For Better Subscription Sales Price Your Services Like a Mobile Plan

Most SaaS companies sell their software as yearly or multi-year subscriptions, and often they want all the cash upfront. Although it's good for the vendor to get their cash upfront and eliminate some of the billing administration, it is not how their prospective customers will want to buy in a cash-strapped economy or perhaps ever.

A few months ago I was trying to purchase (or should I say subscribe to) marketing automation software for my business. Every vendor I talked to wanted a large annual fee paid in advance. To make matters worse, they were asking for an entry-level fee that assumed 10 times more usage of their service than I could justify, and included modules I don't need at this stage in our growth.

So I asked the question: why not sell me a plan that suits my consumption of the services at a price point that makes sense for me, so you can capture my business and let me grow with you? In other words, remove the barriers that are stopping me from making the decision to buy.

I received a number of responses from the sales staff I asked which ranged from "That is just the way our pricing works" to "Oh how I wish I could." I received one call from a senior sales manager of one of the better-known providers to explain his point of view, which was they had priced their services to hit a specific size and maturity of organization. He further indicated they had made a conscious decision not to serve the smaller market because many of the features and capabilities would not deliver the value to a small organization. His argument and approach was well articulated and intelligently presented (much better than I did here), but he did not convince me -- and here is why!

Personally I like to think about the classic mobile phone plan as the standard to which we might all compare ourselves to. A mobile phone plan, although rather complex in its execution, is actually pretty easy to understand. Mobile phone companies have demonstrated that a single product can be the basis of a wide range of value bundles at a wide range of prices for a wide range of customers, and they have incorporated three significant strategies that are absolutely brilliant.

Number 1: Mobile phone plans virtually eliminate all barriers to adoption, by providing a pricing plan for every size of potential user.

• For the very smallest customer there is the prepaid card plan. You put as little or as much as you want on a card, use your phone and when you have used up what you paid for you can choose to add more funds to the card or not.
• With creative bundling and the use of a la carte menus there is a plan that will fit in to every users need and budget.
• As a result mobile phone adoption is amazingly high with some countries having adoption rates higher than 1 phone plan per capita.

Number 2: Mobile phone plans capture every penny of revenue by employing complex yet easy to understand and fair pricing strategies.

• You can choose from any number of bundles designed to target different user requirements and size of need. In addition you can select service upgrades from an a la carte menu, to get exactly what you want instead of being forced to pay for services you don't want or need.
• Most of the services come with a set amount of included usage (phone minutes, data plan, # of txt msg's), however you are never limited to how much you can use (exception being prepaid). You simply use what you want and get billed for the overage, maximizing revenue from customers who opt for lower cost plans as an entry point (remember with a higher entry point you might never have gained that customer in the first place).
• Mobile phone companies offer incentives (or is it higher prices) depending on the time of day or day of week you use the services. You pay a monthly fee for free evenings and weekends. This seems like a great deal to you but at the same time it is enabling the mobile service provider to shape usage patterns in order to spread the load out over their systems thereby saving them on infrastructure costs while still charging you for time that would otherwise have much less usage.

Number 3: By using almost unlimited flexibility in their pricing strategies and removing cost as a barrier to entry, they have closed the gaps that competitors can use to launch attacks on their market.

So my message to the SaaS marketing automation software providers or any SaaS company is you can choose to emulate the highly successful mobile phone model of pricing or continue turning away customers with high-cost, paid-in-advance, bloated features pricing. The customers you turn away because they don't "fit your target market" will become someone's customer, and that someone is a competitor of yours.

Traditional software marketing thinking segments the market and targets some segments at the exclusion of others. Courtesy of the mobile companies, your customers are already trained on picking a value package that suits their needs, so why not leverage it?

To be the mobile phone company all you need is a little subscription billing and payments automation, and some good customer feedback on how they want to buy!

