The Importance of Incentives in Your Demand Gen Operations, Particularly for New Customer AcquisitionThis is part of our series, the Seven Pillars of B2B Demand Generation Success. In this post we describe Pillar #5, the importance of putting in place the right incentives to ensure the team executes your demand gen operations correctly. There is a science to sales compensation, and a library of books on the subject. This post is not intended to cover the entire field, but to point to a single critical aspect of compensation that is a crucial element of demand gen success — ensuring proper balance of incentives between new customer acquisition and existing customer sales.
A Common Pitfall: Incentives That Can Undermine GrowthRepeat sales to existing customers are crucial for overall company growth and success. Indeed, the first deal to a new customer is almost always a small fraction of the overall customer lifetime value, where the bulk of the revenue of a customer comes in years two and three and beyond. And of course, closing repeat orders from an existing customer is far easier than closing the first deal with a new customer (this translates directly into lower cost of sales, and overall profitability). However, as vital as the recurring revenue from your existing install base is, new customer acquisition is the true driver of growth, particularly for early stage high growth companies. And herein lies the potential challenge – sales to existing customers entail larger deals, and are generally much easier. Where would you spend your time as a rep if the only metric is bookings or revenue? Without the right incentive structure, your team will gravitate to the existing install base at the expense of pursuing new customers. We have seen this over and over again at B2B companies, and it is often the biggest factor in inhibiting their growth.
Tips to Get it RightThere are many valid approaches to overcoming this phenomenon—paying higher commission rates, spiffs or special bonuses for new logos, or simply setting minimum thresholds of new deals… It could also be solved by maintaining different teams (closers vs. account managers, see our post on Pillar 3— the importance of differentiating roles within the demand gen function). The main advice here is to be aware of this common pitfall and plan accordingly. Be sure to set up incentives that will ensure sufficient team focus and energy are going toward new logo acquisition. Then, actively monitor the team to ensure that cumulatively the team is spending sufficient time on both new and existing accounts. See this article by ITA Group on good methods for designing the right incentives. This is part of our series, the Seven Pillars of B2B Demand Generation Success. Here is the full list of posts in this series.
- Codify the Demand Gen System
- Build and Work the Pipeline Model
- Differentiate and Define Roles within the Lead-to-Close Process
- Measure and Know Your Pipeline Throughput Capacity
- Design the Right Incentives – Particularly for New Customer Acquisition
- Enact, Implement & Enforce
- Execute Lead Gen Campaigns with Adherence to Best Practices