Software vendors selling software as a service (SAAS) solutions, make little to no money in the first year, given the very low margin implementation fees. Projects sometimes require rework in the first year on vendors’ dime, further negatively affecting breakeven analysis. Vendors make money in the second and third year of the deployments, where support, hosting and processing costs are minimal, and healthy license fees provide profitable returns.
When end users using the system cannot operate without vendors’ solutions, when the solution is weaved into the fabric of their regular day to day operations, and when they see productivity gains, time savings, revenue boosts, mitigated risks and cost savings, adoption becomes automatic. New users become interested in the solution, after seeing their peers, new implementation ideas are generated resulting in asks for additional licenses. Smart vendors cost effectively scale their platforms and implementations for these additional licenses that don’t require any additional effort from their end, further boosting returns.
On the flip side, nice to have projects, that don’t capture the imagination of the end users, struggle to succeed. Vendors may influence end users’ managers to force usage, but that becomes a losing battle. Such vendors keep trying to iterate every few months and quarters, negatively affecting the returns. Vendor’s resources, typically customer success managers and sales personnel, spend disproportionate time on continued outreach. License renewals at this point are not worth effort on both sides and result in eventual terminations. There could be a case made for try and try till you succeed or when the timing is right in terms of technological advances, gradual industry acceptance and availability of complementary solutions. In such a promising scenario, customer success managers are advised to continually engage end users, measure deployment, gather feedback, course correct or fine tune and repeat iteratively. Decision to abort or stay engaged requires business judgement by vendor’s leadership team.
Key Takeaways:
Nice to have projects struggle to gain traction and eventually fade away
Meaningful undertakings enabled with Software as a Service (SAAS) solutions generate profitable returns through year over year renewals