Remember when enterprise software companies would only deliver applications on-premise and got paid via a large amount up-front and SaaS companies would only deliver applications remotely and got paid via a subscription or a per-use model? Those were the good old (i.e. simple) days.
Times have certainly changed ever since cloud computing has proven attractive and enterprise software sales have slowed down. To attract new customers both SaaS and traditional software companies are now becoming much more flexible in how they license, deliver, price, and collect payment for their offerings.
Providing this new level of licensing flexibility can be a powerful tool. However, offering too many choices can lead to pricing complexity, which usually results in longer sales cycles and increased cost of sales. Here are four questions that can help you decide on the level of flexibility you should offer to your customers…
- What is the potential upside from offering multiple choices for hosting and payment stream? If the revenue upside is not significant, and it won’t provide a strong competitive advantage, keep things as they are – at least in the near term.
- Do all market segments you want to address need all choices? In a recent engagement we recommended that our client present the full range of choices to large-deal prospects only. Prospects for mid-sized deals would be presented with fewer choices. And small-deal prospects, who are solicited via the Web, would be offered a single choice in regards to hosting and payment streams.
- Can your salesforce effectively handle the increased number of choices? Seasoned sales professionals usually love to have options, and can almost always make the most of them. Unfortunately, when junior sales people have too many options deals may slow down. Look at what your sales team can handle before moving forward.
- Can your back-office handle the additional choices? All too often back-office considerations are an after-thought. Anticipate the impact of offering new options on the back-office. Otherwise, the downside can be significant.
Pricing Software And Packaging Can Be Used To Encourage Choices Best For Your Bottom Line
If you ultimately decide to give your customers choices, remember that pricing and packaging can be used to encourage the choices that are best for your bottom line. The price difference between on-premise and remote hosting can encourage choosing one option over the other. Similarly, you can adjust the difference in TCO between an annual or usage-based payment stream and a large up-front payment to your advantage. You may also include (or exclude) certain services.