Selling System of 21st century

1. Business Model
Dr. Celen P.Paul

2. “
”
2
Introduction

3. 3
B2B - Selling B 2 B B 2 C
3 R‘s ( Harvard ) Kottler
Relation 4 P‘s / Mktng-Mix
Reputation • Product
Reciprocity ( 4P‘s ) • Price
Value • Place
PoC Promotion
B2C
B2B
Relation : Relational Management
People / Buyers do NOT buy from organizations
THEY do buy from people
Reputation : your Name / Credibility
your = you, sales force, everybody

4. 4
Selling System of 21st century

5. 5
The 4-Ps of Value / Outcome for
Marketing & Selling
proposed by Forrester include:
• Problem-
• What are the customer’s business objectives and challenges –you are helping them to solve.
• Are they fully aware of these issues, and how will you help them uncover / diagnose new challenges, and
prioritize those of which they are already aware.
• What is the cost of sticking with business as usual / the status quo?
• Pattern–
• Once the customer is aware that the problem exists and it is a priority, how will your solution help them solve
their problem?
• How will they use your product / service to overcome the challenges and derive value?
• Path-
• How will the solution / service be purchased
• and how can you help facilitate the ever more complex decision cycle and gain consensus amongst the
multiple stakeholders?
• What does the customer need to be successful?
• Proof-
• What is the quantified value the solution will deliver with regards to reducing costs, driving incremental
revenue / margin or other tangible business benefit,
• and what additional business benefits will the solution deliver such as reducing risks, or driving agility?
• How have others obtained similar value at low risk?

6. 6
Initial Approach : Search not execute
a structured process for testing business model hypothesis
Think
Plan
ExecuteAnalyse
Adapt
Think
Plan
ExecuteAnalyse
Adapt
Understand Customer
Problem and Need
Develop Validate
Develop Sustainable
Business Model
Adaptive
Learning
When not enough paying customers
GTM
?

7. 7
• The components of a
•Business Model

8. 8
Key business model questions
1. How do you acquire customers?
2. After you have landed a new customer, how do you plan to relate to that
customer and manage the relationship (if at all)?
3. How do you charge your customers? What is your revenue model?
4. How much do you charge your customers? Can you calculate your revenues for
the next month, quarter and year?
6. What assets are available to you or under your control? Who are your key
partners?
7. What key activities do you need to engage in to deliver your value proposition?
8. What are your fixed costs?
9. What are your variable costs? Can you calculate your total cost for the next
month, quarter and year?
10.Does your revenue forecast demonstrate increased profitability towards the end
of the forecast period?

9. 9
Create your own business model
Item Short Description
What Your Solution Proposition
Value Proposition
Who Customer Segment
Where Key Partners
Channels describe 1) how you plan to acquire customers, 2) how you plan to
deliver your value proposition to them and 3) how you plan to
communicate with your customers
How Key Activities describe your key activities here
Customer Relationship describe how you plan to establish and manage the relationship
between the customer and your brand here
ROI Revenue Streams
Cost Structure
Key resources

10. “
”
10
The components of a Business Model
1. Where do we sell ?
Channel strategy

11. 11
Channels : Topics
• Direct Sales
• Cost of Sales / Cost of Selling / CaC
• Sales Force Efficiency
• Validation Phase : NO selling
• Sales target :
o PLC growth or Mature = 1 mio € revenues / year
o PLC intial : 300 – 500 k€
• Indirect Sales / Channel Partners :
• Ideal Partner profile : minimum require relations
• Portfolio Complementarity ???
o Include in sales targets / give extra incentive
o Support !!!
• Balance ?
• Make 3-Tier structure
• Ongoing concern : T1 is direct + part of T2
• Unless partner has ideal / strong relations
T1
Tier 2
Tier 3

12. 12
Tier-structure
characteristics
1-10
11-20
21-50
• Who is responsible for what?
• Response times / Decision cycle
• Budget
Complexity
Nr.People
involved
Response Time
Budget
Rules
Strategy
Ref
Commercial excellence
Sales Force Effectiveness
Marketing / Sales
IT
Marketing Manager
Digital Manager
Product Manager
CEO
Marketing

13. 13
Example : Mc Afee ( copy out annual report )

