Founder and CEO
Welcome to this session of SaaS Metrics Palooza 23. When we were putting the agenda together, I just knew I needed to have this company and this founder and CEO. Because what better insight about SaaS metrics can you get than the leading provider of SaaS spend management and SaaS management? And that being Vendr, their founder and CEO, Ryan Neu. Ryan, the stage is all yours. And thank you so much for being our first time speaker at SaaS Metrics Palooza. Hopefully not the last. We love the invite. We're ready to rock. All right. So today, we're going to talk about reimagining SaaS. And specifically, we've got a very clear call to action, a CTA today, which is ditch your discount. Let's go. All right. As Ray mentioned, I'm Ryan. It's nice to meet everyone or see everyone who I already know. And I'm the CEO and co-founder of a company called Vendr. And I'm going to start pretty bold. And I'm going to start with the statement that salespeople, specifically SaaS salespeople, make up the price that you pay when you buy SaaS. Now, I know that probably comes as a huge surprise to all the CFOs and financial representatives on this call. But here's the deal. I know this to be true because I was actually one of them. And so I spent my career actually, back in the day, I was in undergrad. I was a public accountant. So I'm a former CPA. And I spent my first three years of my career at KPMG. And I realized that I was the world's worst public accountant. So I was like, I should probably try my hand in something else. And I stumbled upon software sales. And ever since then, I've never looked back. I absolutely fell in love with SaaS. I fell in love with sales. I found a very small company in Boston in 2011 called HubSpot when they were about 200 people. And I was hired by Mark Roberge, who I know has also shared the stage. And what I learned when selling software is you've got these amazing products, yet a lot of them are really hard to sell. And so after six years of HubSpot, this was the question that I was left with, which is HubSpot, one of the best marketing and now CRM tools in the game, yet why does it take someone like me, a salesperson, and a lot of people like me, why does it take BDRs? Why does it take all these marketers in order to sell this product? Selling great products is really hard. So let's put some data behind that. Today in SaaS, the average opportunity to close rate's like 22%-ish. So think about what that means for the salesperson. So a lot of what I'm gonna talk today is actually through the lens of sales. It means that 80% of your time as a seller is spent with non-buyers of your product. 80% of the time is spent with non-buyers of your product. Hmm, that doesn't sound like a great use of time, does it? And unfortunately, it takes a long time for prospects to make buying decisions. And so all of this data, this is Vendr's data, which we'll talk more about later. And so we looked in our data set back in 2020. It was taking our customers 32 days to buy something net new. It was taking them 47 days to process a renewal. And when we say buying cycle, it's not the sales cycle. It's actually the buying cycle. So the buying cycle starts when someone at a company says, I wanna purchase something, the time it takes to actually get that done. 32 days for net new, 47 for renewals. Well, what's happened? Three years later, we looked at our data. Now new purchases are taking 44 days. Renewals are taking 58 days. That's plus 37% on the net new purchase side, plus 31% on the renewal side. Well, what's changed in the past three years? I think as we went from the low interest rate good times to the high interest rate harder times, the CFO has gotten their hands into the purchasing equation. And we're now seeing that a lot of the purchases are being challenged, like every dollar out is being scrutinized. And for sales, that has really big impact. The longer it takes to close a deal, the vast majority of deals don't close. At this rate, it's going to take us 60 plus days to complete a new purchase and about 90 days to complete a renewal. And this is just not working. So I put my sales hat on. I was like, well, okay, why is it so hard to buy SaaS? Why is it so hard to sell these great products? Let's go through the journey. So when a visitor comes to your website, they're basically saying like, I'm interested. They're raising their hand, expressing interest. And they're on your pricing page. And they're like, hmm, what does this product cost? Well, they're met with this big old button. And I imagine this to be like a red, like negative, you know, CTA says contact sales. Like the prospect wants to know what you cost. Boom, we're telling them to contact us. And we're not done yet. Because after they contact you, we're not gonna put them on the phone with someone yet because we're like, actually tell me more about you, prospect, who are you? What's your name? What company are you from? What's your email? And by the way, I need your work email address. What's your phone number? So I can have someone call you whenever I want to, right? This is the customer experience