Interactive Intelligence Group Inc. has succeeded in pulling in so many million-dollar deals that the company is revamping its sales model to avoid losing sight of smaller contracts.
The Indianapolis software developer, which sets up computer systems for call centers, last quarter broke its sales teams into tiers—small, medium and large deals—because too many employees were going after big contracts, with their high commissions.
“Right now, our sales force is just consumed by these large deals,” CEO Donald Brown told IBJ. “We have several large customers. For sales people, inevitably, they’re drawn to those large deals like moths to a light.”
Interactive reported Aug. 5 it signed 14 contracts worth at least $1 million in the second quarter, up from eight a year earlier.
As the number of big sales agreements has risen every quarter, deals the next step down in size—those between $250,000 and $1 million—have hit a plateau around 30 for the past two years.
“Hey, if everything’s getting better, wouldn’t you see everything across the board improve?” said Nathan Schneiderman, an analyst for Newport Beach, California-based Roth Capital Partners.
The company would not disclose the number of contracts worth less than $250,000.
Big deals are a plus for the company, but they are also infrequent, which could inject instability around renewals. A single large deal can cause earnings to skyrocket in one quarter then drop the next.
“What would happen in a future quarter, if the big deals are just slightly or largely down, then they would be more dependent on middle deals,” Schneiderman said.
Interactive now has one sales group that chases companies expected to spend below the $250,000 level. The next ranges between $250,000 and $1 million. And the third claims anything more than $1 million.
About 110 territory managers in the sales division have been affected by the new system, Chief Financial Officer Stephen Head said. The entire sales organization has 241 employees, but company officials would not specify who else would be affected.
More million-dollar sales to major customers, such as a “mega deal” with Kohl’s Department Stores in May for an undisclosed price, have happened because Interactive has increased the number of cloud solutions it offers, executives believe.
In the case of Kohl’s, the chain wanted to get rid of the network equipment for its customer call centers and move everything onto a cloud.
Corporations are turning away from setting up computer networks on site and seeking cloud networks because it is cheaper for them to operate.
“You look around and some of them have 15 different [call centers],” Brown said. “It’s ridiculous. It’s expensive.”
Interactive began investing heavily in 2010 in changing over its business model to setting up customer call centers on cloud networks.
The move took a toll on profits the past couple years. Even though revenue has increased almost every quarter since 2010, operating expenses caused profit to plunge to $906,000 in 2012 from $14.8 million in 2011. Interactive has generated $2.6 million in profit this year.
Interactive has also had to adjust to an all-new business model. Previously, the company collected up-front payments for setting up call centers. Today, it charges subscriptions over several years for cloud services, which accounted for almost two-thirds of its orders last quarter.
The different pay model changed how Interactive pays its salespeople.
“We had to really think through the whole commission approach,” Brown said. “There were changes there, just because when you sign a cloud deal, we’re not getting paid everything up front the way we did when we sold licensed software.”
Instead, the company now pays a sales person in a lump based on the total value of a years-long contract.
Management had to throw in additional incentives to convince salespeople to pursue cloud contracts.
“It was something new that they had to learn,” Brown said. “It’s a new way of dealing with a customer.”
Neither Brown nor Head would share details of the sales incentives.
Salespeople who get leads likely to generate contract values outside of their assigned price ranges have to kick over the lead to the appropriate person, but they still collect a bonus for doing so. The dollar values of contracts vary based on factors including number of customer-service inquiries.
The lack of growth in mid-sized sales are “not a reason to get alarmed but something to pay attention to,” said Roth Capital’s Schneiderman.
Wall Street, overall, has responded in favor of the increasing number of big orders.
The company’s stock price surged 14 percent the day after its quarterly earnings report. Since May 1, the value has increased 68 percent and recently traded at about $66 apiece.•