CFO, entepreneur, Finance, Innovation, Investment Banking, management, Process, SaaS, Strategic Finance, technology, Uncategorized, Valuation

Why is SaaS pricing so important?

Part 1 of 5 post series on – DIY on Pricing for your SaaS product


Companies have woken up to the fact that people want outcomes, not ownership. They want customized experiences, and they want continuous improvement, not planned obsolescence.
– Tien Tzuo (Founder & CEO, Zuora)

SaaS (Software as a Service) has singlehandedly emerged as the single largest business model disruption in the last decade. SaaS companies suddenly made available enterprise quality technology to people (and businesses) across the world. SaaS public companies made ~$70Bn (at a ~70% gross profit) while adding ~$700Bn in MCap on the Nasdaq.

But there is one thing that sets SaaS apart. A 70% gross profit means that the every $1 of revenue can add $0.70 to your profits & $9.5 to your enterprise value. Which makes for – Pricing, the single largest needle spinner (after the product and service, of course) in a SaaS companies life. Looking for that one small thing that makes a big change?

Start here.


First of all, is re-evaluating pricing today really a good idea for us?

Every business has certain levers that are some of the most important areas that the business needs to consider. For a manufacturing company, it could be scale-up costs, raw material costs and marginal cost. In a SaaS business, it becomes a lot more complex as the marginal cost could be as low as 0 with the initial outlay in the millions of dollars. Lets challenge some fundamental assumptions that SaaS companies don’t follow.

Let’s play a game of Myth/Truth.

Which of these statements are a Myth and which are the Truth?

2

Answers

4

Credits: OpenView Partners: 2018 Expansion SaaS Benchmarks Survey | Price Intelligently: The Anatomy of SaaS pricing


Ok. I’m open to the idea. Why should I re-evaluate my pricing for my SaaS product though?

3
5

That makes sense. So what are the others doing then?

6

We do the same thing too. Is there something we should be doing differently then?

6

Wow! Really? Guess I’m not alone.
What should I do instead?


Answer: VALUE BASED PRICING

Instead of looking inside, Value Based Pricing looks at the inherent value of the solution to the customer. While this takes more dedicated effort to achieve, it could significantly improve the speed of adoption and retention of the solution in the long run.

7

Is this worth the effort though?

8

Wish to navigate to the other articles in this series? These links will help.

Part 1: Pricing, why so important? How are the others doing it? [ This one! ]

Part 2: Value based pricing, what, when, how, why [ links to be updated ]

Part 3: Start pricing you SaaS product in these steps [ links to be updated ]

Part 4: 2 great examples of SaaS pricing pages with some resources you need to have[ links to be updated ]

Part 5: Looking to price your SaaS product? What can I do? [ links to be updated ]

Go right ahead and download the full whitepaper: [ Download ]


Credits and special thanks to:

1/ Price Intelligently, The Anatomy of SaaS Pricing Strategy

2/ OpenView Partners, 2018 Expansion SaaS Benchmarks

3/ Chargify Blog, How Innovative SaaS Companies Leverage Pricing And Packaging To Beat The Competition


Disclaimer: Please note that these are our views are based on our experience in being advisors and working with 300+ organizations across 20+ industries in 20+ countries. They are for the limited purpose of educating the leaders of a company. The rationale and the procedure to be followed can vary significantly based on the context, exact nature & size of the business. 


More about Prequate?

Website ]     or     [ Book time for a quick chat ]

business, CFO, Finance, Investment Banking, management, Strategic Finance, Uncategorized

What are the differences between a finance manager and a CFO?

We get asked every other day by businesses we meet – So what is it that you do so differently? While this has become a part of our standard conversation, we thought of putting these thoughts together in a whitepaper that every SMB can use to define what they should be expecting from this new wave.

Disclaimer: Please note that these are our views are based on our experience in being advisors and working with various organizations. They are for the limited purpose of educating the officers of a company. How this applies to your business can vary significantly based on the context, stage, exact nature & size of the business.

2.JPG3

4

Continue reading

CFO, Finance, Investment Banking, management, Mergers, Strategic Finance, technology, Uncategorized, Valuation

The anomaly that is strategy (in finance)

The only way people can really be excellent is with truth, so you have to have a CFO who will have the intellectual capacity & the conviction to tell you that you’re wrong and try to support that with data. 

– Anthony Noto, CEO of SoFi

Why this and why today?

Traditional finance is dead. Business has changed significantly over the last 2 decades. While this has opened up a new set of opportunities to reinvent the concepts of finance, a lot of businesses are being left behind as they grapple with issues that a proactive approach to finance could have easily avoided. All hail the new king of financeStrategic Finance Thinking.

Continue reading

CFO, Finance, Investment Banking, Mergers, Uncategorized

Mergers & Acquisitions, simplified and jargon-free

Coming together is the beginning. Keeping together is progress. Working together is success.

