👋 Hi there, thanks for reading Revenue Formula. Every week, we share cases, stories and frameworks for GTM leaders and RevOps.
2024 is slowly coming to an end, and for many of us, it couldn’t come soon enough.
It feels like we’ve spent an outsized amount of time talking about the SaaS collapse and efficient growth.
But even so, SaaStr noted “so are we in a downturn in SaaS or not? It’s confusing”. Damn straight.
What’s going well: Public SaaS companies are growing at a rapid rate and accelerating (source: BVP)
What sucks: Efficiency metrics are bad, growth is expensive and reps aren’t making quota (source: WbD)
So what the heck is going on here?
Well, of all places — a report from Salesforce might just give you a few hints.
While these reports have so much irrelevant information – one thing stood out to me:
54% of sales folks say that customer expectations have increased - and sales leaders note changing customer needs and expectations as the number one challenge.
I guess maybe, just maybe, that’s why 67% of reps don’t expect to make quota this year.
What exactly has changed?
With plenty of cash to invest, there’s little downside buying software that maybe delivers some kind of return at some point.
Today? Not so much.
Buyers have gotten acutely aware of costs.
They demand a better solution with more seats at a lower cost.
Every single purchase or license is being scrutinized by finance - and 63% of deals now involve more than four people (up from 47% in 2017).
Meanwhile, software that helps companies control software spend and secure low prices are becoming more mainstream.
And if vendors aren’t willing to lower the unit price, customers will simply buy fewer units.
In other words: Buyers are no longer willing to carry the risk nor spend too much.
To make matters worse, power has shifted from sellers to buyers.
Buyers just have better cards to play now.
For one, price has become incredibly transparent - even if it’s being hidden. Getting the price range is just a slack message away in Pavilion.
So.. With all the focus on cost and more people involved… Selling is just brutal.
The two most hyped letters
AI.
You’ve probably talked so much about it by now that it makes you a little sick.
But, while AI has been the keyword securing funding for startups, it’s also secured funding for buyers to get more software.
Customers now expect AI to be part of your offering – and according to HubSpot, the number 1 priority is implementing AI (coincidentally, the number 1 challenge is also implementing AI).
Suffice to say, with the speed at which AI is improving (4x every year), it’s destined to transform go-to-market - and that’s getting a lot of folks to push the buy button.
What exactly has changed here? Let’s do a simple TL;DR
AI can now use tools and computers
More budget for AI is being created
Users face difficulty implementing AI
AI spend will reach $337 billion, next year (oh, and it’ll double by 2028)
Increased focus on ROI from AI investment
78% of sales leaders worry they’re missing out on AI
So while there are some seemingly big changes in the deal cycles, this is another big shift:
There’s a new class of buyers focused on AI. And they’ve got budget to spend. And here comes the kicker: 35% of the budget comes from existing software spend (making it even harder to sell non-AI software).
What can you do about it? You’ve just gotta prioritize AI.
Show customers that you’re not only building in this direction, but that you’re able to help them extract the desired impact.
And while there’s new budget, there’s also another consideration:
How will you charge for it.
Is pay per outcome (PPX) a solution?
With the rise of AI, pricing is slowly transforming.
Quite a few vendors are adding AI with no recurring costs – instead, folks like Salesforce, Zendesk and Intercom are charging per outcome.
This could be messages sent, tickets closed, text written or something else.
When Salesforce launched Agentforce, it came with a price tag of $2 per conversation. Intercom is charging $0.99 per resolution. Similar to this, some vendors sell credits to get the desired outcomes.
For a seller, the conversation fundamentally changes when charging per outcome. “How much is this outcome worth?”
At $0.99, Intercom’s price might seem expensive, but if the cost of support agents (in this case human) is $25 to close a ticket – it’s quite the discount.
Now, there’s two models currently emerging:
Blended PPX / seat based pricing (Intercom still operates with seat based pricing)
Charge per task completed through credits (Copyai etc)
Don’t confuse it with consumption based pricing though.
Yes, comp plans will get tricky.
Yes, I don’t think we can call it ARR.
Yes, it will be difficult to predict $.
But…
This will let you tap into the “experimental AI budget”, and it might just make it a bit easier to sell.