“Death to the Discount” with Vendr CEO Ryan Neu | SaaStr Annual
Ryan Neu, CEO of Vendr, argues that SaaS discounting kills efficiency. Top sales reps close deals at 26% with 4% average discounts, while bottom performers close at 15% with 16% discounts. He recommends fixed pricing like Figma and Snowflake use instead of negotiable rates.
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I'm here to talk about a topic I am very passionate about, and it involves sales. So if anyone here has a product, CEO, CRO, cs, you name it, if you sell a product, hopefully this will be relevant to you. And it's something that I care tremendously about. And the topic today we call Death to the discount. All right, so we're talking about discounting. And this is a contrarian take, by the way, because I actually founded a negotiation company. But we'll get to that. So the main insight here is that salespeople get ready for this. They make up the price. All right, a lot of us, we have SaaS companies, vendor included. Salespeople make up the price. This person gets a different price than this person than that person. Why is that? Well, I know this because I am one of those people. So I spent the vast majority of my career in sales. Before that, I was in public accounting. I made it like two years, and I realized I was like the world's worst public accountant. So I was like, let me try my hand in sales. And I ended up working for some of the best SaaS companies in the world. I spent six years at HubSpot. I found that. Found them when they were about 200 people saw through IPO. And while I was at HubSpot, I was like, man, what a great product, right? Like, how many of us use HubSpot? We've all definitely heard of it, right? It should fly off the shelves. Great product. Unfortunately, it didn't. I had this insight when I was selling it. It's like, wow, why is it taking me so long to sell this product that I know is such a great product? It's competitive, yet they had to hire people like me as an account executive to figure out how to sell it. They had to hire marketers. They had to spend marketing dollars to attract leads. Why the heck is it so hard to sell a great product? That was this question, this nagging question that I couldn't quite shake. All right, so let's unpack that now. Put your sales hat on, founder. Hat on. How are we selling today? Well, the vast majority of us, we're closing our opportunities. So our sales opportunities, which is, by the way, we've deemed it qualified. So we said, this is a good, fit customer. We're closing 20ish percent of those into a customer. 20%? What does that mean? It means that 80% of the time salespeople are talking to non buyers of your product. They deemed it qualified. The person doesn't buy. And unfortunately, this has a really big consequence on businesses because of the sales cycle. So this data here is from vendors data. So we see a lot of SaaS transactions in our community and we've been monitoring what the heck is going on with sales cycles because I would have assumed that the sales cycle is getting more efficient over time. Let's see what's happening. 2020, it's taking someone in our community about 32 days to buy a net new product. Not bad. What about renewals? Think it would be shorter, right? It's actually longer. 47 days to process a renewal. Three years later, what happened right as SaaS evolved, as we all got better, we're using better tools, did we get more efficient? No, it's going in the opposite direction. People are taking longer to buy your products. Net new purchases now are up 37%. Renewals are up 31% in three short years. Let's play this forward. What's going to happen three years from now? This is unsustainable. Truly. It's going to take someone probably 50 to 65 days to make a buying decision on your product three years from now if we don't change something. Renewals, get ready. That's going to take 80 to 90. Absolutely unsustainable. By the way, this is my favorite slide in this whole presentation, so get ready for this one. I call this procurement land. All right, so now put on your hat of we're selling our products to someone that then has to go through their procurement process. What is the buyer actually going through today? It starts in that top corner. I call it SaaS. Purchase time. That's purchase intent. That means someone has interest in your products. All right, but we as sellers, as founders, what do we do? That first big bold button. When someone gets to your pricing page, they're met with like contact sales. They came to your pricing page because they're interested in your product or service. And we're like, contact us. I'm not just going to show you the price. I want you to contact us. And it gets better. Because in procurement land, you know what happens next. We've got the lead form. All right, now we're like, okay, you wanted to contact us because of our product, great. Who are you? What is your role? What company are you with? Give me your email address. And by the way, I need your work email address. Right? Is that a customer centric thing to do? Is that a buyer centric thing to do? No, it's for us. And we all do this, right? This is how we convert leads. It's not over yet in procurement land, the next step is the BDR call, the business