Chapter 7: The Economics of Displacement
The Incumbent wins on TCO (Total Cost of Ownership) because they own the calculator.
If you try to compete on “Price per VCpu” or “Price per GB,” you will lose. The Incumbent has scale; you have features. They can drown you in credits. You must change the math.
Unit-of-Work Economics (TCO Reframing)
The Incumbent frames TCO around Infrastructure Inputs. They talk about the cost of the server running 24/7. They talk about the storage per GB. They talk about the license per seat. This favors their scale.
As a Pre-Sales Engineer, you may not have the authority to change your company’s pricing structure, but you have absolute authority over the TCO Conversation. You must shift the focus from the cost of the hammer to the Cost of the House.
Reframe the conversation around the Unit of Work Produced:
- Don’t just show the hourly compute cost. Show the Cost per Million Tokens generated. If the Incumbent’s VM is $1/hour but produces half the tokens, they are actually 2x more expensive.
- Don’t just show the license fee. Show the Infrastructure Cost per Ticket Resolved.
- Don’t just show the storage cost. Show the Cost per Successful Deployment.
Outcome Translation: The Speak-to-CFO Table
The Strategic Scout finds the metric; the Liberation Squad translates it into a business outcome. Never present a technical metric without its financial twin.
| Technical Metric | Business Outcome (The “Why it Matters”) |
|---|---|
| High Sync Latency | User Abandonment / Attrition. Stale data kills customer trust. |
| 50% Maintenance Time | Innovation Stagnation. Competitors are releasing 2x faster than you. |
| Security Patch Lag | Regulatory Risk / Insurance Premium. Unpatched systems are a liability. |
| Idle Capacity (Scale Up/Down) | Capital Inefficiency. You are paying for hardware you aren’t using. |
This is De-Risking via economics. The CFO loves this. It moves the line item from “Fixed Cost” (bad) to “Variable Cost tied to Revenue” (good).
The Renewal Leverage Play
One of the greatest values you can provide a customer is Leverage.
Even if a customer isn’t ready to exit the Incumbent, a successful “Parallel Pilot” gives them a weapon for their renewal negotiation. We tell customers: “Use our performance data to force the Incumbent to discount. If they won’t, you now have a proven exit path.”
When you help a customer save money on a contract they keep, you earn a level of trust that no “vendor” can match. You are now a consultant.
Winning the Internal Battle: Selling the Move to Leadership
As an Account Manager, your hardest sale isn’t to the customer; it’s to your own FinOps and CRO. Outcome-based pricing looks “unpredictable” on a forecast sheet.
How to defend the Outcome-Based Model internally:
- The “Shelfware” Counter-Argument: Remind leadership that large upfront contracts often lead to “Shelfware Fatigue,” where the customer stops using the tool and churns.
- Predictable Expansion: Demonstrate that while month 1 may be low ($1k), the “Wedge” predictably expands to $50k once the customer sees the Outcome-Value.
- The Churn Shield: Outcome-based pricing makes you “untrackable” as a cost center during budget cuts. You are a variable utility, not a fixed liability.
Forecasting the Undead
How do you forecast a deal that relies on another company dying?
Standard CRM stages (Prospect -> Qualify -> Propose -> Close) are useless for displacement. We use the Exit Criteria Model.
Instead of asking “What stage is the deal in?”, ask “Which Exit Criteria have we met?”
- Technical Fit: Does the Wedge work? (Yes/No)
- Economic Viability: Is the Outcome-Based Pricing approved? (Yes/No)
- Contractual Window: Is the Incumbent renewal within 90 days? (Yes/No)
- Executive Sponsor: Do we have a CAIO or CIO willing to sign? (Yes/No)
If you have 3 out of 4, the deal is 50% likely. If you have 4 out of 4, the deal is 90% likely. If you have 2 out of 4, the deal is 0%.
Stop forecasting “Maybe.” In displacement, there is only “Dead” or “Done.”
The “Quick No”
The most profitable thing you can do in displacement sales is to bail out early.
If the customer refuses to give you the “Dark Data” to test the Wedge… Bail. If the renewal is 18 months away and they won’t break the contract… Bail. If the “Double Agent” stops replying to emails… Bail.
Your time is your only inventory. Do not spend it on a siege you cannot win.