What a hardware sales force costs you in a software world.

The question the owners ask

The software is good. The reference customers are genuinely happy. The revenue does not appear. So the owners ask whether this is a product problem or a sales problem, and both answers are wrong.

It is a motion problem, and it is expensive precisely because everyone involved is doing their job well. The sales force is selling the way it has been paid to sell for twenty years, and it is winning the deals it is measured on.

The prize, and why almost everyone is already in the race

McKinsey surveyed around five hundred industrial executives and found two things worth putting side by side: markets value software earnings at roughly three to four times hardware earnings multiples, and about ninety five percent of industrial B2B players already sell software in one form or another.

Having software is therefore no longer the differentiator. Selling it as software is. The distance between those two sentences is where a great deal of industrial value is currently sitting, unclaimed.

Friction one: the compensation plan sets the price

If a seller's bonus tracks hardware order intake, software becomes the lever that rescues the hardware deal. It gets discounted, bundled or given away for a signature before the quarter closes, and each of those decisions is rational for the person making it.

McKinsey's pricing research found that fifty three percent of companies have no pricing related sales incentives at all, while higher growth companies are around fifty percent more likely to use them. In a sales force built on units and one time margin, that absence is not neutral. It is a decision, taken by default, to treat software as an accessory.

I have seen a software licence given away to protect a hardware order, and then watched the same customer use that give-away as the anchor in the renewal negotiation a year later. The price of the second year had been set by the first, and nobody in the room had meant to set it.

Friction two: you are selling to a different buyer

Hardware is sold against a specification, largely to purchasing, and the proof is a datasheet. Software is sold against an operating result, largely to a department that will have to live with it, and the proof is a reference and a pilot.

The path is longer and it has gates that a machine order never had: IT, security, data protection, sometimes the works council, always legal and revenue recognition on the licence model. A sales force that has never carried a deal through those gates does not fail out of weakness. It fails out of unfamiliarity, and it spends months learning the sequence in front of the customer.

Friction three: nobody owns the second year

Hardware ends with delivery and commissioning. Software never ends. In a hardware organization there is usually nobody whose target contains the renewal, so renewal is treated as administration.

It is not administration. It is the second sale, and it is where the margin actually lives. The first year pays for acquisition. Years two and three are the business. A renewal or continued subscription that gets noticed four weeks before it expires is a renewal that will be renegotiated on price.

Friction four: packaging follows the org chart

Engineering cuts the product by module, because that is how it is built and maintained. Customers buy by use case, and by what they can defend internally as one budget line.

Where those two do not meet, every deal becomes a special. Specials feel like customer focus in the sales meeting and eat the margin in delivery, because each one has to be implemented, documented, supported and eventually migrated. Three defensible packages beat a configurable portfolio with forty options every time, and it is a harder decision than it sounds, because it means telling engineering that some perfectly good modules will not be sold on their own.

As long as the software may rescue the hardware deal, you do not have a price, you have a discount.

Five numbers worth pulling this week

The average discount on software inside hardware deals, next to the discount on software only deals. The share of deals that are not standard. The renewal rate, and whether anyone can produce it at all. Revenue per seller, split by hardware and software. Days from quote to order for a software only deal.

In most industrial companies I have looked at, two of those five could not be produced from the systems at all. That is not a gap in the analysis, it is the finding. A recurring business cannot be steered with a reporting line built for shipments.

The ninety day sequence

Decide who owns the recurring number, at managing director level, with a name.

Split the compensation, so software carries its own quota instead of riding along.

Cut three packages a customer can explain to their own boss in one sentence.

Price on a value metric the customer already tracks, so the invoice grows with something they believe in.

Give renewal an owner and a date, ninety days before expiry.

Put software discounts on a different approval level than hardware discounts. That is one sentence in the pricing policy and the fastest change on this list.

The objection: our customers do not want a subscription

They do not want the word. They already buy availability, updates, spare parts and service, which is a subscription with an industrial vocabulary.

The real question is never whether it recurs. It is which metric it recurs on, and whether that metric is one the customer already trusts.

Product quality is the precondition, not the business model

Good industrial software has become table stakes. Packaging, pricing and the sales motion are what turn it into a business, and they are decisions, not consequences. They are also the cheapest items on this list to change, and usually the last ones anybody tries.

Andreas Geiss

Founder, Axiva Industrial. Operator notes from the shop floor and the P&L.