that we're taking our prospects through today. It's not done yet. Once we as the seller determine this might be worth our time, we put a BDR on the phone with our prospect to go further. And only if that call goes well, will we then move them into the forced product demonstration which now the prospect finally gets to meet the account executives, right? The qualified person to educate on what our product or service does. And what blows my mind about forced demonstration phase is if we are truly building intuitive products, why does it take us 45 minutes to an hour to tell our prospects why it's so intuitive, right? Like wouldn't we just demonstrate that it's intuitive by letting them experience this versus us showing them and telling them why it's intuitive? It just doesn't make sense. All right, if the prospect has made it this far in what I call procurement land, now they get to the negotiation stage. And I'm very, very passionate about the stage. The negotiation stage is where both sides arm up to try to, for the buyer, lower the price, for the seller, raise the price, maximize the price. And the whole reason that we do this stage, and this is the longest stage by the way, the whole reason we do this is because remember, salespeople have the ability to make up the price. So that's why we're doing this stage. And then finally, as we weave through it, we then get to the approvals. And approvals, this is a dual-pronged process. For the buyer of software, they've got to go through finance, budgeting, approval. At Vendr, we see it's typically it's like the three yeses. It's like finance, do we get the yes? Legal, is the MSA approved? Security, SOC 2, DPA, you name it. Those are like the three yeses we're seeking. And then for the seller of software, they're doing the same thing, but they're doing it through Deal Desk. So both sides can go with their own separate ways to get approvals, we come back, and then we finally get to a purchasing decision. This is SaaS sales today. As someone who sells SaaS or sold SaaS, like this is what we're taking our prospects through. So when I say that I believe sales is broken, I vehemently believe that sales is broken. It's wild to me that this is our process, that we are just like every single day, we're like, yeah, let's take another prospect through procurement land. That seems like a good idea. And so I am so passionate about this topic that five years ago, I started a company, and that company is called Vendr. And I started this company because as a seller of software, and then as I grew in my career at HubSpot, I became a buyer of software too, I realized that this pain is unnecessary. The pain that a buyer goes through to try to figure out what to buy and what to pay, that is incredibly painful today, but it's equally painful for sellers. Remember, they're talking to 80% of non-buyers and it's taking them 50 days to process a deal. There's so much pain here that I decided to start a company with the attempt of fixing sales. Now, the hot take here is that Vendr as a negotiation company, in my mind, shouldn't actually need to exist, right? If sales were fair, if the price that companies were charging was consistent, transparent, and fair, we wouldn't need negotiation companies. However, today, it's not the case, so we need this. So act one of Vendr is really to create a level playing field between buyer and seller. And this comes at, it's big business, right? So for sellers of software, sales and marketing expenses is like the number one cost center. And so these stats came from Clouded Judgment and the top, the most efficient SaaS companies are spending like 44% of revenue in sales and marketing. Well, I also wanted to see if you're spending 44% in sales and marketing, I would imagine that you don't really have that much left over for research and development. So when you look at the most efficient companies from a sales and marketing perspective, you see that they're actually only spending 27% on research and development as a percentage of revenue. All right, so what does this mean? And by the way, I'm really, really proud of this slide. I cannot take credit for it, but I love this one. If imagine you've got like 100 balls, right? And this is the 100 balls is how you get to build and distribute your product. Right now, we're taking the vast majority of the balls and we're putting it into the distribution bucket, sales and marketing bucket, which means we kind of look around and say, shoot, I don't have that many left over to actually build the product, right? Like who loses in this? In my mind, the customer is the primary loser because they're not actually getting the best possible product. Instead, they're getting a product that is under-invested in, and then they have to pay a higher price because of all of the investment that the seller has put into sales and marketing. So buyers of software are actually the ones footing the bill for this bloated sales and marketing expense. So I took a step back. I'm like, how have we gotten here? Because when I look around, and Vendr now is about a 250-person company, like we use a lot of