Where the Money Lives Series, Part 1: Why You Need To Think About SaaS
The world of software is changing dramatically these days. The ‘Software as a Service’ model is not only disrupting how end-user companies buy software, it’s changing the way traditional software companies run their businesses. From the manufacturers to the resellers and implementers, companies along the value-chain are redefining their business models to adapt to the buying preferences of their client base. Subscription based revenue is a great opportunity, and one that can stabilize your business for years to come.
I’ve been helping companies organize their electronic documents since 1997…20 years of organizing bliss and counting! Through the running of several companies, I’ve represented, sold and delivered most of the Document Management systems in the industry. When I started, the only way this stuff was sold was by perpetual licensing (a one-time capital expenditure, with an annual maintenance fee). Today, subscription software includes the user/module licensing as well as the support fees in one single monthly payment. It’s a different way for customers to buy but it’s also a different way to run your Document Management company. Regardless, Subscription software is where the money lives – here’s why.
The Benefits of Subscription Software (from the Client’s Perspective)
Almost any article on SaaS will list the same reasons customers prefer subscription software. The reasons will include not having to own and run the infrastructure, leveraging specialty skills (not available in-house), keeping the software current and often a general total cost of ownership reduction. All good and compelling reasons to go SaaS. But there is another reason, and more and more companies who have experienced difficulties with software implementations in the past are gravitating towards this one – Accountability.
One client recently shared with me that vendor accountability is a key driver to their decision to go with SaaS offerings. Monthly fees are hard to collect if the vendor can’t get and keep the software up and running. Further, software performance (speed, uptime, security), quality of service (at the support desk level) and continuous updates are also important drivers under the accountability umbrella. Companies don’t want the old days of a software company ‘dropping off the software, collecting the check and then disappearing.’ Subscription based software holds the vendor to performance standards for months and years. If the software is still working and meeting the business goals, the company will continue to pay for it…if it’s not, they won’t.
Document Management software solutions have suffered a rocky road over the years. Too many companies didn’t know how to successfully design and deploy the solutions, and the end-user companies were the ones who paid the price. SaaS offers companies a stronger negotiating position: “Get it up and keep it up, and we’ll keep paying.” Thankfully, this perspective plays to NeoStream’s Document Management systems’ strengths.
Why Shift to Selling Software by Subscription?
Forgetting for a moment that many of your customers want to purchase their software as a subscription service, there are solid business reasons for any reseller of Document Management software to embrace this industry change.
If you’re selling software as a ‘one time purchase’ (aka perpetual license) you’ll find your revenue is extremely lumpy. There’s almost no such thing as an average month…either you’ve made a big sale or you’ve sold nothing. My experience is that unless you’re running a huge operation, there’s really nothing in between. This makes running a business very difficult. If you’re lucky enough to make your big sales at the beginning of the year, you have the difficult decision of whether to invest in corporate growth and other business initiatives (i.e. do you believe more sales are coming?). If the sales don’t continue to show up, you’ve now spent your cash and will have trouble sustaining your operations. If you don’t invest in growth, you sit there with un-deployed capital while the year ticks away. If the sales don’t come at the beginning (the worse of the two scenarios), you’ll start to face cut-back decisions before your year is even launched. Either way, it’s hard to manage a business with lumpy revenue.
If you want to run a stable business, you are looking for recurring revenue. Smoothing out your revenue provides you with the ability to forecast, as well as make longer term business investment decisions. While the peaks aren’t as high as with perpetual license sales, the valleys are almost non-existent. Yes, each new client only adds a little revenue each month, but if you do your job well, you’ll have that revenue every month for the next 10 years or more. Subscription sales make managing a business easier.
Where the Money Lives
Subscription software is the way software is being sold these days and the model's popularity only continues to grow. Many end-user companies have bought into the costs savings, enhanced quality and vendor accountably model that is proven with SaaS software. It is critical that companies running Document Management divisions offer subscription software options to their clients – it’s not only what your clients want and your management needs… it’s where the money lives.
Now it’s your turn! Do you have any examples of how moving to a SaaS model has helped you? Are you hesitant to move to a subscription based model, and if so, why? Leave your comments and thank you for joining the conversation!