenue generating potential per year. Then I calculate the new condition if the client were to use my software. The difference between the current condition and the new condition is the amount of value that the software is creating for the client. And finally, the price that I charge them should be a percentage of the new value that has been created. The price also needs to be high enough to cover all the cost (sales, development, marketing, and operations) and profit(20% to 60%).
Basically: If (Price < Value_Created && Price > Cost + Required_Profit){ Deal} else {No Deal}
What I have found is that most software engineers under price their products. An engineer might think along the following lines: "It costs me about $1000 to host my servers on AWS per year. If I charge $5000 then I would be highly profitable."
The problem with this way of thinking is that the person does not consider the value that they are adding to the client. The client doesn't really care about how much it cost you to build your product. They only care about the value that you can add them.
I can go on further if anyone is interested or have any questions.
What percentage do you charge of the value provided by the software? In my case, I save a company $100,000 worth of labor, what portion of that value is fair to take, and at what portion does it no longer make sense to purchase (obviously if it's 90% of that you are charging, it becomes too expensive for little gain)?
I'm sure you have competitors in this niche, how do you make sure that your prices are competitive?
Would love to talk to you more about this if you don't mind and get your personal opinion on my software (can you email me at john@appsonify.com), and how to price it properly.
My biggest and most expensive lesson I learned this year so far is that you must target decision makers with budget and people with the right long term fit.
So the million dollar question becomes, how to find these golden nuggets. Is there any other way besides going to conferences? Although I would love to hear more on the specifics of what worked for you and what didn't. How do you pitch your product without coming across as an annoying door to door sales guy?
Please, I encourage you to continue writing more about your experience in this domain, would also love to personally talk to you via email.
The exact way to price software is a bit more complicated than what I described in the earlier post so I am going to explain in greater detail. You always want to start by evaluating the value added of your product because this creates and anchoring effect to that number, raises their willingness to buy (After all everyone wants a great deal), and creates a sense of urgency (now that they know how much they can save, they want to do it right away). The higher the value added number the better the anchoring effect. By starting the anchor at a high number, the client might will still be happy to pay for the percentage of value that you demand even if it might seem absurdly high from a different perspective. Remember that selling is highly based on psychology and unlike physics, psychology is not path independent. The way that you frame the conversation and the path that you take can make a big difference.
Keep in mind that this only works if both you and the client agree on the methodology and the result of assess value. For best results, you want to have the client do some of the work on assessing the value that way they are "part" of the process. I generally just ask some questions to the client and subtly guide them through this process.
In terms of what you can charge for the software, you have to also consider the organizational dynamics and their current expectations. For example, if the software can save a company $100 million per year and is rather simple it may be difficult for the purchasing agent to part with $10 million per year even though that is legitimately only a portion of the value delivered. In this situation, the upper bound is based on how much the organization can stomach. So in this case, I might be able to get away with $1 million per year (just a hypothetical example) after showing them that this is only 1% of the total value that they are getting.
Another thing to consider about software these days is the cost that the company might incur by building their own custom solution. I usually raise this up if the bill for the software is around $100k to $500k. My talking point here is that since it would cost them ~$200K per developer and they would need to full-time Project manager and a part-time designer, it would be cheaper to have us build the product and service them. Another benefit for the company is that since we are focused on this product, we can innovate faster and gather ideas from other customers -- some of which may be their competitors. Overall they would get a better quality product and for much cheaper than building it in-house. Usually for SAAS solutions the client already knows that they do not want to build it themselves and probably have some horror stories to tell.
So to answer the second question about the competitors, I generally do not focus that much on the competition. The way I see business is that I build a product that delivers a certain value to my client and I sell it for a portion of that value. As long as I stick to this plan, the existence of competitors in the space is not really a big deal. One of the worst product strategy that you can do is to copy a competitor's features verbatim. By doing so you are essentially playing catch-up and creating a me too product instead of creating unique value with your product. If you look closely a software products for the enterprise, due to the specific needs of a company or an industry the "competitors" are actually quite different from each other. Some of the offering solve one or two pain points out of five and the client might have to mix and match 2 or 3 different solutions to solve their problem. To avoid direct competition and driving down prices, you want listen closely to the customer and build the product that solves all 5 of their pain points. If you can hit the sweet spot and create a holistic solution to one their software needs then there is not really a competitor. It is just the client and you and all that there is left to do is negotiate a price.
This is not part of your question but I like to think of the sales process as a spy mission. You are infiltrating the lair of your customer to understand their problems and then sending the intel to the engineering team to solve that problem. The best spies are usually the ones who were engineers themselves because they know what is feasible before making promises and send only the relevant intel to build the product.
There is a lot more say about pricing and I think that this is one of those areas where start-ups and even large companies can leave a lot of money on the table. One analogy that I like to think about is when you dine at a 5 star restaurant you are not only there for the food. You are there for the whole experience. Likewise the enterprise sales process needs to encompass the full experience from first contact through the follow-up sessions. Most companies forget this and think that a better product just like better food is all that is required for them to win the contract. I like to think your revenues are a function of your product and your sales strategy. A simplified equation might look like:
Revenue = Sales_Strategy X Product
A great product with a poor sales strategy leads to very low revenues. Likewise a good sales strategy and a bad product is a poor combination. The key takeaway is that your company's revenue depends as much on your product as how you sell it.
