When budgets have tightened, and greater scrutiny is given to how a business deploys its resources, how a deal is structured can serve as a great way to help close more business.
In a recent webinar with my colleagues Dan Veres and Sharad Chanana, we discussed the various ways you can structure your deals and mitigate risks to win business in a down market.
It was a fantastic conversation, and we plan to have many more of them to help businesses navigate the changing economic environment.
From this discussion emerged a clear picture of three agreement structures that I think all companies should consider to reduce friction and increase win rates.
I'll go through each of them below and include a clip from the discussion that relates to them.
1. Pilot Periods
You can call them Pilot Periods, Trials, or Proof of Concepts. Still, the idea is the same - allow your prospect to see value upfront without feeling like they need to make a significant commitment.
2. Multi-Year Deals With Ramp Pricing
Getting a customer to agree to a multi-year deal is the ultimate goal of a salesperson. However, especially now, getting that buy-in can be difficult.
One of the ways we help reduce friction in getting those multi-year deals is by offering tiers of discounts in which the discount level decreases for each period. So we could offer a deeper discount in the first year, and a reduced discount in the following years.
There are a variety of names for this type of agreement, but we refer to it as Ramp Pricing.
3. Flexible Payment Terms
In this environment, we increasingly see prospects requesting more flexible payment terms, including pushing for net-90 or even net-120.
Historically, we've avoided going anywhere above net-45, but the circumstances now dictate that we be more flexible.
However, from a Revenue Recognition standpoint, the collectability issue is crucial. If we offer these terms to a company, we have to know, with some confidence, that they will pay when the time comes.
We have to do our due diligence.
There are two types of prospects we come across in these circumstances:
1. Existing Customers
These are easier to assess because you have a payment history to look back at. If the customer has been on-time with their payments and has had no issues, extending these terms to them is not an issue, especially if it's an expansion deal.
2. Net New Business
It gets a bit more tricky when dealing with prospects with whom you have never done business.
These can be younger companies without much history or creditworthiness to rely on.
Offering terms like net-90 or net-120 to companies like this can be high risk; if you can't collect that money, you will have to reverse the revenue you have already booked.
And anyone in Finance will tell you that is something to be avoided at all costs.
Sharad Chanana, VP of Revenue, relying on his experience in this space over the last decade, suggests that you should always rely on audited financials in these situations.
While not foolproof, it provides sufficient insight to make a calculated assessment. And, in this environment, you have to consider it at least.