Local exceptions?

Companies with a worldwide presence and large customers that span regions should have consistent offerings worldwide, as discussed here. However, that does not mean that you cannot maintain local variations in the way you present the offerings or even in the availability of the offerings. Here are a few examples.

Question: Most customers in the Americas are large but there’s a number of established and new clients in Europe that are quite small. [The situation could be reversed!] As a result, the Business Day Support offering is popular in Europe but rarely used in the Americas. Is it OK to drop it from customer presentations entirely?

Answer: Certainly! Why present offerings that don’t match customers’ requirements?

Q: Culturally it works better to present the offerings from small to large to European audiences but from large to small in the US. Can we have different approaches in each region?

A: Absolutely. Your goal is to sell, not to be robotically consistent worldwide, right?

Q: The onsite support offerings are popular and practical in Europe where distances are small but ridiculously expensive to deliver in Asia since we only have one office there. What should we do?

A: You have a number of options. One is to offer onsite support only in geographies where delivery is feasible (i.e. affordable.) Another is to price onsite support differently based on the location to reflect the higher cost of doing business there, or to require a minimum purchase. You can offer the same service at different price points around the world as long as there’s a good justification for it. Use different SKUs so no one gets confused.

Q:The heads of the Sales teams in our three regions (Europe, AsiaPac, and Americas) have very different ideas of what we need for support offerings. Should I give in and create completely different support portfolios, one per region?

A: Assuming that your customers themselves have a global presence, you really need to stick with a worldwide portfolio or else you will confuse the customers — never a good thing. However, you can certainly package different regional presentations for the same portfolio that would nicely mesh with each geography’s concerns and still meet the requirement for a unique, worldwide portfolio.

Incenting the support engineers on support renewals

For most vendors, first-year support is sold with the product and earns a commission for the sales rep. It’s best if the commission is at the same rate as the commission on the product so as to highlight the value of support. After all, the price tag on that initial year may be lower than the product cost but support is an annuity, so very valuable for the long run.

Beyond the initial sale the responsibility to renew support typically passes from the sales rep to a dedicated renewals rep. Renewing support is a very different exercise than selling product. For one thing, the success rates are much higher. In an enterprise sale context over 90% of support contracts renew. Therefore renewals reps are usually paid not on commission but with a bonus if they meet their targets. Neither the original nor the current account rep gets anything, although some vendors pay some commission on all renewals to attenuate channel conflicts, or pay a full commission if the account rep had to get involved to complete a specific renewal.

And where is the support staff in all that? After all, the support engineers are the ones who deliver the service, the quality of which has a big influence on renewals. I have not seen the support engineers receiving bonuses or other incentives based on renewals. It doesn’t mean it shouldn’t be done; it’s just not done usually. Bonuses for support engineers are typically based on objectives they can control such as customer satisfaction and productivity. Support managers and executives tend to have more financial-based objectives, especially if the renewals staff reports into Support. In that case the Support VP should have a support revenue target that determines part of the compensation. (And there would also be a margin requirement for support.)

Would it be wrong to reward support engineers with a fraction of the renewals revenue? No, although I would be concerned with rewarding everyone from the same pot without regard to different levels of effort (the individual who gets terrible customer sat surveys should probably not get the same rewards as the one with a collection of 10s) as well as what happens with a named support engineer who loses a  customer for reasons that have nothing to do with the engineer’s performance, such as after a merger.

If you think it’s important to link support engineers’ compensation to the renewals I would suggest creating a pool of bonus money based on the renewals revenue and paying bonuses drawn from that pool and calculated from the performance data (customer satisfaction & productivity.) That way if renewals are good then everyone benefits, to the level of their contribution.

Mixed fixed and percentage pricing?

Most support offerings are priced using either a percentage of the license price or fixed pricing. But there’s no law that says you cannot mix the two. A typical example would be a high-end offering that includes account management, let’s call it Platinum, that could be priced as (for instance) 20% of license PLUS 75K, where 75K represents a portion of an account manager’s time.

Caveat number 1: By using fixed pricing you may well be leaving money on the table since fixed pricing does not scale. So if a very large client selects Platinum you would need to assign more than 75K’s worth of an account manager to it while you are only taking in the 75K. Not good.

Caveat number 2: While a “percentage plus fixed” pricing scheme is not terribly complicated it’s not as straightforward as a pure percentage or pure fixed price, so you expose yourself to unintentional (and, perhaps, intentional) pricing errors that create bad feelings with customers during the initial transaction and renewals. This is not good since you want to treat your Platinum customers with great care. I’m a great fan of simplicity and mixed schemes are never the simplest.

Caveat number 3: If you are watching VSOE compliance (and you should) you may be told by your Finance team that mixed pricing schemes are not compliant. That’s not an entirely true statement, since VSOE mandates consistency of pricing across comparable customers, regardless of the pricing scheme, but certainly the existence of a mixed pricing scheme makes it more difficult to establish VSOE for Platinum, so there is indeed a technical reason to avoid mixed pricing.

Bottom line: use a mixed pricing scheme where it makes sense — that is when it doesn’t unwittingly create a situation where your largest customers are getting too much for too little.