To answer your final question (wow this is quite long), I generally meet my clients at conference and industry events. I go to these events because there is a natural filtering mechanism at some of these high-end and rather expensive events. Usually on the upper management folks attend these events so I get access to the decision-maker or someone who has regular contact with the decision-maker. Every industry is different and surprisingly an easy way to find out about how to meet these people is to ask one yourself. Suppose that you have acquired a client with a certain profile (e.g., VP of .. in X industry). You can ask them, "If I did not meet you through ... how might have I found someone of your position and title? Is there an event or conference that people with a similar position to yourself attend often?" It is really that simple and you would be surprise to hear about events and meetings that you might not have thought about before. One thing the remember is that people high up in the organization tend to be strategic and they tend seek out new knowledge that can help them better manage their companies. Use this fact to your advantage.
When I approach a client about my software I usually don't talk about my software first. I usually ask them about a problem that I suspect that they have within their company. After the point of the software is solve an existing problem. I might ask them how they are currently dealing with it and strategies that I have tried to mitigate the problem. After they give a 5 to 10 minute speech about their "unique" problem, I might say: "well I heard from XYZ that this is a problem in your industry and we have actually tried to build a product to solve that problem. We think that to most effectively do this we should have the following features... " This is a sample dialogue but it really points back to a psychological principle of commitment bias. The person has already committed to your conversation by telling you their organization's problem and it is natural for them to be intrigued when you present a possible solution. They might actually be glad that someone else understands their problem and is working to fix it.
Another way to approach a client is to provide them a tip or information that would be useful to them. I usually talk to the speakers after their speech and give them some comments and suggestions that they might not have thought before. By giving free and good advice, you position yourself as an expert in the field which warms up the client to listen to what you have to say next. Although I mostly sell and build software, I have had a client hire me as a consultant based on a piece of advice that I gave him at a conference.
If you are interested in learning more about pricing, you should read into practice called "Target Costing". It was developed by the Japanese in the 1980s to ensure profitability in new product development. Dan Ariely has some good books on anchoring and framing for price setting.
There is a lot more to say about this topic and I think that it is an important one that is often not taught in school or discussed on HN. If people are still interested in hearing more, leave a message below and I will continue writing.
Likewise, you can shoot me an email at: doanh [at] paramountdecisions.com
Please DO continue! What you are writing provides transparency in to how enterprise sales and software works.
Again thank you so much for writing such a detailed and insightful answer.
Sent you an email.
Some of my blogs titles might include: - The paradox of choice: how to use psychology to develop your tier pricing.
- Why selling and product development are actual the same thing.
- Why learning is the most important part of any organization and how build it into the culture.
- What is the lean start-up really and how lean isn't just for start-up organization?
- What is value generation, why most people don't understand this concept.
- How to develop sound decisions within organizations.
- The difference between upper management and lower manager and how this affects the sales process.
- Strategy is really about choosing what not to do.
- Pricing and feature set discrimination: how understanding and segmenting your customers can improve your profit.
- Why charging less may do your customers more harm than good.
These are some of the topics (and perhaps many more) that I will write on a blog. If any of these topics are of interest to you, please write a comment below so that I can prioritize my writing.
As for today, I will talk about The paradox of choice: how to use psychology to develop your tier pricing.
If you look at every single SAAS, enterprise, and consumer facing company's website; you will notice that they all have a set of prices and features. This idea is not new and has been a ubiquitous practice. What is often not discussed is why these practices exist from a scientific perspective and how effectively develop the tier pricing model. Most companies either look around the web and copy more established players or develop their own tier offering with much less thought that they should.
Since we know that the price your product is as important as your product itself, being conscious about this practice can significantly improve your revenues.
The first thing to note is that people like choices. I am going to repeat this again: PEOPLE LIKE CHOICES. So given this statement, the worst thing that a company can do is not to give the customer a choice. If the customer does not see a choice in your offering, they will subconsciously create a choice in their head. In this case they will decide between pay for your product or not. If on the other hand, you have a nice set of offerings, the customer's attention will be focus on choosing between which of the offerings that best suits their needs. As you can see here, including choices in your offering changes the type of decision that the customer is thinking about. In the first case, they are focusing on the choice of whether to buy or not. In the later case, they are focusing on which offering to buy. This makes a big difference on your revenue and so you always want the customer in the second state of mind.
When creating a tier pricing model, you can also run into the problem of giving too much choices. Typically beyond 5 alternatives, clients have a difficult time of assessing which one is the best for them. This may lead to frustration and given the difficulty of making this decision, the client might not choose any of the alternatives. This is a classical case of paralysis by analysis. When making a decision, people want to be assured that they are making the right decision. If your pricing strategy can give a sense of assurance, your conversion rate will also be higher. Likewise people also want to walk away from the process feeling happy about their choice. Remember that whenever we make a purchase, we want to feel good about it afterwards. Bonus points if you make them feel so good that they will tell their friends about you.
