Scott Sehlhorst of Tyner Blain has a really great post up on SaaS fundamentals. If you’re evaluating SaaS as a sales/delivery model, you owe it to yourself to read and understand these issues first. I especially like how he positions everything from the Point of View of the customer (which is how we should all think).
In addition to his article, there are some psychological aspects at play with SaaS that you need to evaluate for your market, I’ll list a few and let you (the reader) expand on them in comments:
- People generally dislike pay-as-you-go pricing, and will actually pay more in a flat fee
- Customers are worried about data lock-in and what happens to their data when they stop paying (you can disarm this by providing industry standard data export tools [CSV, Excel, etc])
- The customer gets more leverage in a deal in SaaS than in a “standard” licensing sale, especially as an existing customer. As Scott pointed out, the economics of SaaS mean that keeping your existing customers is important since they are annuity revenue streams, and much less expensive to attain than new deals. Customers know this and use it to leverage better terms at renewal time; and since they are getting all of the upgraded functionality as it comes in the SaaS model, it is to their advantage to stretch out the negotiation process as long as possible. If you are a smaller company using SaaS selling into a large company, they will be able to figure out what rough % of your revenue stream they represent, and even if your contracts have good uplifts on the fees once a contract goes month-to-month, they may make the calculation and refuse to pay the uplift knowing that it is unthinkable that you’re going to cut them off, which is your best leverage. If you’re a startup – are you preparred to cut of access to the SaaS you are selling Ford? Morgan Stanley? Bank of America? Good luck with that!