SaaS: Value based Selling

By Subraya Mallya - August 2009 | Topics - SaaS

“Cost Savings” has been the key rallying point behind SaaS sales strategy and has been credited with much of  SaaS adoption to date. Most SaaS sales pitches  highlight the cost savings in the areas of licensing, implementation, and on-going support/maintenance. Some variant of the following value proposition have made up the slide deck.

  • Lower upfront costs…no large one-time license fee. Pay as you go and only for what you need and use.
  • Ease of implementation… sign up this morning  and you can start using it this afternoon.
  • No maintenance or upgrade costs … done by us. So there is no need for a large IT team. More $$$ savings.
  • No extra support costs…everything baked into the subscription fees.

It’s easy and  natural for a SaaS sales rep to produce cost comparisons with an on-premise alternative and highlight the immediate savings. This strategy, while it works sometimes, is not enough to close in all cases.

A direct comparison with a traditional on-premise software purchase will immediately bear out the short term cost benefits. If you can think about it, a prospect could too and they might have probably run this scenario prior to your discussion. If the value proposition of your SaaS offering is limited to – “It is cheaper” – then brace for a tough time selling. You will perennially be fighting a commodity pricing battle. If you apply Moore’s law, the probability of a new vendor beating you at your own game (price) is pretty high…think open source vs licensed software or just ask Dell how HP caught up. Moreover, the incumbent on-premise customer gains very little advantage in uprooting an established, heavily invested-in solution (it is working right?) and moving to a SaaS solution. There must be more benefit to win here.

To differentiate your offering and stand out here are some strategies SaaS vendors should be using to position their solutions.

Value Chain Approach: SaaS inherently offers you the ability to incorporate your extended enterprise, involving customers, partners, and suppliers, into the business process. Being in the cloud, it is a natural for integrating your business processes with processes of the other stakeholders. Until now, this was only possible (and achieved) through system level integration with complex (read expensive) messaging, data integration or in the most advanced case – an extranet based solution for data interchange. Now with SaaS, you can do it at a business process level. Examples of successful SaaS based Value Chain solutions include Aravo for Supplier Relationship Management, Siterra for Capital Project Collaboration, E2Open for  Supply and Demand Collaboration.

If you consider a Human Capital Management scenario, it could be bringing together internal HR, external recruiters, training companies, background screening, relocation providers, etc. to a common business process platform.

AMR Research terms this “Multi-Enterprise Collaboration” to illustrate the virtues of this value chain approach,  albeit in a predominantly supply chain-focused view. Having  companies create and align performance measures to meet a set goal in a common environment with integrated data and processes to build scalable and repeatable relationships. Each value chain member derives benefit from this collaboration.

Define and highlight the larger value your solution delivers across the entire value chain beyond your clients’ company into their extended enterprise and thereby giving them a distinct advantage over their competition.

Master Data Management

If you extend the value chain concept further, by the virtue of having all the key stakeholders participate across a common business process platform, you are inherently creating a Master Data Management(MDM) framework. All the participants of the value chain would be looking at a single, consistent definition of data. In your specific case, it could be any or a combination of customers, employees, suppliers,  products or assets. Companies spend millions of dollars in creating MDM (data creation/propagation/rationalization/synchronization) solutions, with uneven results. Now with a common platform you get a MDM solution in much simpler, more realizable and much less expensive way. High quality and consistent data and the ability it affords in making strategic and operational decisions is invaluable.

As an example : Suppliers from across the world that do business with GE have been mandated to use Aravo to manage and maintain their information. Now GE no longer has to manage fractured information, rationalize it across different divisions. It will now be captured and maintained at a single source. Consider the effort and difficulty a company would encounter doing this with a traditional on-premise software solution across multiple geographies/divisions with all the provisioning, change management and governance issues involved….think nightmare!

Governance Baked in

In the face of the litany of compliance mandates SOX, HIPAA, PCI-DSS, to name a few, a company’s resources (and money) can be drained in meeting those demands. With SaaS, annual SAS-70 Type II certification, elaborate Disaster Recovery measures will automatically meet majority of clients’ IT Governance needs.

Finally – Yes!. Cheaper, Faster and BETTER

Yes there is real value in being cheaper and faster but significant additional strategic advantages such as these will provide improved agility, better leverage of your customers/suppliers, and true competitive advantage. Try and understand the critical challenges the prospect faces in their industry and highlight how your agility, flexibility allows them to overcome those.

Thoughts shared by readers (4)

  1. Subraya Mallya Says:

    The true and real competitive advantage companies gain is through efficient business processes and strategies. Having technology is one thing. Using it to the maximum and gaining benefits is a different thing altogether. Yes through SaaS the barriers for entry are removed for many small companies that otherwise could not have afforded large solutions but it still requires them to utilize all the capabilities of that technologies to gain an advantage.

    Subraya Mallya

  2. Doug Domergue Says:


    It may be true that a company can more readily differentiate itself if it has an on-premise licensed app. That may not be a positive advantage however. For instance, if it is very difficult to develop and maintain this new app, the costs may outweigh the gains. Also, with a really good SaaS app, there is generally the opportunity for a company to “customize” or configure the app to suit their purposes and this capability is typically a far less expense endeavor and may be just as effective.

  3. Tasos Christidis Says:

    That a great post, which sucesfully touches a number of SaaS-related issues.
    Thanks Subraya

  4. Subraya Mallya Says:

    Thanks Tasos. Looking forward to your next post on the Collaboration environment SaaS inherently presents.

Trackbacks For This Post (7)

  1. Riitta Raesmaa Says:

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  2. Lincoln Murphy Says:

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  3. Francisco Sáez Says:

    RT @lincolnmurphy #SaaS: Selling Value and not just Cost Savings by @dadomergue on @prudentcloud <– great stuff!

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    RT @lincolnmurphy SaaS: Selling Value and not just Cost Savings by @dadomergue on @prudentcloud <– great stuff!

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