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?

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Answers

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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?

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5

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

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

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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.

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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?

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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.

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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.

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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.

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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

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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

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

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

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

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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.

 

business, CFO, Finance, management

What can a CFO do for a startup?  

Business owners at the early stages of their startup are a jack-of-all-trades, trying to handle every aspect of their business for the simple reasons that they might be under-capitalized or trying to cut cost. When the business starts to grow organically, there arises a need to employ appropriate people for the various roles in the organization. The services of an accountant may be enough to provide support for recording the day-to-day financial transactions in the initial stages. Once the business moves into the growth stage, when the activities of the business are increasing, the need for strategic financial support is felt to consolidate data and provide the company with a strategic road map. This is where a CFO comes in.

The responsibilities of a CFO is no longer limited to financial reporting, audit and compliance, planning treasury and capital structure. It now encompasses the roles of corporate portfolio management, capital allocation, investor relations, performance management to name a few.

A CFO is not just a glorified book-keeper, he plays a number of important roles in a startup that are critical in providing a strong financial foundation for a growing business.

  • A CFO is like a steward to the business, working to protect the vital assets of the company, ensuring compliance with financial regulations and communicating value and risk issues to the board and the investors. The CFO will ensure that the business has important financial controls which include management of cash flows, establishing credit policies and implementing procedures to measure and evaluate optimal inventory levels.
  • As an operator, a CFO provides a variety of services such as financial planning and analysis, treasury, tax and other finance operations, to ensure the business is efficient and effective financially. An effective CFO handles projects that require significant quantitative and qualitative analysis in order to arrive at an understanding of the options that are available. Developing a company’s annual budget and interacting with the business owner and department managers to ensure that the final product accurately and objectively reflects the real requirements of the business will be the responsibility of the CFO. He might also conduct a thorough analysis of a company’s future capital investment requirements as a first step in securing additional financing.
  • CFOs take a seat as the strategist at planning table and help influence the future direction of the company. They are vital in providing financial leadership and aligning business and finance strategy to grow the business. In addition to M&A and capital market financing strategies, they can play an integral role in supporting other long-term investments of the company. . A CFO would also play a key role in any effort to seek investment from the public financial markets or to launch an initial public offering (IPO).
  • CFOs as catalysts can stimulate and drive the timely execution of change in the finance function or the enterprise. Using the power of their purse strings, they can selectively drive business improvement initiatives such as improved enterprise cost reduction, procurement, pricing execution and other process improvements and innovations that add value to the company.

Bringing in a skilled and expert personnel onto the board of the business will help give a strategic direction to the business. Outsourcing the financial support for the business will give the owners free time to focus on other aspects.