these amazing products that are on the screen right now. These are a lot of the go-to-market tools that are designed to fix sales. They're designed to make selling software more efficient. These are incredible products. Yet what I can't figure out is every day, there's another amazing sales and marketing tool. Yet when you look at CAC, what's happening? It's going through the roof. So as an industry of an ecosystem, in SaaS, I think something's fundamentally off here. Because as we invest and innovate for some reason, we're not actually getting more efficient when we look at the cost is not requiring us to generate our next customer. So Vendr's mission is to fix sales. So we're just going about it a different way. Instead of starting with the seller, we're starting with the buyer. And I genuinely believe in order to actually fix sales, we have to start by fixing CAC. And to fix CAC, this is where we come back to that call to action. I think we need to start by killing the disco. So I'm just gonna leave this one on the screen for now. I'm just gonna leave this one on the screen for a second as I take a nice sip of my coffee. If we think back to why we discount in the first place, I think of it as like the my precious little discount. Like this is the tool that salespeople have been given by the CFO two decades ago to say, hey, sellers, go close business. You can discount to drive urgency and to get your prospects to close on time. Yet, if you look at what's happening between buyer and seller, there's no trust. Like 3% of people consider salespeople to be trustworthy. Like, I have to wonder, do you think that has anything to do with the fact that salespeople make up the price? If the price were consistent, do you think that more people would trust salespeople? I personally do. And there's also major impact to the actual buying cycle or the sales cycle. So the negotiation stage of the deal, and again, this is all Vendrs data across tens and tens of thousands of transactions on our platform, the negotiation stage takes up 22 days. Compare that to legal. On our platform, it's 11 days. Security, only nine days. We can negotiate like an MSA or finalize a SOC 2 or a DPA review or security questionnaire in a fraction of the time that we can actually agree on a price to pay. Why is that? So that negotiation stage, it's 52% of the buying process, 52%. Imagine hypothetically, if your sales organizations had 52% of their time back from all of their active opportunities, what would they do with that? I would imagine they would have more time to find the next customer. I would imagine they would have more time to work with their BDR, map out accounts. They would become more efficient, clearly. And what would happen if they did? And we pulled some more data. This one is pretty fascinating. The higher the discount, the longer the buying cycle. And perhaps you could say it the other way. The longer the buying cycle, the higher the discount. So what happens here and something you don't see in this chart is the impact of the correlation from the sales cycle and the discount to LTV, right? They're inversely correlated. The higher the discount, the lower the LTV. And if you think about why that might be, I have a hunch. In sales, what happens when a prospect isn't yet ready to buy? Well, clearly the sales cycle extends, the buying cycle extends. What do sellers do? They tend to offer a discount or an incentive. If that doesn't work, more time elapses. What do they do next? They literally lean back, they get the ball and they bomb a Hail Mary discount and they hope it lands, they hope it's caught. And sometimes it works and they close the deal. Do you think that's a healthy deal? Do you think that that customer is buying because of the value that was demonstrated or the discount received? Oftentimes, it's because of the discount that was received. They've justified it in their head that this is a good price now, so I guess I'll just buy. What do you think the likelihood is of those accounts renewing? Not so good. So I think it's time to rethink our relationship with information. And this is for both buyers and sellers. And with sellers, it's the, going back to the my precious little discount, when we hold things back from our prospects, one, I actually don't believe we're being customer-centric. Because we are protecting information that we don't want them to know about. And this information isn't that scary. The information of what are your SKUs, what's your list price, and by the way, like what are your discount policies if you have them? That shouldn't be controversial. Yet we've built up the SaaS industry, we've built up SaaS sales as if that is something that needs to be protected by sales. But here's the deal. But here's the deal. Your buyers know that. So what do they do? They phone a friend, they call other people, they hire Gartner, they use Vendr, like the data's out there. So we're actually just forcing buyers of software to do more work to find the information. But it is discoverable. So if we rethink our relationship with information, I actually think we can start doing some magic