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Will the enterprise market spend significant IT budget on Windows Vista in 2007?



How is Selling SaaS Different

By Jim Howard, CEO, CrownPeak Technology

The three main differences between enterprise software sales and SaaS sales are:
  1. SaaS is selling a long-term relationship; enterprise software is selling a product
  2. SaaS sells some or all of their deals exclusively over the phone – and typically aims to sell more deals/rep
  3. Enterprise software delivers much higher sales per rep, but actually has a higher cost of sales
The three traps an SaaS company can fall into are:
  1. Selling like an installed product vendor
  2. Failing to make the customer’s technologists into advocates
  3. Making the process more complex than it needs to be
Let’s start with the traps:

Pounding out product/feature matrix charts in RFP responses is a losing proposition for an SaaS vendor. While an SaaS product may have every feature under the sun, the reason customers buy an SaaS has little to do with features. Likewise, trying to sell around IT, or other technologists at a prospect can doom most sales efforts. Concerns around control and security will crush even the best SaaS offerings unless they are addressed head-on.

Correctly informed, a prospect will understand the cost, risk, service, flexibility, stability, and longevity advantages of the SaaS model. Of course, the product must meet feature requirements, but in most industry sectors, mature SaaS products are available that will meet most any requirement out there. Correctly sold, the prospect’s technology team will realize that mature SaaS vendors become permanent, transparent extensions to their team. Correctly priced and contracted, SaaS should be much simpler to buy – simple contracts, options for the customer to cancel (and get refunds) if they aren’t satisfied, simple fixed pricing should beat enterprise software every time – and one day soon, it will.

And now the differences:

Compensation for SaaS reps is competitive with that for enterprise reps, but the sales target is lower – often much lower. How can that be? It’s because an SaaS customer will tend to be around next year and the year after, and so on. Take a look at ADP and their average customer lifetime and lifetime value, as an example. Reps in SaaS get paid in the first year and then for increases in account value for the account over time. The great news is that this actually 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 theory for SaaS is: build, manage, deliver, support, and sell remotely. It’s less expensive for everybody. In reality, 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. There are options for the SaaS company when building a sales force: Inside/field mix, inside-only, channel, self-service, and combinations. The bottom line, though, is that it takes a lot of volume to build meaningful revenue, and creative methods to sell remotely are a requirement.

Further, an SaaS company will often book 1/3 to 1/5 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 is nice to sleep well at night, knowing that even if it’s a crummy sales quarter, the worst that happens is, the business grows more slowly than you would like. It’s still growing, though. Every quarter.

Time Yet
The time for SaaS is still coming. In a recent survey in our industry sector (web content management), over 70% of respondents planning a purchase within the next 18 months said that they would consider a SaaS solution. That number should be 100%. We believe that the actual number buying will actually be lower than 30%.

Over time, software buyers will come to inherently understand the advantages of the SaaS model, and will look more to buy from an organization who can become the right partner – the right extension of the customer’s team. So, for the time being, customers are still asking why it’s better to use an SaaS. Soon, the question will be reversed – “How can we justify the risk and expense of implementing and managing this thing in-house?”

In fact, a few years from now, there will be no difference between enterprise reps and SaaS reps – everybody will sell on the low-risk, pay-as-you-go model.

Jim Howard is CEO of CrownPeak Technology, the only company to provide comprehensive, world-class, Web Site Management as a hosted software solution. He has spent the past nine years working with web content management and search technologies. Jim previously held senior executive positions in professional services management, sales, and operational management with companies such as USWeb, MarchFIRST, and successful startup, W3-design. His professional background combines extensive startup experience with years of software development and professional services delivery and management. Under Jim’s leadership, CrownPeak has become the market leading company in the content management software services sector. He was named by CMSWatch as one of the 20 People to Watch in Content Management for 2005. For article feedback, contact Jim at jim.howard@crownpeak.com

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