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SaaS Sales Models

Selling Software as a Service [Saas] is increasing, leading service providers to adopt new software delivery models, with major impacts on their business models. This includes both:

Salespeople accustomed to long sales cycles, and big paychecks may have a tough time selling SaaS. SaaS sales commissions are quite different from traditional, on-premise applications. This will be difficult for many sales people seeking to participate in the SaaS market.

The SaaS Sales Model

Traditional Model

Enterprise software is selling a product
Enterprise software delivers much higher sales per rep, but with a higher cost of sales

SaaS Model

SaaS is selling a long-term relationship
SaaS sells some or all of their deals exclusively over the phone – and typically aims to sell more deals/rep

Three Major Mistakes Made By SaaS Vendors

There are three main mistakes a SaaS company make:

Attempting to sell like an installed product vendor
Failing to make the customer’s technologists into advocates
Making the process more complex than it needs to be

Selling Do and Don'ts

Don’t sell features – forget the product/feature matrix charts in RFP responses. Mature SaaS products meet all feature requirements
Don’t sell to IT - concerns around control and security will crush even the best SaaS offerings unless they are addressed head-on.
Do inform - a prospect about cost, risk, service, flexibility, stability, and longevity advantages of the SaaS model.
Do focus on long term partnership - on selling the SaaS vendor as a permanent, transparent extensions to the customers team.
Do keep SaaS contracts simple - correctly priced, fixed pricing and simple contracts with options for the customer to cancel [and get refunds] if they aren’t satisfied contracted, makes SaaS is much simpler to buy than enterprise software every time.

Compensation

Compensation for SaaS reps distinctly different in that sales targets are lower – often much lower. Yet is it still competitive with enterprise software salespersons when considered on a ‘lifetime value’ basis.

A SaaS customer will generally subscribe to multiple years of service, rather than a one time contract that may never be repeated.

In ADP, the average customer lifetime and lifetime value, as an example.

Reps in SaaS get paid in the first year for the initial contract, then for increases in account value for the account over time. This decreases the percentage of revenue that goes to sales costs over time – as revenue from new accounts becomes a smaller percentage of overall company revenue.

Contrast this with traditional software companies, where the majority of revenue typically comes from new account sales.

More Deals

The ideal model for SaaS is: build, manage, deliver, support, and sell remotely. It’s less expensive for everybody.

The realistic model is based on ‘customers buy because they trust’. Part of building that trust often includes face-to-face interaction. However, when a sales rep needs to sell 4, 5, 6, or 10 deals a quarter to make a number, it is impossible to visit every customer in-person.

Options for the SaaS company when building a sales force:

Inside/field mix
Inside-only
Channel
Self-service
Combinations

The bottom line - it takes a lot of volume to build meaningful revenue, and needs creative methods to sell remotely.

An SaaS company will generally book 20% - 33% of the revenue in the first year of a deal that a traditional software company will. That can make it hard to be aggressive with growth – especially in sales and marketing. However, it also helps pad a crummy sales quarter, or slower than expected growth.

However, over time, the deal improves by every year contracted. It is predicted that in only a few years – SaaS models will force even enterprise reps will sell on the low-risk, pay-as-you-go model. So the disadvantage is most likely to be short lived.

In planning sales volume potential – surveys predict that over 70% of respondents planning a purchase within the next 18 months would consider a SaaS solution. The actual number is likely to be lower than 30%.

Over time, software buyers will come to inherently understand the advantages of the SaaS model, and the deal will go to that partner they trust most to become an extension of the customer’s team.

Complexities of Selling SaaS

Selling SaaS solutions can be complicated.

Not every SaaS solution can be sold in a simple point-and-click – many require specific customer configuration. An additional configurator or on-line sales support capability may be necessary.

Many SaaS vendors are finding that building a cost-effective billing and procurement engine is also more complicated than expected.

More Direct Sales Channels

Selling to many mid- and large-scale enterprises still requires face-to-face interaction. Yet, selling a subscription service to mid- and large-scale enterprises doesn't necessarily produce the same big-ticket contracts and commission checks. Even direct sales efforts need to be adjusted to recognize the smaller transaction values of SaaS agreements. Most SaaS vendors are building web-oriented, telesales teams that are designed for high volume, but lower value sales environments. These teams are dedicated to penetrating and growing accounts quickly rather than cultivating new customers over an extended period of time.

More Rapid Sales Cycles

A recent SoftLetter benchmark study found that SaaS salescycles are typically a third to a half the duration of traditional enterprise applications. This requires a different breed of salesperson, different selling process and different compensation policies. Generating more rapid sales also entails packaging, pricing and promoting the SaaS solution differently. In addition to offering free trials, creating more modular packaging and pricing options are essential to encourage customers to adopt SaaS solutions with minimum risk.

Business Rather Than IT Customer Targets

The most successful SaaS vendors design their solutions to appeal to the end-user rather than the IT decision-maker. Go-to-market sales strategies target the end-user, not IT. However, many end-user/business decision-makers have never heard of SaaS and rather than looking for a software solution to meet their needs, they are looking for a business service. Hence, SaaS vendors must sell the business benefits of their solutions rather than the technical features.

This point was brought home by someone I met at SoftLetter's SaaS Sales and Marketing seminar in Atlanta earlier this month. Here's part of the email he sent me last week,

Recenlty a SaaS vendor, competing against major enterprise vendors at a trade show found themselves signing up dealers left and right by offering the simple benefits of SaaS. Free Trial. Low Entry Price. Pay As You Go. As well as, no hardware or software. They needed to adopt a very simple educational approach "We had to teach them about SaaS like they were kindergarten kids. They had never heard of "Software as a Service", let along the acronym of SaaS. They were still trapped into thinking that they had to own their entire IT infrastructure".

In summary, much work is needed to inform business owners about the SaaS world. It is critical to start getting the word out beyond the IT and VC communities.

Next: Billing SaaS Solutions and Services