With the current/looming recession I've been reading a lot of articles about how this is a fundamentally good thing for SaaS. The assumptions include:
- Dramatic change in the macro economic environment will cause dramatic change within organizations purchasing tendencies
- Smaller up front payment requirements with SaaS will resonate well with organizations that are now watching every penny
I'm going to leave the first bullet point for now as I'm not convinced one way or the other. For those interested here is a good reference.
Let's say you're selling a SaaS based offering that helps medium to large businesses. Therefore, you are selling to medium and large businesses. In the name of simplification, we could break this group into two subgroups:
- A group that is being so negatively affected by the current economic recession that they really are facing significant long term survival challenges (the auto industry is the current poster child but there are others)
- Companies that have more than adequate cash reserves but are "hunkering down" for a "nuclear winter" type of scenario
As a SaaS provider you offer a "pay as you go" recurring revenue model. Your competition is an OnPrem traditional licensed type model.
Let's look at that in the context of our two groups:
- If Group A does ANY purchasing the "good news" is you'd likely win the business. But now you're "strong recurring" revenue stream is based upon a pretty questionable foundation
- Group B now faces a dilemma. Do they use more money than they'd like today or do they sign up for more ongoing costs for tomorrow?
You go to your CEO/CFO and say "Can we offer a model whereby a customer pays the majority up front and a smaller revenue stream as we go along?" Your executives are horrified. This is SaaS heresy and attacks the very foundation of why they built the company. Also, the risk is that because you're a SaaS company you're probably "new" and as a group have never managed your business through a down turn but that's another story.
However, let's say you have both in your backpocket. Your CFO might require that you use this new model for Group A and let you offer both options to Group B.
Now the CFO at the Group B companies isn't forced into a tough dilemma. Those that are worried about revenues tomorrow less than right now will be able to choose the pricing scheme that works for them. Those that want the financial burden spread out over time have that option.
To me it comes down to:
- Simply replacing one rigid type of pricing model (OnPrem licensed models) with another rigid type of pricing model (annual recuring fees) is not a significant advancement in choice from a purchasing perspective.
Try both models. Before you object here is another blog I wrote about this very topic.
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