The SaaS (Software As A Service or perhaps better named Software As A Solution) industry is a rather new business model in terms of how long it’s been a thing, but in a lot of ways, the SaaS model is really just the re-skinning a very old business model into something new and shinny. At the end of the day, the SaaS business model is really just an agency model backed by a core piece of technology. Clients pay what is essentially a retainer (a subscription fee) and in return, they get a deliverable. In the case of a well designed SaaS model, that deliverable is ultimately defendable ROI – not technology as many believe. Really good SaaS Models don’t just do this lightly, they do it at a level that no one in their right mind would think about cancelling their subscription to build and maintain their own solution.
That being said, technology is rarely the difference between competing SaaS Vendors that cost $200, $2000, and $20,0000 per month. Instead, it’s the level of service and after a certain point – it’s the defendable ROI.
A few months ago I was in the process of vetting potential new vendors for something fairly commoditized. I won’t go into the details, but it’s a type of technology that 99.9% of online business use. It’s nothing revolutionary or really that complex, but put in the hands of the right people, it one of the most powerful sales channels available and yet, it’s very rarely fully utilized.
The $200 Per Month Solution. Technology!
The sales engineer for the $200 per month solution harped on the technology of their product. The pitch was pretty simple; their company was creating a better tool and offering it at a lower cost. They saw themselves as true technology providers in a world were clients were adapting their core technology to solve all kinds of issues for a fraction of the cost. I would have to dedicate significant resources from within my department to run it, but they were absolutely right in that the raw materials were there to make this a monster ROI driver even with using my own resources to make it sing. Best of all, the license to use the product would only set me back $200 per month.
The $2,000 Per Month Solution. Pedigree + Service.
The next sales engineer focused on the pedigree of their company and the level of service they would provide. This particular vendor provided a variety of related services and they are arguably a ‘leader’ in the industry. And unlike the first technology only solution – they did most of the day-to-day work too. Like the first sales engineer, they focused their pitch significantly on how this particular software (or set of software) under their expert guidance and account management could drive a lot of raw revenue. And unlike the first sales engineer, we actually dove into the numbers over a few meetings. The numbers were impressive when we backed into them: 6 figure revenue numbers for $2000 per month.
The $20,000 Per Month Solution. Defendable ROI.
The last sales engineer also focused on understanding my issues just like the others. And of course, we went through the ways their software could help alleviate my pain points and how their accounts team was built to provide best-in-class service. They also spent the time to back into some numbers with me. In fact the numbers we backed into where nearly identical to the $2,000 per month vendor! But a few days later when the sales engineer came back to me with a price – $20,0000 per month – they then asked me if they thought that was a reasonable price considering the revenue I would be driving. My answer was pretty clear – I didn’t have an issue with the ROI multiple (5x is well more than I would get if I just spent more on driving traffic), but they were exactly 10x more expensive than another well established vendor providing almost the exact same output.
The sales engineer agreed, but then asked me if I could deliver explicit proof that the piece of software was driving such a high ROI. And if I could – how much of my own time (the most valuable resource any of us posses) would I need to do so? They were rather forward questions – but the reality is the sales engineer was right. At $24,000 per year – I better have a very good answer to those questions. I knew how I could do it, but it was going to require quite a bit of my time and something I’ve learned to truly dislike – solving issues by stacking code on code. If you are a non-developer, firstly learn to code and two, that’s what avoidable nightmares are made of. Don’t do it.
When I answered I could figure out a way to back into an incremental ROI number, the sales engineer agreed, I could build a way to provide clear proof of the ROI of the $2,000 per month solution, but was that the best use of resources? That’s a tough call, but a fair question. The sales engineer then opened up to me and point blankly informed me their company doesn’t really sell technology. They sell defendable performance that delivers a clear ROI. At the end of the day, this sales engineer new I would have to defend my decisions. And their product did just that.