– Henry Ford

In today’s highly competitive world, the playing field has levelled. This has opened a new world of possibilities for the medium sized companies but has also allowed larger companies to become real competition. Larger companies have internally, aided by available resources, have tweaked their business models to allow them to be more competitive to SME clientele. The easiest, and in many cases the fastest, way to stay competitive and maintain the speed of growth amid competition is to collaborate. But collaboration sometimes lacks the flexibility the time commands. Enter M&A.

So we thought of putting these thoughts together in an instructional bible to help SMBs ease up and look at making the most of coming together and working at building something larger.

Disclaimer: Please note that these are our views are based on our experience in being advisors and working with various organizations. They are for the limited purpose of educating the officers of a company. The rationale and the procedure to be followed can vary significantly based on the context, exact nature & size of the business.

 

Why M&A?

Is this something I should be considering?

There is nothing more powerful than the coming together of like-minded minds working together on a common mission. This is the foundation on which all successful partnerships work. However, most organizations tend to only realize the importance of working together with their internal people and tend to forget the power of coming together with other businesses and look at long-term synergies.

  • Simplify the understanding and help create a foundation
  • Consider M&As as an important strategic move
  • Demystify and present options for consideration
  • Execute more well thought out M&As

Honestly though, is this a nut worth cracking?

Short answer: The whole is always greater than the sum of moving parts.

Long answer: Businesses, each in their unique way, develop strategies to be able to do more with less. This may make them unique and efficient in many ways in their use of talent and capital. Further, each unlocks value in its own ways and can boast of success stories at it. These success stories and learnings which are unique can be carried forward to the combined benefit of the merged enterprise.

 

What kind of benefits?

Is there something more than I am seeing?

Continue reading

entepreneur, Finance, Strategic Finance, technology, Uncategorized

Leveraging the power of collaboration in tech companies

Tracing back to the advent of collaboration

From the year 2000, a massive shift occurred quietly to most, but daringly to a few. A few large organizations saw the change that was occurring. In 2007, when I was consulting with a large $Bn technology bellwether from my alma mater, I remember how this disruption, so new and so unique, was being viewed as the single largest transformation in the industry way before most of the world heard of this disruption. This arrived with the perfect storm co-created by cloud system deployment capabilities and the penetration of high speed internet. With these forces aligned, it created the SaaS disruption. It took 10 years though for its proliferation to be the product of choice for all industries. It uniquely positioned itself to productise systems and frameworks and create workflow environments which were hitherto accessible only to the big companies at a fraction of the expense. It did something else which was more succinct though. Now companies were suddenly getting familiar with having open systems and integrations and allowing outsiders in – a fundamental shift in thinking which has changed everything.

How has this affected collaboration?

A precondition to any collaboration is an open mind. Where one can freely discuss synergies than be worried about theft of intellectual property by sheer discussion itself. With an open system environment, companies began to see how great technology could be accessed by everyone for a fraction of the cost, establishing that letting someone in can save money. Now organizations needed a nudge to say that collaborations can add business value. In 2009, I remember how an acquisition by another big bellwether of a small technology outfit in Europe was of strategic importance to them. Making less than 1% of their own top-line, this large technology company was ready to take the plunge of letting in a small team of engineers join them rather than do what might come to them easier – build their own team. A surprising move, but it gave them access to a downward integration possibility which could get them into market 3 years sooner and maybe worth billions in years to come.

Why would a tech company have this internal conversation though?

Collab 1

Phase 4

Continue reading

business, CFO, Finance, management

About when we grew a company’s bottom-line by 5% over 3 years

How it began

Alpha Limited is a 5 year old company providing IT & ITes enabled services with a top-line of over USD 6Mn based out of India with offices in Sydney, San Francisco & São Paulo. Prequate was brought in to help Alpha manage growth during the period of rapid scaling. Alpha was in a spurt stage with idea of expanding its service visibility overseas. They relied on a set of marketing consultants for their onground presence in the overseas locations.

20140627-163257-59577785

Getting to work

Alpha started a continuous engagement model that allowed Prequate to develop the management reporting frameworks within the CFO Office offering. Over the course of the next 6 months, Prequate became an integral part of the business with specific charge of the management reporting for Alpha. In the course of such delivery, Prequate Team noticed:

  • Huge expenses on commission to Business development teams
  • Commission was a standard rate of paid out at a flat rate on sales upon collection
  • Established business practice was the  logic/rationale behind the % paid and not visited periodically

While BD is critical function, the payment of standard rates that don’t match business interest meant BD meant transactional support and no partnership approach.

The approach

The main questions to be addressed behind any variable based payment needed to be addressed. We asked:

  • Does it keep the teams motivated?
  • Is there continuous incentive for continuous involvement?
  • Do incentive payments breed loyalty?
  • Do the incentives accrue for greater involvement?

 

⇒  A new incentive plan was needed.