About the author

Kevin Lennox is the Vice President of Sales for Monexa (formerly IP Applications), a company with 11 years experience in the subscription services billing and payments industry. The company's SaaS billing platform provides a complete subscription services commerce platform which includes product catalog functionality which allows for complex billing rules, customer interfaces for purchasing and self servicing, automated provisioning of services, payments processing and dunning automation as well as a complete set of reseller power tools to empower channel sales.

See the article on this topic published on EbizQ

Subscription Billing and Integration - great partners

We've been working with the data integration team at Pervasive for about six months now. Like many business relationships these days virtually all of our work has been done by conference call and online meeting. Over time we've met a few of the Pervasive team at the various Cloud and SaaS conferences but much of our day to day work has been with a voice on the other end of a phone.

When Pervasive invited the Monexa team down to their data integration partner and customer conference last week, Kevin and I jumped at the opportunity to get down there and meet the team. Besides, we just hit the 4 month incessant rainy season here in Vancouver, a trip to Austin sounded good to me.

Why Monexa and Pervasive?

Billing for recurring services or pay-per use services can really be thought of as a middle man in the software ecosystem that exists out there today.

On the incoming side: Billing needs to be fed all of the usage data about a service as well as information about new customers and what they have subscribed to. This data can come from CRM systems like SalesForce.com, online storefronts where customers buy directly or from the services themselves.

On the outbound side: Billing needs to make it easy for finance to send the right data to the accounting system and make sure any delinquent accounts are notified and potentially have their services shutdown.

When you deliver Billing from the cloud showing your customers how this can be done easily is crucial. That's why we started working with Pervasive. From the simplest Monexa Billing implementation to the most complex, we wanted a partner that could solve a wide range of integration and data problems.

Here's a video of Kevin being interviewed by Jeff Kaplan about Monexa's Salesforce.com connector.

 

Monexa Billing to Salesforce.com integration wins Data Innovation award

Thanks to the team at Pervasive for hosting us down in Austin last week. They put on a great conference and more importantly have a great group of customers and partners.Even better, Monexa won a Data Innovation award for our Monexa Billing to SalesForce.com connector.

As a cloud billing company we've seen a dramatic shift in buying behaviours over the last year. We've seen a very fragmented market that was buying "Billing Platforms" supported by a strong API move to a more "billing solution" oriented buying process.

This is the natural evolution of any market but it has happened very quickly for ours. The explosion of online marketplaces like the Apple App Store has created a specific billing need for marketplaces. Cloud and SaaS companies have been a strong early adopter of billing solutions and have needs specific to them.

So, what makes up a billing solution?

1. Pricing models: For the most part, pricing models are similar when you look at a vertical industry. The more mature the industry the more similar the pricing.
2. Buyer/Seller relationships: Is it a B2C or B2B relationship? Is it a marketplace that brings buyers and sellers together? Is it a relationship built on channels or resellers? How does the billing system solve that specific relationship?
3. Data: This has become one of the top "billing solution" characteristics for us. If you can show a prospect how you can get their usage data from their service + new customer data from CRM + send the right data to their accounting system, you've created a ton of value. Show them how to do this quickly and the on-premise billing vendors don't stand a chance.

The Pervasive award was as much for identifying that integration is a key sales enabler for our business and putting together a roadmap with the Pervasive team for making it a key part of our sales and delivery process. The SalesForce.com connector is just one example of what we can do together.

Monexa Billing September 2010 Release: More enterprise subscription billing features

Our September 2010 Monexa Billing release, also known as v05_20, has been in the works for some time now. It's one of those releases where a few relatively big features arrived at the finish line resulting in the testing and roll-out being very crucial in providing our customers with the features they've asked for all the while making sure we don't disrupt their cash flow lifeblood.

The last few days has been very busy for all of our Development, QA and Operations teams. As of this morning our customers now have access to some new Monexa Billing features:

Automated Product Catalog Distribution throughout your sales network.