here. I think we can actually start creating some real efficiency. So I looked at, this is now Vendr's own sales team. I was like, hey, what about us? Like, what are we doing? From a top rep perspective to a bottom rep perspective, in our top 10% of AEs at Vendr, they close 26% of their opportunities and on average they discount 4%. Okay. The bottom 10%, 15% close rate, 16% average discount. So they close ops 42% lower and their average discount is 4X higher. Which bucket do you think has higher LTV? Which bucket has higher retention rates? Our top 10%. So that's Vendr. Let's look at some others. And again, this data is from Vendr's data set. We looked at Snowflake and I love shining a light on Snowflake because they sell a complex product to companies of all sizes, but absolutely they're selling to the enterprise. And whenever I talk about price standardization or transparency, you always get someone that's like, we're different because we sell to the enterprise and or we have strategic account executives that sell on value and they price to value. But Snowflake, they sell to the enterprise too. And they have a 5% average discount and they close deals in 33 days, which is pretty fast. And what they've done is they've actually just standardized how they discount. There's transparency there. So like, yes, we can ditch the discount, but what I'm really saying here is like we should just provide transparency to all the variables that go into the discount. And if you provide those, that transparency to your prospects, what you'll find is that they then get to choose their own adventure and they get to maximize the discount, but it's consistent customer to customer. And so if you ask Snowflake, like who comes up with their discounting policies, it's not the salesperson, it's the CFO, right? It's Mike Scarpelli is the one deciding to stop, not the account executive on your opportunity. Let's look at someone else. Figma, 0% average discount. Okay, so their sales team does not have that lever of discounting, the precious discount. What happens to their sales cycle? It's 11 days compared to the 44 day industry average. They got back the 52%, it's gone. There's nothing to negotiate. So what do you think happens when Vendr is helping our customers buy Figma? What are we doing? We're shaving off a ton of time because it's not negotiable. That's awesome, right? Vendr is the negotiation company. Do you think we dislike that? No, I think it's fantastic. I think it's amazing that they're demonstrating that you can actually eliminate the discount from the sales cycle and close deals much faster. It's a win-win for both sides. So now I wanna kind of think forward to like the two different races that are happening because we're at this inflection point of like the old world of like sales-led discounting and then the new world of price standardization or price transparency. And I think the race of the old world is best sales team wins. And so when you look at competitors now, Salesforce versus HubSpot, competitors now, Salesforce versus HubSpot, Asana versus Monday, Box versus Dropbox, they're all keeping tabs on one another of like, well, how much are they putting into sales and marketing? Because they're fighting for that next opportunity. And this is a race like right in front of you. This is more of like a 100-yard dash. Now, the one that I think is much more interesting is not that 100-yard dash, it's that marathon. It's how much companies are putting in into research and development as a percentage of revenue. And for me, like this is the interesting one because this is the innovation race. This is the one of these investments are gonna pay dividends the next mile or maybe not till mile 26. So when we look in the mirror, I think as companies, we have the option, like what do you wanna be known as? And you only get to pick one. Someone always wants to pick both. You can either be the best sales team or you can become known as the best product. Clearly, I think this is the one we all want. Yet, if we don't see a path to it, we believe we have to cover up in sales and marketing because that'll still help us grow today. So let's take our SaaS hats off, talking a lot about SaaS. Let's think about a different industry. How did we used to buy cars? You'd show up to a lot. You'd get a quote. You kind of already know the car you want. You get the quote. Even if it's a good one, you don't trust that it's a good quote. So what do you do? You drive across town to a competing lot. You get another quote. You go back to the dealership, you know you already wanna buy from anyway. And then you haggle. And then what does the salesperson do? They tell you, I don't have authority to make this decision. So I've got to go talk to my boss. And then my boss's boss, and then my boss's boss's boss. And of course, it then goes to the dealership owner to make the final decision. And then you buy the car. What did Tesla prove? They proved that you can take a complex purchase like a car and you can dissect every single variable and you can create an e-commerce transaction. But if I think about how we sell sales