14. 14
Direct Sales
• Definition : the shortest distance between two points is a straight line
o Selling directly to customers :
 direct sales is when a company sells its only products and services ‘directly’ to its client
or customer base without an outside party involved
 With dedicated (major) account- and technical support managers
o Executive management sponsorship
o Direct sales are full of hidden (and not so hidden) costs – salaries and overheads.
• Where ?
o Pareto analysis for most companies over the total hsitory reveal that (=% of revenues are
normally made by 20% of the customers.
o That customer base should not be given out of hands and control, therefore handled directly
• When ?
o It is good management practice to hire a sales-person when his/her revenue potential or
pipeline / forecast potential covers at least the cost of sales
o For companies in PLC growth- or mature-cycle this means 1 mio € revenues / year. For start-
ups it is suggested 300 – 500 k€

15. 15
Indirect Sales or third-party / channel sales
• Definition :
o Selling indirectly to customers :
 indirect sales is when the company employs a third party, a reseller or distributor to
sell their products on to their customers.
• Channel Sales is like outsourcing the costs of having your own far-reaching sales
operations, whilst still retaining an excellent portion of the sales profits. These days the
relationship between the seller and the reseller is much closer, allowing for better
cooperation and coordinated strategies.
• Channel Sales doesn’t just mean shipping your products off to a third party and hoping for
the best. Channel Sales means keeping your outsourced sales teams up to date with your
products, ensuring that they are adequately informed and regularly updating them on
changes and issues in order for them to function at their best.
• Outsourced sales through partnerships with resellers is effective for strategic growth and for
the increase in incremental revenue for the vendor
• Where ?
o For geografic regions that are difficlut to serve directly
o For customers or regions where the barrier of entrance is very high and costly
o For market segments or customers wher the partner / 3rd party has much better Relations
• When ? As from the start ! It should be embedded into the strategy.
• Ideal Partner profile : make one

16. 16
Balance between Direct / Indirect Sales
Rules :
• There are no general rules known so as to split direct/idirect based on certain criteria
• However it general practice to balance it over the 3-Tier structure of the market
segments chosen :
o The first Tier should stay under own control of the direct sales forec. These customers are
mostly called „ major accounts „
 Unless there is a compelling reason to do it via the indirect channel.
 One example of the latter could be a 3rd party that has extreme good relations with a
major account or ist decision makers
o The 3rd Tier must be given to the indirect channel for the simple reason of cost efficiency (
potential revenue per customer / cost of sales )
o The second Tier is a difficult one and the choice could be made on a case by case base.
 It is suggested to try to subdivise this Tier again in 2-Tiers and to keep the highest one
under own control.
 In any case, and for a start-up, it is wise to keep strategic important customers here in
the direct sales channel. Also in the beginning phase to learn and obtain reliable PoC‘s
• Start-up :
o Create PoC ( Proof of Concept ) with second Tier ( 1st to slow and 3rd lacks credibility
o Handle Tier 1 yr self in paraleel with part of tier2.
o Use partners / indirect channel wherever you can to create awareness + speed to market

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Examples
• Coca Cola : 100% indirect
o Coca Cola chooses to sell its products through third parties, such as shops, supermarkets
and via vending machines.
o And they still make healthy profits, but they don’t incur the cost of having a huge sales
operation.
o Coca Cola still spends millions on sales and marketing activities, but they don’t actually sell
directly to their customers.
• Microsoft : 100% indirect
• Microsoft’s products are sold through ‘Channel Sales’ because Microsoft would have to
become a retail operation in order to achieve the same level of global sales. This would
hugely increase their costs and still not be as effective as ‘Channel Sales’.
• Apple : mixed
• Apple now primarily sells its own products DIRECTLY via its website and retail stores,
although they have allowed some other companies such as PC World to stock their
computers as they’ve become more popular.
• Apple uses channel sales to expand the sale of their most popular products. So, in order to
increase the number of items sold worldwide, with products like the Apple iPod, they have
allowed resellers to sell their products too, in order to massively expand where the iPod can
be bought.
• Apple has developed a mixed approach, which has allowed it to capture an increasingly large
share of the home computer market, while retaining some control over how individual
products are sold.