development representative. We're not yet convinced with what you put in that lead form. So what we're going to do is we're going to put someone on the phone with you to make sure, and they're going to ask you a series of additional questions. For example, excuse me, sir or ma', am, what is your budget? Do you have authority to make this buying decision? What about need? Do you really have a need for our product? And what is your timeline to purchase? Right. In sales, we call that bant. Right. We train our team how to qualify our prospects, and it's us deciding to do that. It's a forced qualification call. Then next, the forced product demonstration. All right, so now we have this person who found us. They agreed to fill out their information. They agreed to take a BDR call. Now we are forcing them to spend 45 minutes to an hour with us so that we can show them, get ready for this. So we can show them how intuitive our product is. Isn't that hilarious? Like, we're literally forcing someone to hear us explain how intuitive our product is. This is sales today. Like, we do this. I've done this. Like, I am one of you. We're all doing it. And this is where it gets pretty gnarly. Because after you get someone through that forced demonstration, and now they actually are like, okay, look, I really want your product. Thank you. Can I get it? We're basically saying, no, you gotta arm up. Now it's time for a negotiation. Because remember, salespeople, we make up the price. Remember buyers, they know that the price is discretionary based on the seller you're talking to. So what do you think they do? They get ready for battle. Because it's their job to ensure that they're paying the lowest possible price for your good. And it's your job as a seller to try to maximize the outcome. We're going to talk more about the negotiation in a little bit. All right, so after that, we have the final step, which is approvals. And in the approval step. Excuse me, in the approval step, there's actually two sides of it. You've got the seller who has to go to their boss and then to go to deal desk in order to get an offer approved or price approved. And then the buyer, what do they have to do? They've got to go to their finance team to say, this is what it's going to cost. Do I have budget? Then they have to go to their legal team and show like the master services agreement, then they've got to go to their compliance team, the security team. Then miraculously, we close a transaction that is the current state of sales for the vast majority of us. So when I say I believe that sales is broken, I vehemently believe that sales is broken. And it pains me, as someone who spent the majority of my career in sales, that this is how I'm selling these amazing products. So what I did in 2018, I started a company called Vendor. And Vendor's idea was pretty simple. We're like, we want to fix sales. Because me as a salesperson, I don't like this. It doesn't feel good how I'm selling to my prospects. I would love to fix that. And our wedge into this market was I don't think anyone really likes being sold to, so why don't we just buy for them? The fact is, sales is so complicated today that Vendor has built a billion dollar business in five years because people don't know how to buy SaaS products. They're like, vendor mercy. I don't get it. I don't know which products I should buy, I don't know what price I should pay. Can you just do it for me? Because this is so broken. So literally, as the person and the company that started this category called negotiation as a service, I'm like, it is wild that this even has to exist. Like, I will gladly shut my company down if I have to if it means we can actually fix sales. Because it's big business, it's expensive. Sales and marketing expense as a percentage of revenue for the top companies, the best these are. This is from Cloud Judgment by Jamon Ball. Amazing newsletter. These are the top 20 public SaaS companies. They're spending 44% of their revenue on sales and marketing. The most efficient Companies are spending 44% on sales and marketing. So let's look at the inverse of that. What are they spending on research and development? About 27%. So what I find interesting about this is imagine you've got a bunch of balloons or balls. I'm not really sure what these are, but I like it. They're filling up a bucket. That bucket. This is your available revenue. It's your available cash to invest in your company. What's happening today is that the vast majority of those balls are going to sales and marketing. Fewer are left over for research and development. And. And what's included in research and development? Your product team, your designers, your engineers, your data team, the team that is actually building the product. So what I Can't really get my head around is who is the actual loser in all of this? Who is the one that is not winning in this equation and the one that loses the most is the customer. Because the customer is buying your product. They're buying your product. They're not buying your sales team yet they're paying for your sales team. Right. Goods are priced based on how much it costs to produce. And the fact is we're putting most of our revenue into sales and marketing. So the price of SaaS is actually