or SaaS today, we're stuck in the old way, right? We're still doing the manual processes of the haggling, of the letting the prospect ghost us and then come back end of quarter. And then when we need to close the deal before our board meeting, we do the Hail Mary discount to get the touchdown. But the future, why is it that you have to buy GainSight differently from Gong to SalesLoft to ZoomInfo, right? All of these companies, they have industry best products, yet you have to buy each one differently. And I'm talking about all of SaaS here. What we're doing is we're forcing our consumers, our customers to figure out how to buy from us versus creating a standardized way to make it seamless and frictionless. And when you reduce those variables, when you reduce the haggling, when you standardize legal review, when you standardize security review, we compress the sales cycle. So it starts to look a heck of a lot more like buying a Tesla. And it all starts in my mind with the data, right? The reason we can't yet buy like that, we can't buy SaaS like an e-commerce experience is because we're holding on to that information. This is why I think first we need to rethink our relationship with the information. The data is out there. Your prospects are able to figure out your SKUs. They're able to figure out your list price. They're able to figure out the price, the fair price. And by the way, this has been going on for 50 years. Like for bigger purchases, a lot of us know of or have used Gartner. Like the data's out there from Gartner. But now in SaaS, the data's out there through Vendr. We just launched our Vendr intelligence platform. And I'm really proud of the acronym of VIP, by the way. And with our VIP platform, you're able just to figure out the fair price for SaaS. And what this unlocks greatly benefits both parties. For buyers of software, it helps you figure out what other people are buying and what other people are paying. So you know you're getting the fair market value every time you're buying SaaS, which is now a top three line item for the vast majority of us. But for sellers of software, it's equally powerful. The data helps you know why you win, why you lose, what people are charging in your category. So you can build better strategies, better pricing and packaging, better sales processes, build the feature. And by taking that data in, what you're able to do is build the best possible product, eventually allowing you to move from best sales team wins to best product wins. So the call to action is ditch the discount, but at least if you're not ready to ditch it, start by standardizing. Start by following the Snowflake playbook and building consistency so that every opportunity has a similar experience. What that does is it's number one, is gonna shave off a bunch of time from your sales cycle because with consistency now comes as validation where Vendr is just validating that the price you're charging is fair. And what happens number two is you build up a bunch of trust. We go from this old world of haggling to this new world of helping our buyers decide what to buy and helping them just get it. So that's the call to action for today. I've had a ton of fun and please feel free to reach out. I'd love to spend one-on-one time with any or all of you if you wanna talk about this further. Thanks, Ray. Ryan, thank you so much. Wow, I'm gonna go back on demand and watch this two or three times because you shared so much powerful data. First of all, that baby blue Camaro on that auto lot for less than $2,000, I'm gonna try to find that one. That was pretty. But I think the one thing that really jumped out at me was the negative correlation between the level of discount and customer lifetime value. And I would be surprised if more than 5% of the CFOs and CEOs in our audience are doing that analysis. How did you come across that, Ryan? Yeah, so I mean, the discount, what we took is we combined two different data sets. One was the data set on where Vendrs seeing from sales cycle to average discounting. The second data set is from Patrick Campbell at ProfitWell tying average discount to LTV. But it's fascinating. And we see it with our own data too, right? You can also start by looking at your sales team and comparing those two buckets of bottom performers versus top performers and checking out what are they doing from a discounting perspective and then tying that back to the correlation back to customer health. Yeah, that's the other thing I really liked was the cohorting by your top 10%, bottom 10%. I would encourage everyone in the listening audience to go and do that across your sales organization and see how discount level impacts both cycle time and win rate because I think people will be blown away. Ryan, thank you so much for your data. Thank you so much for your time. And another session we're gonna be having at SaaS Metrics Palooza is with Chris Mele, software pricing partners. And he's gonna be talking about how discounting also impacts profitability and the divergence of those two themes. So man, that was a rocking session. Thank you so much. Awesome, thanks, Ray.