SaaS Acceleration Pricing
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Transcript of SaaS Acceleration Pricing
MarketShare, Inc.35 Main Street // Suite 8
Wayland, MA 01778Tel: (508) 647-0330
Sponsor of www.softwarepricing.com
© 2006 MarketShare, Inc.
SaaSSaaSAcceleration PricingAcceleration PricingFaster sales through value-driven pricing
Jim GeismanJim GeismanPrincipal / FounderPrincipal / Founder
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IntroductionMarketShareMarketShare
Started in 1982Started in 1982Unique FocusUnique Focus
Pricing computer software since 1987Pricing computer software since 1987Sponsor of Sponsor of www.softwarepricing.com
Practice areasPractice areasValue Value -- Driven PricingDriven PricingValue Value -- Based SellingBased SellingDiscount ContainmentDiscount Containment
ResultsResultsMore value from products & services More value from products & services Increased sales effectivenessIncreased sales effectivenessImproved financial performanceImproved financial performance
3© 2006 MarketShare, Inc.
IntroductionGrowing Demand for Growing Demand for SaaSSaaS
Other, 6% Other, 7%
One time - per site, 26% One time - per site, 26%
Term, 18% Term, 15%
One time - other vble, 5% One time - other vble, 9%
One time - per user, 35%
One time - per user, 20%
On demand, 9%
On demand, 23%
Use Now Plan to UseSource: AMR Research survey of 242 IT executives, January 2005
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IntroductionSession TakeawaysSession Takeaways
SaaSSaaS Acceleration Pricing means accelerating Acceleration Pricing means accelerating your your ……
Sales cycleSales cycleProduct / service uptakeProduct / service uptake
““AccelerationAcceleration”” resulting from resulting from ……Understandable pricingUnderstandable pricingValue Value -- driven pricingdriven pricing
Current pricing practiceCurrent pricing practiceAre Are SaaSSaaS prices valueprices value--based?based?Impact on capital and cashflowImpact on capital and cashflow
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AgendaAgendaIntroductionIntroductionUnderstandable pricingUnderstandable pricingValue Value -- driven pricingdriven pricingCurrent Current SaaSSaaS PricingPricingWrapWrap--UpUp
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Understandable PricingChoose the Right MetricChoose the Right Metric
Pricing (or scaling) metric is criticalPricing (or scaling) metric is criticalWhat you countWhat you countWhat you charge forWhat you charge for
Align with customerAlign with customer’’s revenue models revenue modelPeople People Per userPer userDeployment Deployment Per copyPer copyWeb access Web access Per reportPer report
Make transactions scaleMake transactions scaleBy userBy userBy length of timeBy length of timeBy module accessedBy module accessed
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Understandable PricingExamples of What WorksExamples of What Works
Salesforce (Salesforce (RightNowRightNow) ) –– per sales repper sales repCheck scanning (Kodak) Check scanning (Kodak) –– per checkper checkNetwork mgmt (Network mgmt (OpenViewOpenView) ) –– per deviceper deviceInsurance (Insurance (AllenbrookAllenbrook) ) –– per policyper policySurvey (Survey (ZoomerangZoomerang) ) –– per surveyper surveyStock trading (Archipelago) Stock trading (Archipelago) –– per trade / shareper trade / shareCredit processing (Credit processing (VerisignVerisign) ) –– % transaction% transactionSW asset mgmt (Macrovision) SW asset mgmt (Macrovision) -- % revenue% revenue
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Understandable PricingKeep Pricing SimpleKeep Pricing Simple
Limit product configurationsLimit product configurationsBroad market appealBroad market appealSimple product deliverySimple product deliveryLow cost provisioningLow cost provisioningFew addFew add--onsons
Complexity can be costlyComplexity can be costlySlows sales cyclesSlows sales cyclesClouds value communicationClouds value communicationPrecision versus simplicityPrecision versus simplicity
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AgendaAgendaIntroductionIntroductionUnderstandable pricingUnderstandable pricingValue Value -- driven pricingdriven pricingCurrent Current SaaSSaaS PricingPricingWrapWrap--UpUp
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Value - Driven PricingValue to CustomerValue to Customer
Value of offering Value of offering ∝∝ Business valueBusiness value
Time
Money
Current solutions
Faster
Cheaper
Better
Hard Dollar Impact of Better / Faster / Cheaper
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Value - Driven PricingValuing a New OfferingValuing a New Offering
Financial value of applicationFinancial value of applicationRevenue increaseRevenue increase
•• Time to market, more customers, better productsTime to market, more customers, better productsCost decreaseCost decrease
•• Do more with less people, material, capitalDo more with less people, material, capitalCosts to realize valueCosts to realize value
SaaSSaaS feefeeData or process conversionData or process conversionManagement timeManagement time
