Businesses continue to transition from the traditional pricing model to a recurring pricing model known as the Subscription Business Model (SBM). With organizations that utilize SBM, the main focus is to capitalize on the compounding value of customer relationships. Rather than thinking for the short-term, SBM companies find that their customer relationships thrive when customers over time recognize the long-term value of the product and services rendered.
In this article, we will talk about the key considerations and benefits of SaaS companies adopting a SaaS-specific Financial Planning strategy and processes.
Software as a Service (SaaS)
Organizations that use the Subscription Business Model are often companies that offer SaaS or Software as a Service. But what does it exactly mean? Software as a Service is a common software licensing model that uses SBM and is usually delivered as centrally web-hosted software. According to Gartner, Software as a service (SaaS) remains the largest market segment and is forecasted to grow to $396 billion in 2021 and reach $482 billion in 2022.
For a SaaS company, it is important to build strong customer relationships in order to understand what its customers value about the product and possibly input on how they want to see it innovate and grow. Once customers see the value in the relationship, only then will they continue to commit to a SaaS business for the foreseeable future.
Why is SaaS the go-to model for both buyers and sellers?
SaaS software can be more cost-efficient than traditional On-Premise (Legacy) software depending on the ownership period and the learning curve of the deployment. Customers that are shopping for software discover they have more power, options, and freedom to experiment and compare the different products in the market before committing to a long-term contract. In a way, it allows the business to profit for a short period even if the customer does not end up committing.
With a more flexible consumption model, businesses are able to innovate new pricing and features when following the market demand and trends. As customers lock onto a long-term recurring payment model, sales and marketing departments can monitor each customer’s changing perception of value and tastes in order for the business to pivot and create new opportunities for the product.
What are the key differences between SaaS Cloud vs. On-Premise Software
As you shop for a new software, here are the factors to consider when looking for a Cloud or On-Premise deployment.
For SaaS companies, the Finance department must be ready to react and scale for Subscription Revenue intricacies. What are the complexities and challenges that SaaS Finance teams often face?
Within the Office of Finance
Accountants struggle to close month-end books on time with the sheer amount of accounts they have to manually sift through and reconcile after each period.
Revenue managers drown in manual spreadsheets filled with errors, outdated metrics, and finally rigid formulas and calculations that can’t seem to provide an accurate answer for budgets and forecasts.
Beyond the Office of Finance
Marketing & Sales
Marketing teams are unable to innovate new features and pricing packages when the Finance team is already unable to scale and work on added complexities. On the other hand, Sales teams are utilizing stale and outdated sales performance data to operate on as the Finance team cannot catch up to incentivizing each sale.
With the lack of transparency in financial data, the Executive Team will have difficulty persuading their conclusion and providing a clear outline of financial performance to the stakeholders.
A potential investment opportunity is evaluated and dependent on investors viewing your overall business performance. Investors will only commit to organizations that have demonstrated their forecasted growth in order to scale up.
It’s Time to Rethink SaaS Financial Planning
Empower your team and develop your customer relationships for the future. Be ready to tackle the challenges to extend your business and advance in the Subscription-based economy.
ProLytics Consulting Group is a business and technology consulting firm that specializes in areas of Enterprise Performance Management and Financial Business Intelligence & Analytics. With decades of successful implementations, ProLytics understand and value that each company is unique. We are committed to working closely with each customer to deliver value added technology solutions that solves their one-of-a-kind challenges.