greatly inflated because of this equation. And on this slide, there's a lot of go to market tools, products, platforms, vendor. Like, I love these companies. We use a lot of these companies. They're incredible. They are all designed, I believe, to help fix sales. They're built for sales teams, they're built for CS teams to help people become more efficient. What I don't understand is with all of these amazing technologies, why is CAC at an all time high? CAC is spiking as we are gaining access to all of these incredible products. What's going on? So if we want to fix this, you know, one option is just to build more sales tools. Right. But I think those companies are doing a great job. I don't really have an idea of a better sales tool I could create. And there's plenty more that's not on that list. So I think we've got to take a different approach. If we want to fix sales, we must fix cac. The cost of customer acquisition right now is the thing that is preventing us from building the best possible product and to fix cac. Coming back to the thematic here, death to the discount. We gotta kill the discount. It's the easiest thing we could do to improve our efficiency. And when we improve our efficiency, guess what happens? Our customer benefits. All right, so going off the rails a little bit with this one, but this is like if you take a step back of like, why the heck do we actually discount? It's that precious little discount that sales teams cherish. And it's that and it's your pricing information. We as sellers, we're like, okay, our buyers have all the information. What are we going to do? We got to hold some back, we're going to hold price back and then we're going to allow our sales team to determine when they should give a discount versus when they should just charge list price. Right. It's a strange power dynamic. And is it working? We've been doing this for decades. Is it working? I don't think so. As a seller, even pre vendor, when I was selling products, I never liked that I had the ability to literally decide what you pay versus what you pay. Sometimes I literally felt bad for a company and I like just gave them a massive discount. Other times I was like, you know what? I'm at my quarterly quota. I'm good. I'm going to hold firm. It's like roulette for the prospect. Unlucky that they got me when I was already at my number. Like, what doesn't make any sense. And this is why people don't trust salespeople. So I take this profession very seriously because I actually believe I'm trustworthy. At least I want to be trustworthy. Yet 97% of our prospects come into the sales process, assuming that what we say might not actually be the truth. Right? So that's what the buyers are experiencing. This has major impact to our sales efficiency and it's got major impact to our cac. So all the data now, this is all vendors data. Across tens of thousands of transactions on our platform, 22 days are spent in the negotiation. Double the time to get through legal review, like haggling over price. 22 days, like negotiating a master services agreement. 11 security questionnaires, nine. This is like, it's like an unforced error, you know, like we are, we've just decided that we should make our price negotiable. But what we didn't realize is by doing it, we're like opening up the discussion of what should the price be versus just doing the hard work and determining what the price should be and then holding firm in 22 days. It represents 52% of the sales process. Like imagine in all of your sales teams, like all of your active opportunities, imagine if those closed 52% faster. That would be incredible. What do you think you could do with that time? I bet you could probably spend more time prospecting, finding the next customer. You could probably also take on a higher quota. Right, because it's faster for you to transact. All right. What we're going to look at now is what happens over time. Right? So we've already talked about sales being broken. Got it. Salespeople can make up the price, they're allowed to discount. Got it. Sales cycles are extending already in this environment. Like they're going up, not down. And it's happening for both net new purchases and renewals. And the longer the sales cycle, the higher the discount percentage. Let's play that out. And actually, I don't know the answer to this, but it's like, is it the higher the discount, the longer the sales cycle or the longer the sales cycle, the higher the discount? I think it's that, and here's why. Imagine you have a prospect who's thinking about buying your product or service, and then they're like, you know what? I actually don't know. I'm just not yet ready. What happens? Salesperson says, but wait, what if I gave you a discount? Would that change your timing? Remember, we uncovered that in procurement land at the qualification stage. Would that change your timing? It doesn't change your need, by the way, it changes your timing. And the prospect may say, no, I still need some more time. Then what happens? End of month, end of quarter, or even better, end of year is approaching. All of a sudden, the salesperson just like goes back in the pocket, throws up a Hail Mary. End of quarter, end of year, discounting prospect catches it, they decide to buy. That's