Value minus Costs = Net valueValue minus Costs = Net value
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Value - Driven PricingPricingPricing a New Offeringa New Offering
Give customer return on Net Value Give customer return on Net Value ……5 5 –– 10x multiple?10x multiple?Relate back to metric ($ / user Relate back to metric ($ / user –– month)month)
Establish price between Establish price between ……CeilingCeiling
•• Net Value calculationNet Value calculation•• Competitive offeringsCompetitive offerings
Cost floorCost floor
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Value - Driven PricingPricingPricing a Competitive Offeringa Competitive Offering
Perpetual Payments
Time
$Value
SaaS Payments
Time
$Value
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Value - Driven PricingSaaSSaaS Pricing StepsPricing Steps
Establish Base Rate per time unit (metric)Establish Base Rate per time unit (metric)M&S loadM&S loadTerm RTUTerm RTUHosting feesHosting feesFinance and risk premiumsFinance and risk premiums
Add value adjustmentsAdd value adjustmentsUpgrade / update frequencyUpgrade / update frequencyCompetitive positionCompetitive positionSwitching costsSwitching costs…… among othersamong others
Get Get Net Rate right!Net Rate right!Starting point for discount scheduleStarting point for discount scheduleHigh water mark for all pricing analysisHigh water mark for all pricing analysis
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Value - Driven PricingSaaSSaaS Value Step PricingValue Step Pricing
0
25
50
75
100
125
Term R
TU
Risk +
Fin Premiums
Base R
ateUpgrad
e Freq
uency
Competitiv
e Pari
tySwitc
hing Costs
Net R
ate
SaaS
Mon
thly
Use
r Fee
Mainten
ance
& Support
Hosting Fee
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Value - Driven PricingConsider Future GrowthConsider Future Growth
Growth in usersGrowth in usersIndividuals vs. groupsIndividuals vs. groups
Growth in usageGrowth in usageFunctionality, frequency, importanceFunctionality, frequency, importance
Growth in productGrowth in productUpgrades vs. extensionsUpgrades vs. extensions
Plan for growth Plan for growth ………… but donbut don’’t bank on itt bank on it
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AgendaAgendaIntroductionIntroductionUnderstandable pricingUnderstandable pricingValue Value -- driven pricingdriven pricingCurrent Current SaaSSaaS PricingPricingWrapWrap--UpUp
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Current SaaS PricingFuture May Be BrightFuture May Be Bright
Value in Value in SaaSSaaS deliverydeliveryPay as value receivedPay as value receivedHostingHostingBiteBite--sized chunkssized chunksEasily scalableEasily scalable
Advantages over perpetual licenseAdvantages over perpetual licenseTradeoffs tooTradeoffs too
Anticipate the futureAnticipate the futureEarly clientEarly client--server?server?Early ASP?Early ASP?
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Current SaaS PricingSaaSSaaS vs. Perpetual License Valuevs. Perpetual License Value
Perpetual Equivalent of SaaS Fee
$-
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
$45.0
0 4 8 12 16 20
# Quarters
Cum
e Pa
ymen
ts ($
K)
Perpetual Equivalent(no hosting)
M&S Fee(@ 15% Perpetual)
SaaS Fee(10 Users @ $65/mo.
inc. hosting)
Breakeven(3 years)
Is a $25K SaaS fee equivalent to a $17.5 K perpetual license?
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Current SaaS Pricing
Need Capital to Build BaseNeed Capital to Build BaseSalesforce.com Subscriber Base and Revenue Build
$175 M raised from capital markets
$-
$10
$20
$30
$40
$50
$60
$70
$80
$90
1 2 3 4 5 6 7 8 9 10 11 12 13
Number of Quarters (Since Q1 FY 2004)
Rev
enue
($ M
)
0
50
100
150
200
250
300
350
400
450
Subs
crib
ers
(000
s)
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Current SaaS Pricing
Cashflow AccelerationCashflow Acceleration
Negotiated DiscountNow
3rd Party Credit Pool
Emerging
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AgendaAgendaIntroductionIntroductionUnderstandable pricingUnderstandable pricingValue Value -- driven pricingdriven pricingCurrent Current SaaSSaaS PricingPricingWrapWrap--UpUp
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Wrap – UpValue Value -- Driven Pricing ProcessDriven Pricing Process
Configuration
Metrics
Structure
Levels
Discounts
Understandable
Fair
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Wrap – Up
Focus on Pricing not PriceFocus on Pricing not Price
The Number
Price Level
Price Structure
Configuration
Rights to Use
Product Access
Payment Timing
Customer Type
Purchase Scope
Services
Quality
Technology
Price Tactical
Pricing Strategic
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Wrap – Up SaaSSaaS Is Not About TechnologyIs Not About Technology
A better way to deliver valueA better way to deliver valueMore moving partsMore moving partsMay not get paid for value May not get paid for value Stick to YOUR coreStick to YOUR coreKeep fixed costs lowKeep fixed costs lowPricing and cashflow even more importantPricing and cashflow even more important
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