Hunter/Farmer Dilemma
Without a doubt, the most difficult task in enterprise SaaS software is new customer acquisition. After all, look at the numbers — a new customer typically commits to the new software for 3-5 years, a good SaaS company retains 90% of its customers and the average customer intends to use the software for 10-15 years.
With those metrics in mind, it’s easy to see why rainmaker new logo salespeople ("Hunters") are in such high demand and get paid so much, but experience a high rate of turnover. Unfortunately for the Hunter salesperson, the biggest SaaS deals tend to come as follow-on deals to the initial transaction, adding to the complexity of deploying the Hunter/Farmer model.
Account managers (“Farmers”) are readily available and cost far less than high-end net new logo salespeople — largely because it is far easier to sell expansion and add-on deals to a company which has already bought your products than it is to sell to a net new customer (e.g., no legal issues, existing executive relationships, etc). The commission rate paid to Farmers tends to be far lower than to the Hunters due to it being so much easier of a job.
Since SaaS CFO’s prefer to pay less in commissions to salespeople, their inclination is to transition customers from the Hunter to the Farmer soon after the initial deal is made. The negative aspect of using that approach is that it has a tremendous impact on the Hunter. For the Hunter/Farmer scenario to work well, there needs to be a reasonable length of time to elapse from the initial sale (I suggest three years), so that the Hunter reaps the rewards from the time spent pursuing the account prior to the initial sale. Transitioning the account too soon results in high Hunter turnover and a continuing difficulty in recruiting talented Hunters.
While we have focused on Hunter/Farmer economics, there are customer-related issues to resolve as well. For example, it is usually the Hunter that develops the executive relationships with a customer, so transitioning the account to a Farmer may negatively impact the overall relationship, as Farmers tend to focus on the project team and often don’t retain the executive relationships.
Determining the elapsed time for transition from Hunter to Farmer is critical to making this model work. Offering dual compensation to both reps forever would be ideal, but far too costly for most companies. Dual comp for a transition period is often a good compromise. The critical question is how a company wants its top Hunters spending their time — hunting or expanding (i.e., farming)? If the deals are “one and done”, then a quick transition is plausible, but if it is a “seed and grow” scenario, a quick transition is potentially problematic.
Overall, while having a Hunter/Farmer approach is usually more cost effective, I would contend that deploying that approach needs to be done thoughtfully, incorporating sales turnover, sales commissions cost and customer relationships as parts of the discussion. For SaaS companies whose sales are highly transactional, the Hunter/Farmer model works well; it can get trickier for complex enterprise sales organizations.
If you want further guidance on the best sales approach for your SaaS company, please reach out to me at dave@moicpartners.com.
