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 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.

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...

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.

Does Your Billing System Help or Hinder Sales?

A few weeks back I was chatting with a marketing executive from a multi-billion-dollar software company that operates around the world.  They’re very successful; let’s just leave it at that.   

When I asked him about his SaaS products and the company’s billing strategy, he seemed a bit surprised that there was even a question.  His response boiled down to “our CFO says we only accept customers that can pay for the full year up front”.  When pressed, he admitted that his company had declined customers that wanted a different payment arrangement.  At his company “billing” is a financial issue.  His competitors might see it as part of their go-to-market strategy but this guy’s CFO respectfully disagrees.   

In a competitive world, turning business down because your rigid accounting or ERP system won’t support a customer-friendly contract billing cycle is bad business.  It puts entire market segments out of reach and creates opportunities for competitors.  Imagine a cell phone company announcing that it would only accept customers that paid a full year up front because they didn’t have an automated billing system.   

It’s a back-office strategy that reduces workload two ways:  less work per customer combined with the added “bonus” of fewer customers.  It reminds me of the parable of the horse-drawn carriage driver who reduced his costs by feeding his horse a little less every day.  The strategy was successful, although just as he was getting to the point when he could feed it nothing at all, the horse died, with dire consequences for his business. 

Worthwhile customers come in many flavors.  Some customers need price certainty.  Others want to pay as they go.  If you have the flexibility in your back office to sell the same product to both, you have the opportunity to grow faster and make more money than your competitors.  Traditional accounting and ERP products weren’t built to support subscription billing.  Just ask your CFO. 

 

Subscription Storefronts, Admin Portals, Rating Engines and Payment Gateways

Our last blog post dealt with our telecom billing heritage and the need for a strong rating engine if you want to handle the coming pricing models of cloud based applications. It turns out, a strong rating engine is only part of the story, and to our customers and prospects, quite often not the most interesting part.

It doesn’t matter where you start on the spectrum of monetization applications for subscription-based services and products, you have to do everything right to bring a subscription service to market.  As a “billing” company, prospective customers arrive on our doorstep looking for one or maybe two of the above.  The conversation warms up considerably when we talk about our whole range of capabilities. 

The Storefront gives subscribers a low-touch way to subscribe.  “Touch” is a weird variable in the business equation.  Regardless of the customer response, it costs money.  For some products, increasing touch increases satisfaction, but for many products it lowers it.  A well-designed self-service storefront can improve the customer’s experience as it reduces costs.  Subscribers like to set themselves up on your system because when they do it themselves, their name is spelled right, the products they want will be what they get, and they don’t have to worry about whether the stranger on the other end of a phone is going to steal their credit card number.  A clean and simple storefront improves customer satisfaction.   

The Admin Portal is how your company’s staff communicates with the system.  Through it they configure products, pricing plans, business rules and process workflows for your customer’s experience.  A well-designed Admin Portal connected to a comprehensive application provides tremendous flexibility.  Flexibility in defining pricing, product presentation and subscriber experience becomes increasingly valuable over time as product lines evolve and the customer base expands.   

The Rating Engine automates the financial administration of your business deals.  The Storefront and the Admin Portal are how the participants in a deal define the key business parameters.  Then, every billing cycle, the rating engine takes all that data about products, prices, taxes, currencies, subscribers and usage and computes an invoice.  Long-term contracts with variable terms, like subscriber counts or usage statistics are very difficult to bill accurately.  The rating engine doesn’t get bored, it doesn’t go golfing, it doesn’t take vacation, and it never forgets.   

The Payment Gateway, for those deals where payments are made by automated bank check or by credit card, is where money happens.  “Payment gateway” is a simple concept, but the actual implementation can be daunting because of its complexity.  Moving money around is done by banks and credit card issuers, and they protect us and themselves with walls of bureaucracy and risk mitigation strategies.  Your choice of business model has a powerful influence over how long it takes to get set up and your long-term costs of doing business.  The payoff to all the challenges is that once the setup and testing is complete, money “just happens” every billing cycle.   

There is a lot more detail behind a complete subscription commerce business, and that becomes evident as new customers work through the onboarding checklist we’ve developed over the last decade.  The good news is that once that detailed work is done, you have a smooth-running and efficient subscription business system that supports your products, your business model and your subscribers.

SaaS channels coming of age

At Monexa, we've been writing about the emergence of successful channel strategies within the SaaS community for some time. Late last year our VP of Sales, Kevin Lennox, wrote about the importance of channel strategies as SaaS companies penetrate the mainstream.

We've seen a number of announcements recently around channel strategies in the SaaS community. Some, like the Microsoft reversal on who will own the billing relationship in the channel (microsoft or their VARs) make it clear that the large traditional ISVs with established channel strategies are actively implementing their SaaS strategies, even if they're a little rough around the edges.

Just yesterday, Intacct announced a channel relationship that will plant their SaaS offering directly in the mainstream of the SMB accounting and financial services industry. This is a very significant announcement from a pure-play SaaS provider.

Monexa has an interesting vantage point of the happenings in the SaaS market with respect to channel strategies. We provide an on-demand subscriber management and recurring billing solution that has specific strength around billing recurring services with channel or reseller relationships. So, our customers and prospects run the gamet of SaaS startups, traditional ISVs launching SaaS services and successful pure-play SaaS companies.

In 2009, we've seen an enormous increase in the number of prospects in our pipeline that are launching SaaS services into existing or newly created channels. Almost daily, we're talking to pureplay SaaS companies, but also traditional ISVs looking for subscriber management and recurring billing solutions that will support their channel strategies.

From where we sit, the Intacct announcement is only the first of many coming down the pipe. At Monexa, we share Jeff Kaplan's view that 2009 will be the year of the channel.

SaaS or on-premise, channel partners and VAR’s are equally important

In the past month, I attended 3 SaaS industry events (Softletter's SaaS University, Salesforce.com's Dreamforce, and SIIA's On-Demand conference) to keep up with what is happening in SaaS and Cloud Computing, and to investigate new partner channels for IP Applications on-demand subscription billing and payments platform.

A key message at all three events was how channel partners and VAR's played a key role in almost every SaaS and Cloud infrastructure vendors' strategy. This was especially gratifying to hear because a couple of months ago I wrote a blog article challenging the wisdom of a significant analyst group that had suggested SaaS companies would not go to market with partners.

When researching to support my argument I came across Intacct, a SaaS company with what appeared to be a mature partner strategy. So at the SIIA On-Demand conference I was not surprised to see Daniel Druker, Intacct's SVP of Marketing and Business Development lead a panel of SaaS executives in a discussion on the importance of channels and VAR's to all of their businesses.

The point is that the SaaS industry from a partnering perspective is no different than the traditional on-premise software business. Software companies, whether on premise or SaaS, still need to develop new markets, deliver vertical expertise and service their customers and channels.VAR's will play a big part.