Monexa Billing has always supported the concept of selling subscription services through resellers and tracking the sale and subscriber/customer ownership. You can use this capability to model any internal or external sales organization hierarchy and track or report on sales accordingly.  It's great for resellers with other resellers (many of the large distributors like Ingram Micro use their own resellers for example) or for modeling international sales organizations. Because you can create a sales hierarchy, the cool thing is all rolls up so you can look at the data at any level in the hierarchy and see the performance below.

For our larger customers, managing the product catalog became a full time job so we've added the ability for the catalog to automatically be shared throughout your hierarchy.

As the SaaS business slowly begins to adopt channels and resellers we're excited about some of our smaller customers being able to take advantage of this feature.

PayPal as a gateway. Do B2B companies really use PayPal?

Many of our larger customers have multiple payment gateways. They need to be able to route transactions to one of several payment gateways depending on criterial like payment type (Visa versus Mastercard versus Amex), buyer region or even product type.

For smaller companies, just getting a merchant account and access to 1 gateway in order to transact credit cards can be an adventure. Google "getting a merchant account" to see thousands of horror stories and hundreds of companies dedicated to helping you maneuver the maze that is the banking and transaction processing industry today.

For B2B companies, PayPal is more than it appears. They are a complete gateway that allows you to transact credit cards for customers that do not have Paypal accounts. They transact all over the world. Most importantly, your Paypal account is your "merchant account". Quite often Paypal is a great solution for getting started and even for some international payments.

How do you manage your product catalog and pricing?

We have several people at Monexa that have built product catalog based solutions across many industries. What we've all learned is that no matter how good your UI is for managing the catalog, many larger organizations have existing processes for managing pricing. Give them the ability to upload excel based data for pricing changes and they're happy.

While the Monexa Billing API always supported updating the catalog, you can now manually upload price sheets.

Check out the Monexa Billing release page for some more details and the Billing Resource Center to get the updated API guide.

Diversity Analysis Subscription Billing paper

Ben Kepes and Krishnan Subramanian over at Diversity Analysis have published a new paper on the subscription billing space. In keeping with their "10 Questions.." theme (See 10 Questions You Should Ask You Cloud Vendor), the paper discusses 10 questions across both operational and revenue generating themes they suggest companies ask themselves prior to either selecting a vendor or rolling their own billing system in house.

All of these questions resonate with us as we hear them time and time again from current customers and from prospects evaluating Monexa Billing. We don't often see them all from any given customer or prospect so it's nice to see them consolidated.

Here are some of the points I found interesting:

"The subscription and billing system should never be an impediment to a new
product approach and if a prospective system of choice puts limits on the
ability to rapidly change direction, it should be avoided."

This is really the crux of the Monexa Billing value proposition: Flexibility and Agility. Yes, a billing system can increase efficiency and save you money but it is crucial today to be able to quickly adjust your marketing and selling approach. Quantifying this for some of our prospects can be very difficult though as they can be very focused on today's problem:

"Businesses often make the mistake of underestimating the ongoing
complexity of their charging strategy. They might start with a very simple
monthly billing package but given growth and changing promotional
strategies the business may wish to offer new packages and/or broaden their
customer base geographically."

Quite often we think of billing complexity along only one axis, the pricing plan. Is it a simple monthly subscription? does it have a usage component? Billing is more complex than this. A good rating engine needs to understand the pricing plan configuration but also things like pro-rating rules, contract terms such as up-front or periodic payments. How will you handle metered billing? Will you simply bill in arrears or take a draw down deposit. As a prospect, it's hard to know what questions to ask if you haven't seen hundreds of pricing and billing models before.

One of the most effective topics for describing on-going complexity is the tax issue:

"The need to be able to react to international
taxation rates and laws, international currency issues, diverse payment
methods and multiple languages are all factors that need to be taken
into account."

Our previous blog and resource center paper on the Taxation of online commerce was by far our most read topic. It is easy to grasp the scale of the taxation problem if as an online vendor you have to keep up with taxation changes in thousands of jurisdictions. You definitely want to leave that to your billing vendor.

Have a read of the entire paper, you can get it from our resource center.