literally what's happening. And so the longer the sales cycle, the higher the discount. So it's kind of. It's unfortunate that our prospects, our buyers, they know this. So what do you think they do? They draw out the sales cycle and the hidden cost here, that is actually, I think the most meaningful is what happens to ltv. LTV comes down. Patrick Campbell at Profitwell had a really good stat on this. Like, LTV's Coming down the higher the discount. And it's not just because in year two, you probably have to then, you know, keep the discount or at least a portion of it. I think what's really happening there is who's a healthier customer? The one that's buying when they want to, when they're ready, when they need the product, and they're buying it based on value? Or is it the customer, the prospect that bought because they got a 38% discount. So we're incentivizing people to come in the door and be a bad fit customer, and they walk out the door 12 months later. So when I see this data, I'm like, okay, what do we do about it? I think it's truly time to rethink our relationship with information. And what I mean by information, I mean, like access to information. So if we think back, we had Gollum, right, with my precious little discount, right, holding back that information so that the prospect or the customer has to come in and fight for the best price. But if we lean in to transparency and trust, imagine what could happen. Potentially that negotiation stage comes down. Could that actually happen? I think it could. So what I took here Is like, by the way, vendor, I have to look in the mirror for all of this myself. We have a sales team we've discounted. You know, we're attempting to standardize. It's really, really hard. So I looked at some of the stats for our own team. Our top 10% of account executives. These are their stats. They close at 26%. They're giving an average discount of 4%. All right, what do you think happens for the bottom 10% of our sales organization? They're closing at 15%, but they're discounting 16%. So like one argument would here would be like, as a buyer of software, you gotta, like, hope you get a lower performing rep to maximize your discount. The other argument is you should never have bought. You're not yet ready. And that is perfectly okay. Yet we found ourselves as consumers, we found ourselves getting just excited. Wow, it's a really good deal. I'm just gonna take a shot versus I know I need this thing and I know I need it now. And I believe the price is fair. So top AES to bottom AES. That's the difference. 42% lower close rate, 4x higher discount. All right, that's vendor. Let's look at some others. I love shining a light on Snowflake here. And I'll tell you why. Whenever I talk about kill the discount, death to the discount, Someone is always like, wait, Ryan, excuse me. I don't think you understand. I am a strategic seller and I, I sell to very big companies and I have a very complicated offer. It is my job. I'm very proud as a strategic seller that I sell on value and I help create custom offers for each, usually client, not customer. And I then price them based on the value that they see in my product. I don't know if we have anyone in the room like that, but if we do, I don't know if that resonated. I think it might have. But here's. I'll tell you. Snowflake, they also sell to the enterprise. They also have a technical product. They also have done the heavy lifting, the hard work of standardizing their price. Yes, they discount, but you know what? They don't make it up. AE to AE at Snowflake. You know who makes up the discount? Their cfo. They uncovered all of the variables that go into a price, which is hard, especially when you have like, legacy pricing. They did the heavy lifting though, and now they'll tell you, look, do you want a bigger deal? Cool. Buy more credits. Hey, do you want an even better deal? No problem. Do a two year deal. Do you want an even better deal? Do a three year deal. There's nothing to hide there, right? This is enterprise sales. They sell to the fortune, probably most of the Fortune 100. Let's take a look at someone else. Figma. This one's fascinating. Zero percent discount. The big question is, what do you think's happening to their sales cycle? Right. Because sellers don't have that magical lever of the discount. The they're not able to negotiate because they've also realized they don't have to. They adopted that very early on. So one would argue that their sales cycle probably gets extended. It's not. It's the exact opposite. When vendor customers buy Figma, we buy it like that. 11 days. It's easy. That's the average 11 versus 44. So for every single transaction, guess what? The Figma account executive is shaving off 30 days. 30 days. That's taking us to go sell our products. They're just running circles around us because they've taken the guesswork out of it. So what does this mean? Like, I think there's two races going on and I think there's two camps here. I'm not actually sure which one's right. I know which one I want to be. But the first race is all about best sales team wins. So what I pulled here is the median sales and marketing expense as a percentage of revenue. Remember that average was 44. And let's look at competitors. Salesforce