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Select Sales Channels
• 1. Create a list of your current sales channels and potential sales channels.
• 2. Complete an assessment of your current channels. Ask yourself and your staff the following questions:
• What are my customers’ needs?
• How could my product/service meet those needs?
• Who is my ideal customer and what are their buying habits or buying behavior?
• How can I reach more of my ideal customers? Am I present where my ideal customer can be found?
• 3. Complete the ”Distribution Channel Assessment Worksheet” * to answer the questions below.
• Which channels do your competitors use?
• Does this channel reach the desired geographic location where your target customers are?
• What are the barriers to entry for each distribution channel? These could include cost, competitors, time to establish a
foothold, etc.
• What is the cost of each distribution channel and how will this affect your cash flow? Can the cost be passed on to
customers in the form of price increases or must it be absorbed?
• How will using a particular channel affect your pricing and how will that affect your profit margins?
• What are the costs (both in money and time/manpower) for the sales and marketing efforts required for each channel?
• Are there potential conflicts with existing sales channels? Will one sales channel cut into sales via another?
• 4. Determine whether you have any existing relationships with potential channel partners (people and companies
that can help you move your product or service through sales channels) such as wholesalers, retailers, distributors,
consultants, etc. Such relationships can ease your entry into a particular channel.
• 5. Use the ”SWOT Analysis Worksheet” * to identify the Strengths, Weaknesses, Opportunities and Threats
associated with each sales channel.
• 6. Create a dynamic, flexible Marketing and Sales Plan for additional insights into possible sales channels. Use
principles of the “ demand type” analysis
• 7. Create a final list of sales channels you will employ.
* See Business Model Workbook

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B2B – channels / partners : SWOT
• Ideal Partner : find out what drives them
• Active in correct business segment & regio, reasonable size, excellent relations with
major customers, existing & stable customer base
• Willing and able to invest in sales & marketing
• Ideal Fit with existing portfolio, preferably complementary or USP for him to attack his
competitiors
• Must be anchored in sales quota, renumeration schemes
• Strengths :
• Fast access to market provided partner has relations and is committed
• „lower“ sales cost
• awareness
• Weaknesses : 4 factors that prevent sustainable loyalty
• Lack of organizational commitment, incentives do not always work
• Value proposition does not resonate or fit
• Lack of innovation
• Difficult to do business with
• Winning the heart and minds of yr channel-partners = common values
and a lot of support

20. 20
How to create/influence Partner cooperation
Commitment
organisation
Infrastructure
Value
Proposition
Awareness
Basic Elements Operational Required Strategic symbiosis
Processes
Program
Enablement
Brand Effect
Demand
Creation
Incentives
Enhanced
Infrastructure
Innovation
Commu-
nications
Subject Matter
expertise

21. 21
Factors to increase success with partners
Basic Elements Operational Strategic
Organisational Commitment Processes Innovation
Exec Team Program PR
Easy to do
business with
Governance Quality
Customer focused
PositioningIdentified Target
Market
Chosen products
Competitive
Solutions
Basic Infrastructure Program Enablement Communications
Portal
One stop resource
for : product, price,
program
Certification Solution paths To, through and for partners
Access to
content / tools Sales enablement
Sales Tools
Selling Examples
Consistency
Value proposition Branding Effect Subject Matter Expertise
What‘s in for me
?
Market opportunity Co-branding
Use Cases and
eligibility
Vertical-focused specialisations
Competitive Alignment Demand Creation Channel Ambassador Programs
Awareness Supplier created – partner delivered
Capture Partner
Mindshare
Deliver program
specifics
Incentives
Financial / Non-
financial
Reward partnership
Partner Reference Programs Enhanced Infrastructure
Technology
Investments
Role-based
Privileges

22. “
”
22
The components of a Business Model
2. How do we sell
Pricing Types

23. 23
Pricing
Depends :
• on perceived Value : cost - risk
• on urgency of need : demand type
• on uniqueness solution :
o USP – competition.
o 3 types of competition :
• the “ Status Quo” ( > 80% )
• actual cost ( quantitative + qualitative )
• other vendors of similar solutions
Methods discussed :
• Price Determination in general and as f( demand type, chasm,..)
• Competition Based :
Principle of same quality =lower price / better quality is same price
• TCO – total cost of ownership
• Software Solution model
• Cost Based Pricing
• Value Based Pricing as function of Demand Type
• Target pricing
• Freemium ? SaaS = cfr ASP-models / cash ?

