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.

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 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. 

 

Monexa subscription billing launches

It's been a very busy month for our team. We had a number of exciting clients go live and with all our spare time, decided we would re-brand the IP Applications subscription billing service.

The branding exercise was an incredible amount of work considering we decided to launch it at the SIIA OnDemand show in San Jose this week. Having said that, these exercises are always a great way to bring the team together.

We learned a lot about how our customers see our company and our billing product. We got to work with some really creative people. The team at WoW did our branding work and on top of having some really great creative people, made us think hard about exactly what type of impression we want our brand to make.

We'll be writing a series of posts on our experience but we wanted to get a quick post out there to see what people think of the brand. We've worked hard to create a brand that invokes a reaction so we'd like to hear yours. Our twitter feed is also a great place to follow the conversation.

More to come this week...

Billing, it's all about the invoice

Let’s face it, you’re in business to make money.  Invoicing is how you monetize your product or service.  Think of it as the headwaters of your company’s river of cash.  The easier you make it for your customers to pay your bill, the faster you get paid. 

Collecting payment is easy when it’s one subscriber and one invoice per subscription.  That’s the business-to-consumer (B2C) model and it’s pretty well defined and people know what they’re getting.  As a vendor, your billing problem is simple. 

Life gets vastly more interesting and challenging when you start sending invoices to companies.  That’s the business-to-business model, or “B2B”.  Unlike a consumer, the B2B customer’s left hand (think “Accounts Payable Department”) usually doesn’t know what the right hands (the users of your product) are doing.  They rely on systems rather than memory, and your invoice has to work within their system, or payments will be delayed or stopped completely. 

In its most basic form, a business to business invoice has to communicate six things: 

• the seller’s identity
• what was purchased, usually by referencing a purchase order number and line number
• the value and how it was calculated
• taxes applied
• currency
• location and method of payment (electronic or physical)

 

Most consumers only care about the first, third and last points.  Businesses need them all, especially when the auditors arrive.  Things like corporate tax identifiers, company registration numbers and other information that looks needlessly bureaucratic is essential to getting your invoice through the maze of approvals and checks at the receiving end.  Even if payment is automatic, poor preparation of the invoice can lead to needless effort resolving issues that should never have come up in the first place.

Freemium conversions: Sales versus Finance - whose job is it?

An automated billing solution smooths out the flow of revenue and cash from freemium renewals by ending the debate over whose job it is to remind your customers to renew. 

Let’s just say that you’re commercializing an open source product on the freemium model.  You have a million or two “free” users and a nicely growing group of paid subscribers getting the enhanced version of the product.  While you might not consider your customers “subscribers”, the term “subscription” in this context is a bit of payments and billing jargon that describes an enduring business relationship that has to be invoiced occasionally to keep it alive.   

Depending on your business model, but most likely once a year, your existing paid premium subscribers need to renew their subscriptions.  The question is, which part or your org chart should be responsible for making sure renewals happen?  In most companies, Finance takes the position that coaxing customers to renew isn’t their job, and that they wouldn’t be very good at it even if it was.  Meanwhile, to keep the growth rolling, your sales force is tightly focused on generating new revenue from new customers.  They’re loath to stop pursing new business and turn their attention to what looks like a low-value maintenance job.   

But, regardless of whether anyone wants to do it, somebody has to reach out and remind your customers that it’s time to renew.  Your customers are more focused on using the product than paying for it. Chances are good that if you don’t remind them to renew, they just won’t get around to it.  If the “premium” part of their service stops when they don’t renew, they will probably get around to renewing in a few months, but then again, maybe they won’t.   

What’s our experience in this model?  Well, in the last few months, two freemium business-model companies have begun using Monexa Billing to automate their renewals.  It’s a simple solution to a vexing problem.  The subscription billing application remembers the customers’ details and it automatically reminds them when their subscriptions are about to run out.  This keeps the sales force selling to new customers, and allows the finance staff to respond only to exceptions where payments don’t arrive properly.    

You get a smooth revenue flow, peace between finance and sales, and best of all you have happy, up-to-date paying customers.