Top strategies to increase ACV (Average Contract Value)
Average contract value, often referred to as ACV, is a metric that is often on the top of sales leaders' minds during pipeline reviews and strategy sessions. But when it's not hitting the mark we want, it can leave us a bit stumped on how to raise it.
Having a lower average contract value is frustrating because it can significantly impact revenue targets. Unfortunately, the effort you put in a $50K deal is often pretty similar to closing a $5K deal.
Why do these smaller deals sometimes demand the most handholding?!
Your sales team only has so many hours in the day. If they're bogged down with numerous smaller deals, they’re forced to close more or revenue takes a hit.
So, how can we get more out of every deal?
Let’s dive into some key initiatives that can significantly help raise your deal value, focusing on the power of consultative selling and strategic value additions.
How do you calculate average contract value (ACV)?
ACV stands for Average Contract Value. It is a crucial metric used in sales and business to calculate the average value of each contract or deal closed within a specific period. This metric provides valuable insights into the health of a company's sales performance, pricing strategies, and overall revenue generation.
To calculate ACV, you typically add up the total value of all contracts closed in a given period (such as a month or quarter) and then divide that by the number of contracts. This gives you the average amount of revenue generated from each contract.
If a company closes three contracts with values of $10,000, $15,000, and $20,000 in a month, the total contract value would be $45,000. Dividing this by three (the number of contracts) would give an ACV of $15,000 for that month.
ACV is a critical metric for sales teams as it helps in:
- Forecasting: By knowing the average value of contracts and maintaining consistency, teams can forecast future revenue more accurately.
- Performance Evaluation: Sales teams can track their performance in terms of the value they are bringing in with each deal.
- Pricing Strategies: It offers insights into whether adjustments are necessary in pricing strategy or the features offered to enhance the average value per contract, or if your lower tier plans are giving away too much.
- Strategy Development: Companies can tailor their sales strategies to focus on high-value contracts or identify areas where they can improve selling the value of their product.
ACV is an essential metric that gives businesses a clear picture of their sales performance and helps in making informed decisions to drive growth and profitability.
How do you increase average contract value (ACV)?
As sales leaders, you’re always looking for ways to make every deal (and every dollar) count. How do you increase each deal size?
In this guide, we'll explore a few strategies you can implement to increase your ACV, from mastering consultative selling techniques to sidestepping the discount trap and ensuring your deals reflect the true worth of your product or service.
While you’re looking for ways to increase your ACV, you might be weighing options like incorporating advanced features, highlighting the significance of onboarding services, or illustrating the concrete Return on Investment (ROI) for your clients. Here, we've crafted a roadmap tailored to assist you in navigating these strategies effectively.
Throughout this guide, we'll delve into the intricacies of each approach, offering insights into how they can boost your sales deal sizes. By the end, you'll be equipped with a comprehensive understanding of how to implement these tactics to increase your Average Contract Value effectively.
The Power of Consultative Selling vs Transactional Selling
Now these two sales methodologies - Consultative Selling vs Transactional Selling - both have their time to shine, and it’s important to know the difference between the two and when it makes sense to use them.
Transactional Selling
When we talk about transactional selling, it's pretty straightforward—it's all in the name. Sellers primarily concentrate on the product and the sale itself. This approach tends to be quick and heavily dependent on price. The main goal? To rack up as many sales as possible in a short time, often through discounts and creating a sense of urgency to tap into impulse buying.
Think of walking into a car dealership. The salesperson there isn't focused on building a relationship with you or diving deep into your pain. Their goal is simply to get you behind the wheel and drive the car off the lot that very day. They’ll focus more on flashy features of the car and will negotiate heavily on price. It's all about quick transactions and closing deals swiftly.
The downside? You might miss out on the benefits of upselling and cross-selling. Relying heavily on discounts and pricing can take a toll on your Average Contract Value (ACV), potentially impacting your long-term growth. You’re focusing so much on the immediate sale that you lose sight of the bigger picture.
Consultative selling
In the SaaS world, consultative selling has gained momentum, and for good reason.
Consultative selling, or value selling, is a sales approach centered around building strong, trust-based relationships with clients and focusing on the value of the product or service. As a seller, you're putting your buyer and their needs first.
Rather than simply pitching a product or service, consultative selling involves understanding the client's needs, challenges, and goals on a deeper level. The salesperson acts more as a consultant or advisor, guiding the client towards solutions that truly meet their unique requirements.
The benefits of consultative or value selling is:
- Better customer experience: Buyers don’t tend to like being a transaction. When customers feel understood through a tailored and personalized journey, this results in a smoother, more satisfying experience from discovery to implementation.
- Customer Loyalty: When you're tuned in to your customers' needs and delivering their perfect solutions, something interesting happens. They won’t see you as a salesperson, but as a trusted partner, which makes them stick around and even turn into a champion for your brand.
- Higher deal size: When you really show how your solution nails their problem and eases their pain, something clicks. Suddenly, they're not so hung up on asking for discounts. They get it: your offering is worth every penny to invest in because they see the clear benefits it brings.
How do you adopt a value selling approach?
This consultative selling framework is your ticket to standing out from the competition. Adopting a value selling approach is all about shifting your focus from just selling a product or service to demonstrating the value it brings to your clients.
Here are the essential steps to adopt a value selling approach:
1. Stand out from your competition with consultative selling
Focus on THEM and their problems
Repeat after me, it’s 👏 not 👏 about 👏 you 👏.
Your first mission is to put the spotlight on your prospect. It's about understanding their world—their challenges, goals, and what keeps them up at night.