versus HubSpot Asana versus Monday Box versus Dropbox. And what you see here is that it's kind of this rat race. It's a race to the bottom where you're kind of like looking around in your category and you're probably just like, oh shoot, the competitor just hires more salespeople. I guess we do too, right? Which I get because we're all trying to grow. And the most predictable way to grow is to invest more in sales and marketing. That's why we go put up the billboards on the way to Saster. It's why a lot of us come here and have a booth. Right? Yet what's the other game? I think it's a much more interesting one. When you look at those public companies and you start looking at their research and development expense as a portion of revenue. This is where I think the companies are determining are they betting for today or are they betting for tomorrow? Because with product development, obviously you're doing that to build a great product so that product eventually sells itself. But today's Reality is it doesn't really sell itself. So us as founders and as startups, it's time to look in the mirror and say there's two choices here. Your legacy with your company. Do you want your legacy to be the best sales team wins and you only can pick one, you can't pick both. Or do you want your legacy to be the best product wins? I want to be this one. Right. But most of us, when we build our businesses, we catch early product, market fit or we have an mvp. The first thing we do is we take all the available money and we start hiring sales. So if we take our SaaS, hats off for. I know this week has been like heavy sass. Let's look at a different industry. When you buy a car, how does it at least used to be and it's still kind of like this. This is from Matilda, by the way. What do you do? You show up to the lot, they have a bunch of salespeople there, you determine the car you want and then you leave the lot. Intentionally telling them you're leaving. And then you go across town to the other, like, Toyota dealership, get a competitive quote, then you go back and then what does the salesperson do? They say, hey, sorry, can't get you that price. I gotta go ask my boss. And then my boss's boss's boss. So that was the name of the game. And car dealerships spend a ton of money on their lot, on their salespeople. But then our eyes were opened. We were like, wait a second, Tesla, you don't have to go to a lot of. You don't have to haggle. Not only do you not have to, you're not allowed to haggle. They determine the price. They also determine when they lower the price, which they're doing right now. They did the heavy lifting of structuring all the variables that go into the price you pay for a Tesla. So you don't have to go through that horrible experience of haggling and trying to buy a car. So SaaS, how are we doing? Like, when I think back to procurement land, that's really kind of the reality today. I think that's the reality of used car sales. We're not yet affording our customers the ability to buy gong the same way they buy HubSpot, to buy Salesforce the same way you buy Snowflake. If we solve for the customer and truly make the experience, the buying experience of their dreams, great things happen. So how are we going to get there? There's got to be a catalyst and vendors mission is to fix sales. So how we are attempting to do this and I hope it works, but if it doesn't, I hope someone else does it more successfully than us. What we're doing is we're saying, look, we've got the data. And first of all, Gartner's had data on top SaaS for like 40 years. That's not a new thing. But for SaaS it's been really challenging because we had the sales protection over pricing and packaging. Those days are gone. Buyers of your products know the fair price, the data's out there. They also know the winning products versus the losing products because they're seeing trends that informs them to make the right decision for them, which actually brings sellers better customers. But that data, it goes to the other side as well. To fix sales, you've got to take all of that data and give it directly to the salespeople and to the sellers because you can show them who's buying what in their category, what their category, what their ACVs are, what people are paying, why they win, why they lose. And what happens is some sellers take that information and they don't do anything with it. Others take that information and they build better products, better processes, a better sales process that's more customer friendly. And what are those investments? Net better customers, more customers, healthier customers that are going to stick around longer. That's the true win win with the data. So the era of discounting sales led discounting. It's not over today, but I think if we're talking in five years, it's 100% going to be over. So if I'm building a business today, I'm leaning into price transparency because I genuinely believe it's what your customers want. And if you bring trust and transparency to the equation, you are also the beneficiary of it. You're going to close more deals faster. So the one call to action today, if you're open to it, kill the discount, give it a shot. It's a two way door. If it doesn't work, you can always go back. Thank you.
