As recession rolls on and IT budgets get persistently scrutinized, new sales deals are tough to come by. Although SaaS companies are benefiting in this environment (relatively speaking) thanks to the low-cost subscription model, they should still be smart about adopting new SaaS Sales Strategies. The key tenet for selling a SaaS solution is that the sales cycles are small and customer acquisition costs (CAC) are kept low. But to achieve that goal you will have to implement a few key sales strategies and have the discipline to follow through.
Given that everything with Software-as-a-Service(SaaS) is different from traditional software wouldn’t you assume the same should apply for sales and marketing? It is. But majority of the companies are not recognizing this and continue to follow the traditional sales model.
The key difference in the SaaS sales model is the structure and focus for the sales organization. Sales organizations in traditional software companies are used to pursuing large deals (with large upfront license + ongoing maintenance contracts), but in SaaS everything that is charged to a customer is rolled into a monthly subscription fee. The typical contract size is 1yr to 3yrs and the contract value might be considerably smaller than a traditional software deal. This makes it very important to keep upfront sales costs down and increase the sales velocity. Having a hunter-and-farmer model is another key requirement. Closing as many sales deals as possible in the least possible time for the least possible cost should be the mandate to the sales force.
Given that your business operates online entirely, large part of your sales and marketing should too. To that end here are some strategies I offer
- Let them find you: Unlike in traditional software space, you should expect majority of your leads to come through the online channels. This in effect collapses the walls between marketing and sales to a large extent. The responsibilities of marketing and sales should overlap in a SaaS operation. To make your online presence strong, here are some strategies that must be followed
- Presence: Make sure you have an engaging website. Your corporate website is the face of your company. Just like you adapt yourself to different situations a website should also be able to assume various persona depending on the situations. This should be considered as part of the lead qualification process in some respect. The longer you engage someone on your website the better the chances of you funneling that interest into an opportunity. There are lot of free tools available to conduct A/B testing on various formats of site for various scenarios that would convince customers to engage with you.
- Engage: Provide multiple ways for visitors/prospects to reach you from your website. Telephone, Chats all encourage prospects to reach out. When they do reach out make sure you have automated processes to contact the prospect in a timely manner. Industry stats show that the sooner you connect with the prospect that reached out to you, the better the possibility of closing a deal.
- Qualify: It is cheaper to generate leads online with SEO/SEM than the traditional lead generation process. So spend the necessary resources to generate quality leads. Once the leads come in have a well-defined process to score, rank leads and razor-like focus to qualify those leads so sales finds the leads warm for close. Remember keeping sales cycle to a minimum is the goal.
- Let them know you: Establish thought leadership with blogs, webinars and workshops. If you are a startup you might not have the luxury of demonstrating elaborate case studies and live implementation proofs. Use your blog to articulate your understanding of the business that you are trying to sell into and make a compelling case as to why your offering hits the mark. For good measure, host demonstrations to the industry experts or expert industry bloggers and get them to write independent opinions about your offering. People trust independent opinions more than marketing mumbo-jumbo. (Tip: Spare the money you spend on analysts and use it for roadshows and outreach.)
- Get to know your customers: Just like your prospects find you and do research on you, you should do the same on them. Check their websites, 10K filing (Management & decisions section), online customer community, case studies on their websites. The more you know about their business, the industry they are in, the key competitors, it will help you get closer to their real business problems. You will learn more about their company this way, than anything you will know from the team on the customer side you are interacting with.
- Help them through the decision: Try-before-you-buy, evaluation versions are always great way to eliminate the initial hurdle. Customers love to try the software before they make the commitment and it speaks volumes about the way you think and reducing the risk for them. Supplement that with videos, demos to guide the customer in their evaluation process. Lesser the risk for them, shorter the sales cycle for you. I am a big fan of Q&A forum where you can let customers co-mingle and exchange knowledge. Instead of worrying about that becoming a rant-exchange, you can make it work for you by having happy customers share with distressed customers. Even better find some champions from the user community and empower then to moderate the forums. If you have one such forums, let the prospect access those as part of the evaluation.
- Share the vision and ROI: Share the vision and not the current functionality. Remember it takes time for decisions to be made and eventual implementation. So sharing roadmap would really help companies make a decision knowing what is coming. On the flipside, be forthright in sharing things that you don’t do (or well). It is better than the customer finding out (and they will). Sales is notorious in overselling or pushing the envelope sometimes a tad more than they should in their eagerness to close the deal. But remember in SaaS, you need your farmers to delight the customers and open opportunities to expand the account. Remember angry customers don’t make good up-sell opportunities.
- Continuous Selling: Make sure farmers are doing their job. It is one thing to make a quick sale with the expectation that account manager would up-sell and expand the account in due course. But that needs rigor. Most often the account managers are saddled with fighting fire i.e, managing expectations or product deficiencies. Define intermediate ROI milestones and continuously keep demonstrating the value generated. Remember your profitability on that customer account might depend on up-sell beyond the initial sale. In SaaS, it takes an average 1-3 yrs before you turn a profit on a given customer. So in a way you are investing (while making loss) in the initial years with the expectation that you will be able capture additional revenue in that account in subsequent incremental sales. Tip: Maintain a diary of the progress in the account and keep documenting the case as you go. You can use this to illustrate the value to the next customer.