Make sure you are prepared when going into a conversation to really dig deep into what they care about. Remember that it all starts with thorough preparation. Before any demo or meeting, immerse yourself in their world. Know their business, their industry, and their unique challenges.
Be naturally CURIOUS during discovery
As you enter the "Connect and Understand" phase, curiosity becomes your greatest asset. This isn't about simply going through the motions—it's about genuinely wanting to uncover every detail of your client's landscape.
Become an active listener—the one who dives deep, asks the right questions, and truly focuses on their needs. Let their responses guide your path.
First sell OUTCOMES, and then features
Instead of diving straight into product features, focus on the outcomes your client desires. Paint a vivid picture of how your solution will transform their business, solve their pain points, and propel them toward success. By leading with these outcomes, you position yourself as not just a seller, but a strategic partner with the authority to guide them to their goals.
When you come back with a recommendation, make sure it's rooted in the outcomes they crave. Speak with confidence and authority, showing them that you've not only understood their business but also have the roadmap to lead them to success.
This approach isn't just about selling—it's about becoming their trusted advisor, their go-to partner in achieving their business dreams.
2. Avoiding the discount trap
While it's tempting to offer discounts to close deals, this can often lead to undervaluing your product or service. Instead, consider these strategies to increase deal value without resorting to heavy discounts:
Add advanced features instead of discounts
Are there advanced features or add-ons that you can include in the deal? These additions not only enhance the value proposition but also help in mitigating the need for steep discounts.
Instead you elevate the product's capabilities and provide clients with enhanced solutions tailored to their specific needs.
Provide “Do-It-Yourself” concierge onboarding
Many clients may not fully realize the value of the onboarding services you offer. And if you haven't thought about offering them yet, now might be the time! This is probably something that your bigger competitors just cannot offer and can help you stand out.
Take the time to explain the benefits clearly. Frame it as a concierge onboarding service. The focus here is on showcasing how this onboarding service lightens their load, transfers the heavy lifting to your team, and instills confidence in their adoption of the software.
This adds tremendous value, ensuring they not only will use your product effectively but also achieve success.
Calculate ROI for them to demonstrate value
At the heart of it, the ultimate goal is to demonstrate the real, measurable value your product or service brings to the table. This is where the concept of Return on Investment (ROI) comes into play.
Show your clients the concrete benefits they can expect in terms of increased efficiency, cost savings, revenue growth, or any other relevant metrics. By emphasizing how your solution directly impacts their bottom line, you solidify the value proposition.
The key is to make it crystal clear: with your software, they're not just purchasing a tool—they're investing in a solution that will yield tangible results for their business.
For example, let’s say your annual cost of your software is $20K.
Consider the possible returns:
Time Savings: Your CRM automates various processes, saving each salesperson an average of 2 hours per day.
Let's assume the average annual salary of a salesperson is $60,000.
The value of 2 hours per day saved can be calculated as:
2 hours/day * 5 days/week * 52 weeks/year = 520 hours/year
520 hours/year * ($60,000/year / 2080 hours/year) = $15,000/year per salesperson
Improved Lead Conversion: Your CRM helps increase lead conversion rates by 15%.
Let's say they generate 100 leads per month.
With a 15% increase in conversion, they close 15 more leads per month.
If the average deal size is $5,000, that's an additional revenue of:
15 deals/month * $5,000/deal * 12 months = $900,000/year
Make the deal a no brainer.
3. Measuring performance and providing consistent coaching
To ensure your sales team consistently delivers value to prospects and uncovers crucial pain points, it's essential to coach for better performance. Here's how you can measure and enhance their effectiveness.
Review Questions Asked During Demos
Measure the effectiveness of your consultative selling approach. Dive deep into the questions your team asks during demos and client interactions.
Are they asking insightful, probing questions to uncover client challenges and goals? Encourage the "why" multiple times approach to truly understand the impact on the client's business objectives. Track these metrics over time to gauge improvement.
Ensure Adoption of Sales Methodologies
If your team follows a specific sales methodology, ensure they're sticking to it. Track whether they're identifying client pain points effectively or reverting to a feature-centric approach. Use dashboards to monitor progress and trends.
If your team follows specific sales methodologies like MEDDIC or SPIN, ensure they're implemented effectively. Remember, they should be addressing client needs, and aligning solutions with outcomes.
Regularly review calls to measure the adoption of these methodologies and provide feedback continuously.
Leveraging Conversation Intelligence
Lastly, consider the power of leveraging conversation intelligence. CI Tools can provide invaluable insights.
Pay attention to simple yet telling metrics such as talk time. Are your team members actively listening, taking a step back to understand the customer's needs before diving into solutions? Aim for the optimal range of 40% to 60% talk time.
This focus on listening and understanding can make a significant impact on the effectiveness of your sales interactions. Utilize conversation intelligence tools to gain visibility into what is going on in sales conversations.
Elevate Your Deal Value with Avoma
As you strive to increase your ACV and deal value, remember that it's not just about closing the sale—the key to increasing your deal value lies in understanding your clients' needs, showcasing the value of your offering, and measuring your progress along the way.
Avoma uses AI and conversation analysis to help increase deal value by providing invaluable insights into every customer interaction.
By analyzing these conversations, Avoma helps identify customer pain points, business needs, and why they buy from listening to VOC (voice of the customer).
This information enables sales teams to tailor their approach, offer personalized solutions, and showcase the exact value proposition that resonates with clients.
Ultimately, Avoma empowers sales professionals to have more meaningful conversations, build stronger relationships, and close deals with confidence, driving higher deal values in the process.
Talk to us today about how we can help!