Action Time

1

Detailed contract study: Identify and develop master tracker of all BD agreements, past and present

2

Understand the rationale: Speak with all key past and present BD professionals on how they viewed the terms

3

Ask the fundamental questions: Do the terms of the relationship address the long term vision keeping in mind the above fundamental questions?

4

Create responsibility matrix: Break down the activities and related responsibilities over their critical parts

5

Develop new scheme: Create a scheme that rewards greater involvement while reducing cash outflow

6

Buy-ins: Communicate with current providers on new scope and greater opportunity and help visualize lon term win-wins

Activity x Continual Generation Structure (AxCG)

New Incentive Plan.png

Impact

  • Win 1 | Net addition of ~5% to net profits over 3 years
  • Win 2 | Increased efficiency and long term involvement by the BD team
  • Win 3 | Attrition rates lower by 22% over 1 year
  • Win 4 | High loyalty for continuing accounts among BD teams
  • Win 5 | Proactive account management assistance from BD teams
  • Win 6 | Simplified measurement and monitoring of the sales cycle

 

What happens when Finance goes beyond financial statements

 

Disclaimer: The nature of professional services is to provide tailored advisory based on the facts and circumstances of the case. Advice is never a one-way-fits-all. You may need to approach your advisor to effectuate a plan that suits your business.

You can contact us at connect@prequate.in if you wish to see how this can be executed for your business.

 

Uncategorized

Privacy Policy

This privacy policy sets out how Prequate uses and protects any information that you give Prequate when you use this website.

Prequate is committed to ensuring that your privacy is protected. Should we ask you to provide certain information by which you can be identified when using this website, then you can be assured that it will only be used in accordance with this privacy statement.

Prequate may change this policy from time to time by updating this page. You should check this page from time to time to ensure that you are happy with any changes. This policy is effective from Jan 01, 2019.

What we collect

We may collect the following information:

•    name and job title

•    contact information including email address

•    demographic information such as postcode, preferences and interests

•    other information relevant to customer surveys and/or offers

What we do with the information we gather

We require this information to understand your needs and provide you with a better service, and in particular for the following reasons:

•    Internal record keeping.

•    We may use the information to improve our products and services.

•    We may periodically send promotional emails about new products, special offers or other information which we think you may find interesting using the email address which you have provided.

•    From time to time, we may also use your information to contact you for market research purposes. We may contact you by email, phone, fax or mail. We may use the information to customise the website according to your interests.

Security

We are committed to ensuring that your information is secure. In order to prevent unauthorised access or disclosure we have put in place suitable physical, electronic and managerial procedures to safeguard and secure the information we collect online.

Links to other websites

Our website may contain links to other websites of interest. However, once you have used these links to leave our site, you should note that we do not have any control over that other website. Therefore, we cannot be responsible for the protection and privacy of any information which you provide whilst visiting such sites and such sites are not governed by this privacy statement. You should exercise caution and look at the privacy statement applicable to the website in question.

Controlling your personal information

You may choose to restrict the collection or use of your personal information in the following ways:

•    whenever you are asked to fill in a form on the website, look for the box that you can click to indicate that you do not want the information to be used by anybody for direct marketing purposes

•    if you have previously agreed to us using your personal information for direct marketing purposes, you may change your mind at any time by writing to or emailing us at connect@prequate.in.

We will not sell, distribute or lease your personal information to third parties unless we have your permission or are required by law to do so. We may use your personal information to send you promotional information about third parties which we think you may find interesting if you tell us that you wish this to happen.

You may request details of personal information which we hold about you under the Data Protection Act 1998. A small fee will be payable. If you would like a copy of the information held on you please write to connect@prequate.in.

If you believe that any information we are holding on you is incorrect or incomplete, please write to or email us as soon as possible, at the above address. We will promptly correct any information found to be incorrect.

CFO, entepreneur, Finance, Investment Banking, Strategic Finance, Uncategorized, Valuation

How to value a running business for a stake sale – a practical approach

SFO Valuation Study

2017 was a harbinger of times to come. Reported PE exits in India hit an all-time high crossing Rs. 80,000 crores across over 300 deals (Rs. 377,000 crores in the US). This is apart from the thousands of stake sales which occurred across the country in the VC and Angel Investment space and thousands more not covered by the media houses owing to their private nature. Interestingly the Indian Government was also a significant participant as divestment measures were at an all-time high in 2017. But how different is a valuation for a stake sale? What does one need to do differently?

What differs?

Valuing a running business for investment is slightly different from valuing a business for a stake sale. The fundamental difference being an understanding of partnership in the future as against liquidating a position today. While an investment transaction may be quite satisfied in a multiple or DCF valuation, a stake sale/ secondary transaction requires establishment of a reasonable price for a transaction. While reasonability is a factor of the high price of ownership or auction fever (Research published in the Journal of Consumer Research) and buyer-seller expectation management, practitioners deploy more than one method to ensure that reasonableness can be as less subjective as possible.

Continue reading