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Over the past decade, software companies have started pivoting toward subscription-based plans, says Sean Joyce, recurring revenue technologies analyst at Navint.

“Now there’s no software company I know of that would go to market only with a perpetual license model,” he says. “You have to have a subscription offering if you’re a software company today.”

Netflix not only put Blockbuster out of business, but they’ve completely changed the way we consume media. They’ve disrupted cable channels and cable networks and HBO and more. And now companies that you would not have thought would become subscription companies are moving to this model, like Volvo, Porsche, and Audi, offering tiered access to their fleet of cars for a recurring fee.

And Salesforce, the pioneer for software as a service, Joyce says, should still be the role model for SaaS companies. The company’s original setup was quite simple: two tiers, and a per-user per-month fee.

Salesforce today has exploded into a number of different models, bundles, cloud products, and hundreds of products within those clouds, packaged and priced in a huge variety of ways, giving the power to price and package to their sales team, to determine the best way to align the license value with value for the customer, Joyce says.

“What I’ve seen is that companies that really want to succeed have to think about the customer first,” he says. “That’s how they have to define their pricing.”

Sometimes that even means it’s not that defined. If you’re selling B2B, you have to trust your sales team to understand what value the customer is going to get out of your solution and align a pricing model that makes sense for that scenario.

There are a few basic guidelines companies should follow. The basic frameworks for subscription models — per user per month, hierarchical models, tiers, and add-on modules — should be clear and well-defined, with no ambiguity. Customers like that because they feel there’s nothing hidden, he explains, and know exactly what they’re going to get, especially when those models are publicized on your website.

“SaaS companies that want to use those straightforward models, and have the ability to, have a big advantage over even enterprise companies that have extremely complex models,” Joyce says. “The transparency really helps defuse issues that can come up during the sales cycle.”

Customers value the transparency before they go into contract negotiations, and have an understanding of what the spend is going to be. Where you can put together clear and accurate bundles that are transparent from a pricing standpoint, you’ll have a much shorter sales cycle, since companies will reach out to you already knowing what you’re going to charge.

“You’re typically going to have a happier customer, because they can easily predict what their future spend is going to look like based on the plans that you have published on your website,” he says.

The weakness in that, of course, is the inflexibility. A potential customer might see your pricing and have a good idea of what you’re going to charge, but then may believe that they’re priced out of it. If you have your plans published and your potential customer knows they need what’s included at the highest level, but they can’t afford it, there’s the risk they may not even reach out to you to begin with.

“It’s always important to at least indicate some flexibility,” Joyce says. “If you hardcode these plans and have no flexibility at all, you’ll end up losing deals that are otherwise winnable.”

A good example would be a company that’s transparent about their per-user per-month cost for a sales user. But that customer knows a thousand people will need access to that service, but none of those others will be power users. So flexibility would be offering lower-tier plans for read-only access.

One of the big things Joyce has seen pretty consistently is companies leaving money on the table because they design their processes and pricing around technical limitations of the subscription platforms or solutions they have in place. What’s important to note is those limitations are rarely because of actual weaknesses in a specific product or vendor, but a poorly designed integration between your own systems and the vendor you choose, which means you’re limiting capabilities of both systems.

“If you have a complex integration that requires maintenance every time you want to make a change to pricing or creating a bundle, then [SaaS] companies just don’t do it,” Joyce says. “They don’t introduce a new price or new packaging or a new bundle because it’s too complicated and they ultimately think it’s not worth it. Looking at your holistic technology stack is important to succeed.”

The biggest challenge is making sure you have the ability to make changes quickly. You always want to be able to do A/B testing, but you also may not know what B actually is. Whatever your pricing and packaging is, whatever your plan is on day one, is likely going to shift. You’re going to want to try out new models.

Too many companies design their services based on what’s required to go live. They have A/B plans and things they want to test in the market, so they design everything based on that. But then a few months after they go live, they have some completely brand new idea that wasn’t considered in the original design, and now they’re stuck. They can’t introduce that new model without undertaking some big IT project to talk about the integration.

“From a testing standpoint, the best advice I would give anybody looking at recurring revenue is to make sure you approach the project holistically,” says Joyce. He’s adamant about not taking a siloed approach to marketing, sales, and finance, but rather making sure  all your key business functions have a seat at the table when you’re choosing the solutions and designing your end-to-end processes.

“If you don’t bring everyone together and think about it together, you’re almost certainly designing problems into your tech stack, and you’re not going to be able to test plans, because you just don’t have the ability to create the products to do it,” he explains.

That’s because there’s so much interdependency in recurring revenue models. The sales process is completely intertwined with the finance process, from a billing standpoint. When you make changes to contracts and your sales team is trying to do an upgrade, they have to do billing calculations during their quote. If they’re doing billing calculations and finance doesn’t have a seat at the table, finance has a really hard time untangling that as it gets into their system that wasn’t designed to support whatever sales comes up with.

“It’s getting buy-in from all the key players,” Joyce explains. “Because in the recurring revenue models, you can’t succeed unless everyone is together and pulling together as a team.”


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Attendees will learn:

  • Important SaaS benchmarks by industry segment
  • How to structure your SaaS subscription plans and pricing to maximize revenue and retention
  • How successful SaaS companies use a test, learn and iterate framework to optimize revenue
  • The key metrics — and reports — to monitor for success and maximum LTV
  • The results of an in-depth case study on SaaS testing and pricing

Speakers: 

  • Emma Clark, Chief of Staff, Recurly
  • Moderator/Analyst: Sean Joyce, Recurring Revenue Technologies, Navint

Sponsored by Recurly