So in order to create a fine balance between too few options and too many options, the good rule of thumb is to create between 3 to 4 choices for the customers with different features and price points. The exact method for how to create this price discrimination and feature discrimination will be discussed in greater detail in a later post. I will cover some basics here.
Within each of these tiers, the feature set needs to suit a particular customer demographic. For example, offering 1 is best for the small business owner. Offering 2 is best for a medium enterprise with 100 to 500 employees, etc. By deliberately alining the offering with a particular customer, you can more likely induce the affect of having a customer know that the choice that they pick is the right one for them.
There is also a number of tricks that you can use to enhance your pricing strategy. One of the most predominate trick is creating the "dummy or decoy" offering. The "dummy or decoy" offering is an offering that you know very few people would go for but the existence of the offering creates an anchoring effect to the other alternatives and frames the decision in a positive way. For example, expensive restaurants always list a few very expensive dishes and wine knowing that few people would purchase them. These alternatives create a psychological frame so that clients would feel happy when they order a slightly less expensive dish because they get to think that they are getting a great value. The "dummy or decoy" alternative is quite interesting because you often create this alternative to generate a comparison between our product and a more expensive competitor. You know that most people will not choose it but its existence can help the client's internal team justify your solution over the competitors. The reason that this trick works so well is that in decision-making, people generally think in terms of relative differences rather than absolute differences.
Another trick that you can play around with is the psychological perception of different numbers. For example the difference between $69, $70, and $74.99 are quite different even though they are not that far apart numerically. In this is an area where the best way to test is through experimentation but as with the other tricks this can make a big difference in the conversion rate.
A third trick that you can use is called anchoring. I learned this from a street performer in Europe. Whenever he performed, instead of asking people for a specific amount of money, he would say: "If you enjoyed the performance please support us with a small donation. I think that our performance is worth the sam price as 1 or 2 cups of coffee". In this situation, he anchors his services to a price of a cup of coffee which is familiar to the audience. In doing so he is able to get a reasonably good amount of money from everyone. You can apply the same trick to enterprise software as well.
So overall this post talks about the paradox of choice and how to use it for creating a tier offering for SAAS products. Every organization, every software, and every industry is unique and these are just some guidelines. One thing to take away from this post is that pricing strategies are a lot more complex than what most people think. Within this complexity is opportunity to fine tune your offering to increase revenues.
If you have any further questions about this post please email at: doanh [at] paramountdecisions [dot] com.
I realize that this is an area which is of vital importance for most SAAS companies (since it is directly correlated with revenues) and an area where there is not that much expertise (as far as I can tell from my experience). If you are interested in some consultation for your company on this topic, shoot me an email.
If you are interested in reading it and possibly sharing it with others, here is the url: http://doanhdo.blogspot.com/
I will write more posts in the near future on the topics that I mentioned earlier.
You need to be competent in the technology niche that you wish to work in.
You need to be interested in understanding the problems people are trying to solve, including the business, cultural, political and legacy technology background for those problems.
Having done that, you then architect the "solution" and present it.
Typically the client wants to pay far less, wants it much sooner and throws in a bunch of new constraints. So you go back and re-architect, repeat. A fast sales cycle is 6-9 months some can be multiple years and the technology moves along as they dither.
It helps to have client-side experience before crossing over to the vendor-side.
A lot of companies have trouble filling sales roles, and adding your technical expertise is a huge advantage. I'd imagine any smart hiring manager would at least talk to you.
I've been considering an entry level sales job to fill that gap before thinking about this role, but is that not necessary? Could it be possible to go into this role directly with only an engineering and some entrepreneurship experience?
well my email is john@appsonify.com if anyone wants to talk.
Entrepreneurship is sales experience. In fact, it's the best kind.
Lots of people can develop a product, but getting people to use it (and pay for it!) is really hard and requires sales skills. It's even harder when no one has ever used the product before, and you don't have the benefit of a big brand or glowing testimonials.
Someone with your skills and a passion for sales will be a lifeline to many companies. If you don't end up as a Sales Engineer, you could also be on an implementation team (meaning like a customer advocate, not like IT implementation). There are lots of things you could do.
Consider that there is a Senior Sales Executive out there today that you have knowledge & expertise to help. Suggest reaching out to Diretors & SVPs of Sales in the SaaS space. Linkedin is a good place to find them. Now gather intel and network. You must talk to these guys, the more, the better.
Incidentally, start reading up on the sales process. Recommend reading The Challenger Sale by Adamson and New Sales Simplified by Weinberg.
So how did it lead you to a sales engineering role or other opportunities? Do you ever mention it in your interviews or resume? How do you explain how it demonstrates your abilities for sales engineering roles?
Did you create the screencasts just to build a portfolio or do you have a general interest in this area?
You should upload it on youtube and monetize it as well (but I've not done this but seen other people uploading screencasts on there with success).