Saving money can be a major motivator for making the transition to software as a service. SaaS not only offers obvious efficiencies in terms of shared server storage and easier updates, but also redefines and improves the entire customer relationship for software companies.
In a departure from the traditional software sales model with large upfront costs and limited ongoing interaction, SaaS offers an opportunity for clients to get started with an offering on a small scale and ramp up usage over time while building a close relationship with the vendor. And there are many additional cost advantages the SaaS model can offer.
SaaS redefines the software sales process, removing the emphasis from a large initial license sale with high costs, and transitioning the focus to a close customer relationship that grows over time. While this model can reduce commission for salespeople and diminish initial returns for vendors, it also creates additional opportunity for incremental revenue to accelerate throughout the lifecycle of the client relationship.
Customers benefit by making a fast, affordable transition to using effective new tools, and vendors benefit from more close-knit customer relationships that cost less to initiate and also offer the potential to generate more revenue in the long run..
In keeping with a focus on the customer, contract renewals are the lifeblood of SaaS. The model makes renewals less painful and less expensive than in the traditional software model. With SaaS, there’s no need to install (and pay for) a costly, cumbersome new server instance, or deal with complex updates to intricate systems integrations created during a months-long implementation.
Dedicated customer account managers or customer success managers can work closely with individual clients to promote usage and determine ways to expand and customize the system to meet client needs. This close relationship offers the customer increased responsiveness to their needs and allows for more rapid attainment of solutions. In short, both sides succeed—and save money—when the focus shifts from the transaction to an on-going vendor-customer relationship.
Having a SaaS software provider manage server capacity is typically much cheaper and more convenient for customers than having to do it themselves.
Using a SaaS provider allows clients to focus on their unique core competency. SaaS vendors that provide responsive services and meet appropriate uptime guarantees can ease a great deal of strain on client IT budgets as well as on employees. And because many SaaS contracts are inclusive of service, upgrades, and support, clients gain multiple benefits at a greatly reduced cost.
Along with relieving customers of the need to have an internal IT organization or spend lots of money on servers, SaaS providers can also achieve necessary certifications and maintain uptimes that meet established service level agreements. The upfront effort necessary to achieve certification may be a hidden vendor cost of SaaS, but it’s also a hidden savings, relieving customers of the burden and cost of achieving certification on their own.
Subscription models can significantly change how companies manage their revenue. While the typical model for on-premise software installation was to charge a large amount of money upfront and recognize the revenue immediately, the shift to subscription-based SaaS models brought with it a need to recognize deferred revenue. Because SaaS works for customers every day, revenue can be recognized on a deferred basis as well. Upfront cash flow, ongoing subscription contracts, and deferred revenue (cash collected and accounts receivable minus recognized revenue) create an attractive financial model for SaaS while clearly recognizing what has already been paid.
The financial benefits of SaaS extend far beyond shared servers, encompassing more rapid and less costly implementations, closer customer relationships with more resources, seamless upgrades and affordable maintenance, and—perhaps most importantly—an empowered ecosystem of devoted vendor representatives, clients, resellers, and SIs, all interested in building tools, modules, and features that will boost the bottom line, improving vendors’ ability to provide better tools and services for all customers.