- Sell the value not the cost: Software sales have traditionally been focused on automation, efficiency with cost as the centerpiece. Cost is a tricky thing to sell. When you try to sell the cost benefits to a room full of people (IT people much less) you know where their thoughts go straight away – their jobs. In these bad times, none of us want to be out of work. So unless you are dealing with a senior management, downplay the cost element and instead focus on the value your solution delivers. Any one smart would figure out that a good solution will eliminate resource overheads. So do your homework on what else is bothering that prospect and mention the intangible value your product delivers i.e., “frees them up to do that other project”.
What do you think? Share your thoughts and experiences that has worked for you via comments.
About Subraya Mallya
Subraya Mallya is a technology executive, entrepreneur involved in conceiving, building software businesses. In this blog, he focusses on business and technology strategies around Business Model, Product Development and Marketing. Connect with me on Twitter - @subrayamallya
June 25th, 2009 at 3:13 PM
This is a great article and it resonates with me as a sales rep selling SaaS solutions for a small company into a new market. I also like the suggestions you offer in keeping the sales cycle short. When selling enterprise software, this isn’t always easily accomplished.
One thing I have encountered with regards to pricing is, in some cases as you reach a certain level of usage, the Total Cost of Ownership (TCO) of a SaaS model against an installed software over a 3 year subscription the two can appear to come out to be equal or the SaaS model higher.
The SaaS model has the cost spread out over the life of the contract with the maintenance and support rolled in with some level of professional services costs paid upfront. The installed software typically has all of the software paid upfront with some percentage (~20-25% of purchase price) paid over the remaining two years for maintenance and support. As in SaaS, professional services are also paid upfront.
Customers tend to compare these as apples-to apples. This is where the selling comes in and you have to call out the “hidden” costs of installed software; IT overhead, additional hardware/software, updates/upgrade efficiencies, etc.
Also customers are still somewhat apprehensive to consider SaaS software as enterprise mission critical business systems for security and data availability concerns but I am seeing that waning as adoption grows and more companies start rolling out SaaS models.
June 25th, 2009 at 3:24 PM
Thanks Barbara
I agree the IT mafia in companies will keep questioning the cost benefits of SaaS. But the way to tackle that is by going with ROI milestones. In a long drawn out implementation of a on-premise software the ROI is practically mirage because of the constant demands made by the upgrades, maintenance etc. In SaaS, all those challenges are taken up by the vendor thereby sharing the risks. Also we need to emphasize the fact that multiple companies (some in the same industry as your customer) also using the software along with them makes for a higher quality product. Shared QA.
To me the biggest win for any customer choosing to go with SaaS are Agility and Innovation
With a on-premise solution it usually takes a year + to get updates. Innovation is practically non-existent or outdated. With a SaaS solution, things are happening all the time. Vendors do not have to waste money and time certifying the product against multiple platform etc. All those things are decided once and all the software vendor does is build incremental product functionality in keeping with the customer demands.
Would be happy to discuss more on any specific area if you need assistance with tackling on-premise vs SaaS models.
June 25th, 2009 at 6:52 PM
Subraya, I like your practical and down-to-earth suggestions and they align very much with the web-centric customer lifecycle which we implement with our SaaS clients, combined with the community and social networking aspects.
Walter Adamson @g2m
http://NewLeaseG2M.com
June 25th, 2009 at 7:18 PM
Thanks Walter. Social media is changing the way we do things no doubt. It is customer engagement all-day-all-the-time. Companies can no longer do hit-and-run sales and then not expect to hear from the customer. The very ease of on-boarding and ease of switching in SaaS they preach while closing a deal will come back to haunt them.
Look out for the next post “How to combat a on-premise vs SaaS comparison” I will be posting shortly.
Subraya Mallya
June 25th, 2009 at 10:47 PM
Dear Subraya,
Here at Bijingo we live and breath SaaS.
I am currently the business development manager, I have worked with some of the challenges of selling SaaS over the last 9 months.
The most important lesson we have learnt as an organisation is that while we have changed, the business model (SaaS v on – premise)has changed, buyer behavior has not.
Our greatest challenge is selling a highly complex SaaS product. While it meets all of our clients requirements (functionally and technically) the greatest hurdle is the cost – we are simply too cheap (Quite often our implementation consulting costs are greater than the monthly or quarterly subscription fees) and clients can’t bridge the gap as to why (or it may be my failing as a sales proffessional) – it simply does add up in a traditional mind set.
To address this, we have started to quote 4 options.
1. Annual up front subscription with implementation services.
2. Quarterly subscription with implementation (configuration is 20% of the cost, 80% is change management and training) costs amortized over the initial 12 months.
