As the Software as a Service (SaaS, or cloud as it’s called now) market evolves the global financial crisis (GFC) continues to hit company cash flow hard. I’m talking about two types of company, the SaaS provider and the SaaS user, not our company, we’re just fine
The SaaS providers imperative is to reduce the amount of work to process a deal and minimise the number of transactions a process requires to take the money. A very large portion of clients will be SMB/E’s so the transaction amounts will be small. Accounts departments need to be very efficient otherwise margins will disappear in accounts staff salaries in the blink of an eye.
For many potential SaaS users their imperative is to eliminate capital expenditure and introduce flexibility in licensing numbers and therefore costs as the size of their business fluctuates. Since the GFC kicked off finance options have crept up the vendor selection criteria list.
The problem for the SaaS vendor
The CFO will be applying pressure within the business to get as much cash in up front as possible with the minimum of hassle (read cost). The problem is that the Sales Directors will be talking to clients who don’t want to make large up front payments. In highly competitive mature markets where product performance is very similar customers will shop around for the best terms, it’s easy to switch SaaS vendors.
What I’m seeing now is a disconnect within some SaaS vendors, almost a denial that purchasing trends have changed quickly since the GFC kicked in. Organisations are moving to SaaS because of the payment regimes, they don’t want to pay up front and in many cases just don’t have the cash to.
The message has been clear to me for a while now, offer payment terms to [smaller] businesses otherwise you risk not getting the deal or worse loosing an existing clients business altogether when it comes to ‘contract renewal’ time.
The conundrum here is how as a SaaS vendor do you balance the opposing forces of a CFO charged with ‘cashing up’ the business and a Sales Director doing everything possible to close new and renewal business in a time when CIO’s and IT managers don’t have heaps of cash?
It’s not that hard really
The solution is to offer payment mechanisms that allow for ‘hands free’ payments such as PayPal, recurring credit/debit card or periodic bank transfers. If you can, get larger clients to agree to commit to a specific term for example six months or a year with a purchase order. The Sales Director will be happy and the CFO will have recurring revenue and some certainty of advance revenue so the business can re-invest.
This transactional method of accepting payment for SaaS has another very nice side effect, it removes the ‘contract renewal’ boundary that crops up every year. Often these artificial boundaries prompt a customer to look at the market again to make sure they have the best service at the best price.
If a customer is on rolling periodic payments and the vendor is delivering excellent service more often than not payments just continue to roll in. I realise the Sales Director now has a new problem, calculating ‘renewal’ commissions for inside sales teams but that’s easy, only pay commission on up sell
Make it easy for customers to give you money, don’t try and hang on to the ‘pay up front’ mentality of old skool ‘desktop’ software vendors, or create minimum deal sizes for terms to be offered otherwise you’ll be missing out on significant revenue from millions of smaller businesses that want to buy into the financial benefits of SaaS.
In saturated markets you will always have competitors willing to take someones order, whatever the payments terms they have to offer. If your accounting processes and payment receipt methods need to evolve then push the fast forward button, your competitors already have.