The SaaS pricing debate revisited

Over the last year, the SaaS and PaaS players have all been working on finding pricing models that work for their clients and businesses. 

While nobody seems to have nailed it just yet, some recent decisions by some really large players in the enterprise software game have shone a spotlight on what doesn’t work.   

It may not be obvious at first blush, but most small and medium sized companies that use software to power their online businesses need the same software features that big companies do.  They just don’t need the same amount of them as big companies do.   

The trap that awaits software marketers that miss this point is that by narrowing the product functionality to hit an affordable price point they produce a product that nobody wants.   

Just think of what would happen if a leading car maker offered an “entry-level” vehicle based on their top-of-the-line chassis.  However, to offer an entry-level price, they leave out the window glass, the transmission and the passenger seats.  Even though it contains most of components that are in the higher priced “enterprise” version, this “entry-level” product is doomed.  Software works the same way.   

The lesson?  Product plans that eliminate software functionality to arrive at an entry-level price won’t deliver new customers.  

The RFP 2.0

Everyone knows the RFP is dead in the SaaS world right?

Our product is a relatively sophisticated on-demand billing system for companies that have non-trivial subscription billing needs. The thing about our business is that any SaaS or Cloud Service company, even the ones just getting started, know they will, in very short order, run into problems rolling out new plans, supporting payments for international customers, and simply handling the subscriber management as the business grows.

So, we deal with prospects and customers ranging from 3 guys in a garage so to speak (not intended to be derogatory, I've done the garage thing twice. It's fun, hard and very rewarding)  to large enterprises who don't want to spend 18 months and $10M ripping up their ERP or Telecom Billing solution to simply roll out a new subscription product.

For example, last month we answered 3 RFP's (aren't they dead?), had online leads from 10 pre-revenue companies and a whole bunch of prospects in between.

The point is, a lot of SaaS companies like us deal with the full spectrum of buying behavior so we are rarely surprised at the different ways people find and evaluate vendors.

Today we saw our first RFP 2.0. We've seen lots of folks using twitter and other social media tools to ask about various vendors and solutions but this approach took it further. @dacourt created a google spreadsheet with some high level subscription billing capability questions, shared with the public and distributed over twitter. A few vendors were initially filled in and over the course of a day or two other vendors added their product evaluations to the mix. Very cool use of today's social media and collaboration tools.

Check out the subscription billing spreadsheet or just search twitter for "subscription billing" and you'll find it being discussed.

It would be great to hear some other stories like this...

Tax My SaaS

With the big news coming out of France that the government is considering implementing a tax on Google advertising the SAAS industry needs to take notice. France is not picking on Google, they are going to tax all online advertising, which according to many reports the annual revenue of Google's online advertising is over $2 billion. I am not going to comment on the tax, we will leave that debate to others. However, the ability for any level of government to implement a new tax with out much advanced notice should be a major wake up call for all SAAS providers. 

 

As a SAAS provider you need to make sure your billing system / provider can handle multiple levels of tax regimes, account for taxes collected and provide the appropriate reports?

 

Currently in the US, software is defined by State law and state sales tax. However, when an end user downloads the software, what tax jurisdiction has the right to tax, is it where the software is downloaded from or where the software is being downloaded to or both? Many States are attempting to figure out this dilema. According to a report from Grant Thornton, Taxing software as a service: What SaaS providers may not know about their tax liabilities, "Massachusetts and Texas have taken informal positions that SAAS is taxable." 

 

If we look to France we can learn and be prepared for the potential effects of a new tax. We must realize that the effects of new taxes could be complex and potentially add cost to the SaaS delivery model 

 

With an increasing debt load and 48 states and thousands of local governemts that have financial hardships, the possibility of a new tax being implemented at many levels is very real. 

 

As a SAAS provider you rely on your partners to be prepared. 

 

At Monexa we have been delivering billing solutions for over 10 years to hundreds of clients in every state and province in North America. Our billing software can accomidate multi-level taxation schemes. Further, we stay abreast of the tax news coming from all levels of government. 