3. Monthly or Quarterly subscription costs bound into a 24 or 36 month contract paid according to the terms.
4. Monthly and Quarterly subscription costs bound into a 24 or 36 month contract charged up front and leased back.
These options allow the sales person be compensated in a traditional way and allow for a cap X purchase or
allow for an op X purchase and we reward our sales people on a higher percentage of revenue over the first 12 months.
Key to all of this is what we have learned in our journey as an organisation. We had a traditional business model, we bought back our on – premises client licenses and now only have a SaaS business model. This exercise allowed us to transfer sales knowledge from the customer side.
You would be surprised how many SaaS vendors I have spoken to who try to “close the sale” with little contact and miss out on the opportunity because they didn’t understand the buyers behavior when a budget had allowed for a cap x only.
Food for thought.
As an Australian business competing against global giants, we still have a few tricks up our sleeves.
Keep your eyes on Bijingo 😉
Regards
Richard
June 26th, 2009 at 12:00 AM
Subraya,
Excellent article.
I guess for a startup SaaS provider, the challenge would also be establishing the credibility with respect to sustainability of the firm and support (frequency of updates, call assistance etc) it can provide.
Also, how do we tackle the question of losing out competitive advantage for a customer with a SaaS solution given that the same solution is available to hundreds of its competitor.
– Amrit
June 26th, 2009 at 9:19 AM
Thanks Amrit.
Nothing establishes more credibility as having a established management team. Besides this the it will be your customers who will help you establish in the market. Maintain a constant channel of communication with the customer to over deliver on the value you sold them on. Believe me they will talk about you to others and not to mention be great references.
Check the update I added to the post on “Sell the Value not the cost”. It should also help you get a good beginning.
As for providing customers a competitive advantage, you need to continuously innovate. Try and get closer to your customer’s business. The more you get to know them, the more you can help them. Happy to discuss any specific scenario that you might be having.
Subraya Mallya
June 26th, 2009 at 9:27 AM
Good stuff Subra –
Some additional ammunition from a sales and risk perspective:
Reducing the cost & increasing the reach of enterprise software: The SaaS model grows in acceptance – according to a recent IDC report, SaaS software spending, irrespective of category, is expected to grow at a compound annual growth rate of 32.2% (CAGR) from $5.7B in 2008 to $14.8B in revenue in 2011. Currently, two out of three businesses have either bought or are consolidating buying software via subscription model.
McKinsey & Co reports that CIO’s considering adopting SaaS applications in the coming year has grown from 38% to 61%. The perceived risk is now less and the value reach is greater – now go sell something.
June 26th, 2009 at 9:45 AM
Thanks Keith. Completely agree with the Mckinsey assessment. Companies have a much less to lose with SaaS.
Subraya Mallya
July 9th, 2009 at 3:01 PM
Very good analysis of the SaaS model and what does and doesn’t work from a sales perspective. I’d add that from my experience, the sales team does need to be divided as the most effective model…in most cases…is seperate new business acquisition and account management functions. With SaaS, you have a much better ability to understand how ALL your customers are using EVERY part of your offering and deployment of a high touch selling model (ie farmers)can be a very effective way of helping your customers gain more benefit via greater use of your solution…good for your business’ growth
July 9th, 2009 at 5:53 PM
Thanks Doug. I agree with continuous engagement with customers SaaS affords us great insight into learning how customers use the entire offering heretofore not available in a on-premise solution.
-Subraya Mallya
November 2nd, 2009 at 5:15 PM
I am wondering: because any software that is capable of being sold using SaaS methods must be very simple to implement. So is there any way to sell the software to large product manufacturers as per a royalty fee.
For example: a software for a mobile phone can be sold using similar SaaS methods to large phone manufacturers as Nokia, LG, or RIM for a fee-per-deployed-phone.
Am I wrong– is there much more invloved in this method?
November 2nd, 2009 at 5:22 PM
Pranay
I think you are referring to the OEM model software that could be embedded or packaged into another product and contrasting that with SaaS model. The key difference is a SaaS vendor has only one version of the product (no platform specific stuff here) and all the end-users pay is subscription fee. In the OEM model, you could be potentially required to provide a product certified on multiple platforms (case in point, the mobile phone platforms).
From a sales point of view there might be similarities in the way a channel would sell SaaS application to a OEM relationship. But again the key thing is the software is running on your servers (or your cloud based platform) and not on something each user should be required to install.
There are also financial differences in the way the two models work – Cost of sales and revenue model is different in each model. Would be happy to discuss this in more detail if you are interested.
January 12th, 2010 at 11:42 PM
This is a real good idea on how to market to customers for SaaS. Social media provides a way to build web presence free of cost by Facebook and Twitter communities. We at DeskAway really support using these media, especially twitter.
@deskaway
January 14th, 2010 at 9:51 AM
Thanks Priyanka. Social Media should be an integral part of our your marketing and customer outreach. More so in cases of SaaS companies where your margins are lower and you are trying to keep the cost of sales down.
December 22nd, 2012 at 5:55 PM
SaaS sales strategy best practice http://t.co/yZDZkxO5