The biggest challenge in starting a SaaS business, or in launching a particular design of SaaS, is creating a sales model that works efficiently. Many schools of thought exist on the topic, from the elite, multi-tiered plans common today, to the more experimental, edgy and risky freemium model, and everything in between. There’s no shortage of theories and models for how to handle sales and transactions with SaaS, but the main question is – which one is right for you?
Naturally, I can’t begin to speculate on that since I don’t know who you are, mysterious reader, nor can I predict case-specific things about your SaaS, business philosophy and various other considerations. It would be neat if I were psychic, but alas…
Although I can’t recommend a specific established model that is perfect for everyone, I can highlight several considerations that should be taken into account when creating a successful SaaS sales model.
Let’s begin by looking at the three most common models, how they work, and what their strengths and weaknesses are. Then, I’ll point out which specific component of each model will be important to remember as we proceed.
In the end, I’ll take the components from these three models and build a hybrid sales model that I think is the closest we can get to a universally effective solution. This isn’t going to be easy, but it’s going to be interesting.
Firstly, let’s look at the most traditional model, paid service, often in tiers of power and privilege. More SaaS solutions are sold in this manner than in any other way, because it has proven highly effective. This model provides an easy rev rec scenario, a good way of measuring churn, and a hook to maintain loyalties. Once you have some wind in your sails, this is usually a pretty good solution.
However, it’s difficult to do this as a startup, or with a newly launched design, because it requires financial commitments from the users.
For startups, let’s keep the idea of multiple tiers with paid upgrades.
Secondly, we have the controversial and much discussed freemium model, which is defined in various ways depending on who you ask. So, here’s my simple description of it:
Freemium indicates that the “primary” version of the service is free to use. It is fully functional, usable and able to perform the basic tasks the design claims to address. However, it sits in the shadow of a better paid version with more bells and whistles.
This model seems great for a startup, but has some obstacles to consider. Namely, to support the cost of the freemium, you have to make the premium version much more expensive than it would be if it were an upgrade from a cheaper tier of service.
Let’s keep the idea of a free version- but just the concept.
Thirdly, we have ad support or donation support which comprises about 13% of established SaaS uses. This “hippie software” model is powered by donations or ads, or it can be non-profit but support costs.
Suffice it to say, this is not very profitable most of the time, and makes for difficult revenue recognition and logistics tracking. Furthermore, if ads are the primary source of income and support for the company maintaining the software, then the ads can easily become overblown and annoy users to the point they’ll go elsewhere.
Let’s keep the idea of support not being a free addition, but available for purchase for the most part.
I’ve outlined the three models commonly used and highlighted an idea from each one, including the multi-tier concept from traditional models, the idea of a free version from freemium and the idea of support costing something beyond the most basic options.
How do these fit together?
To begin with, we’re going to have more than one or two levels of service, meaning we’re not pigeonholed, and not all versions will be paid.
The most basic form of the service, let’s call it the Copper Edition, is free. It contains the most basic features with no support beyond a FAQ and forum community support. It has a few unobtrusive ads, a cap on usage levels, and is useful enough to gain a following before anyone has to pay.
Next, let’s look at the Silver Edition. In the Silver Edition, you pay a small fee for significantly more features, perhaps all but one of the caps are lifted, and only one ad appears on the page.
This is a good starting level for a company who tried your solution and liked it, but isn’t sure it needs all the offerings just yet.
Finally, there is the Gold Edition, which is completely free of ads and has every feature available. It also has some basic support privileges out of the box, but doesn’t include 24 hour support. Furthermore, you have access to a more merciful call center or help desk design, not the fleshed out multi-channel and self-service that is so commonly used.
For an additional fee, these support features can be bought by either Silver or Gold Editions as an add-on service. The cost of the service offsets all overhead for these support expenses.
By offsetting most of the overhead here, and with the ads in the Copper and Silver Editions, you are effectively removing the overhead problem that freemium has for its free model, while also making the expense of the paid versions less. With more than one tier, you also have an easier, more gradual
” Todd Browning has spent the past 20 years as a senior executive, leading sales & marketing to the world’s leading enterprises and multinationals. He has built sales and marketing plans for startups and established companies , opening new markets on six continents and established offices in more than 20 countries all while training & developing the sales and marketing teams to grow the business. He is a lecturer and consultant on issues related to enterprise software and SaaS sales and marketing, at universities and at businesses large and small”