 

Let the news out of France about the Google Tax be a wake up call for all SAAS providers.  

SaaS, cloud and subscription billing and the Olympics in 2010

2010 is looking pretty exciting for us. We had a great 2009 as our business in the SaaS and Cloud billing market really took off.

On top of that, the 2010 winter Olympics are about to kick off in our corporate hometown of Vancouver so the mood around the Monexa office is pretty good.

So, what's happening in 2010 for us? Gartner is fully on board with the SaaS and Cloud Computing market. In fact, they have named Cloud Computing as one of the top 10 strategies for 2010:

Cloud Computing. Cloud computing is a style of computing that characterizes a model in which providers deliver a variety of IT-enabled capabilities to consumers. Cloud-based services can be exploited in a variety of ways to develop an application or a solution. Using cloud resources does not eliminate the costs of IT solutions, but does re-arrange some and reduce others. In addition, consuming cloud services enterprises will increasingly act as cloud providers and deliver application, information or business process services to customers and business partners. Read the full gartner comment

Monexa is a SaaS Application itself and many of our customers are SaaS/Cloud companies. As you can imagine, we're deeply connected to the overall growth of the SaaS community and not just our subscription billing market. Past failure to predict the future has never gotten in the way of trying again. So, here's what we think 2010 will look like:

• Vendors, Vendors, Vendors
  •  Although the leading SaaS provider Salesforce has reached over $1 billion in revenue, Microsoft and Google are big players; 2010 will be marked as the year that new vendors and applications hit the mainstream. Microsoft will be pushing the Azure platform to their army of ISV's so we expect to see a ton of new cloud services out of that group.
    
• End User Uptake
  •  With more and more cool apps hitting the market, it will be the end user that decides the success of the market. As market players we need to work together to demonstrate reliability, convenience and value for the consumer dollar. Further, as we have seen with Google and Microsoft we need to provide better Service Level Agreements if we expect the enterprise to jump fully on-board.
    
• Customer Service
  • A key differentiation in the market will be good old fashion customer service. Just because you can create an application that can be used by anyone in the world does not give application providers a free ride on customer service. A vendor might be able to get away with little customer service or a help desk forum on their site when they offer the service for free but enterprise customers expect more.
• Taxation of online services 
  •  An unknown in the market is how the each state will tax cloud services. There are rumblings even now that new taxation rules will be introduced soon. This will have a big impact on not only our business but the entire cloud market.
    

Monexa will continue be a leader in the Cloud billing market and we look to 2010 as a great year for the market and our company.

As we move into 2010 - what are your predictions? Link us to your blog posts on the subject...

SaaS, Cloud and subscription billing - looking back at 2009

It is hard to believe it is 2010, for those of us that have been at the SaaS game since the early days it's been a decade already. Where did it go?

Last year turned out to be a turning point for the SaaS market.  The economic crisis provided yet another reason to move away from on-premise software and toward online services. The scale of some of our leading SaaS services such as Salesforce.com and Google Apps means outages are immediately reported and mainstream news. 2009 will always be remember for the financial collapse of the economy and the election of Barack Obama. However, in our market, 2009 will be known as the year SaaS became a mainstream delivery model. Yes, we still have many hurdles to overcome but as a legitimate software delivery model, SaaS and Cloud Computing have arrived.

Closer to home, 2009 was the year the cloud billing or subscription billing market was defined. We've been at the subscription billing game for over 10 years as a SaaS player. In 2008 we had a trickle of more mature SaaS companies with billing problems find us based on the marketing of our Telecom and ISP billing solutions. In 2009, a flood of SaaS companies from start-ups to highly success players came to us as the vendor community adopted subscription billing as it's defacto market segment.

Saugatuck, the premier SaaS analyst company, even did a complete study on the cloud billing space. It was nice to come out on top.

Here's hoping 2010 continues the momentum. It looks good so far.