24. 24
General Observations of Pricing
• Demand Type :
o Pricing depends on what the market / customer is willing to pay for it
o and that will largely depend on his value perception
o Which is related to urgency and risk
• Competition :
o Pricing will mainly depend on what the competition does. But WHO is the
competition ?
o 3 types of competition :
 the “ Status Quo” /
 actual cost ( quantitative + qualitative )
 other vendors of similar solutions
• Chasm / Technology adoptation phases
o The “ Chasm” theory speaks about 4 types of behavior : early adapters /
pragmatists, conservatives, sceptics.
o Pricing can be different from one segment to another, BUT for starters it is an
absolute MUST to detect the early adapters, who are willing to take a risk or are
keen on new technologies. Pricing then will depend on the degree of risk taking,
perception of cost, advantage, etc..
• Span of Control :
• In preparation of and during price negotiations try to set a minimum and a
maximum. Your buyer will do the same.
• The span of ( pricing ) control will then be your maximum and his minimum.
• The normal outcome for the negotiation will then be 50/50. But you should aim
at 70/30 in your favour

25. 25
Competition : 3 Types
1. Status Quo : the customers is not willing to move
• Causes are NO urgent NEED, risk adversity, anxiety, your Reputation ( credibility ), ..
• Different studies underpin these example
• General principles Status Quo : look at the demand type.
• If no urgency is found then price does not help so much ( if I do not need it why should I pay for it ).
Actions here are evangelizing..
• If it is a nice too have then discounting could help
2. Actual cost :
• Offer or price your solution at their cost MINUS a bonus for taking the risk in working with you.
That is your entrance fee
• Bonus is normally a goodwill, therefore psychology and perception
• One bonus is certainly to exaggerate the non-tangibles or qualitative advantages.
• If a discount is further needed then you have to express it inpercentage, and compare that
percentage to what people know = their paradigm. Normally single digit % are considered too
low, unless the amount is huge ( but then it is better expressed in absolute figures ). So, double
digits.
• A huge discount is considered cheap and could affect the perception of yr quality. Value
perception goes down. Free has a bad taste !
3. Other vendors : here the value perception is even bigger. Or expressed in quality. As a
general rule :
• If your quality is better than competition, you could target for the same price. Here only a small
discount ( cost of entry ) will do.
• If your quality is same or less or the functionality incomplete or partial, then your price should go
down accordingly, sometimes proportionally

26. 26
Competition effect
• Competition establishes an upper limit on price.
• Price is only a component of the cost/benefit equation.
• Differential advantage other than price: advanced features, technical
expertise, timely delivery and product reliability (zero defects) to name a few.
• Service and support also have a differentiating affect.
• Sensitivity
• In some industries rivals are fairly stable and the competitive strategy is “don’t rock
the boat.”
• Other industries, especially high-tech or high profit industries, the competitive
environment is wrought with short-term and temporary advantages. These are
hypercompetitive environments with strong rivalries.
• The strategy to succeed is to create a temporary advantage and destroy rival
advantages by constantly disrupting market equilibrium with new products, lower
prices, and strategic relationships.
• Principle of equality : “newcomers have to pay the barrier of entrance”
• If one believes to offer the same quality, the one must offer alower price
• If one offers better quality then the price could be the sames as
competition

27. 27
TCO
Cost of ownership or TCO = Total Cost of Ownership
• Total cost for the customer of solving his problem over
a period of time.
• Normally the period is defined by the possibility for the bookkeeper/financial
department to write off the cost.
• The pricing can be spread over that period, mostly in equal parts
• You compete not over the initial price but against the cost over the full period

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Software Solution Selling
Pricing must at least contain the following components. Whether or not you offer them separate or spread over years in
monthly installments, they should ALL be considered
• Set-Up fee : normally a fixed lumpsum to cover your costs of initiating the business, admin, preparation time &
materials
• Installation fee : cost of installing = time * cost/day or per hour
• Licenses : can be split into :
• Basic license fee : license to use the complete system
• Runtime license fee : additional license for additional features normally paid on a monthly bas
• Corporate license
• These licenses are based on the TCO of yr company and split over a minimum number of potential customers
• Maintenance fee :
• a yearly cost calculated as a % of basic license fee, normally 20% for new sware, going down over the years
• this fee gives the customer the right to get bug fixing, new patches, and eventually new versions, with or without an
upgrade fee
• Training : cost for training, expressed in a ficed number of days * price per day. Could also be per person trained or the
concept of train the trainer
• Customization / Sware Development on demand: per hour, per man-day, per man-month or project based
pricing for specific customer demanded features or functionality.
• Technical support : per hour, in packages. Normally if you split maintenance. Depends on your SLA ( Service Level
Agreements )
• OEM – licensing : especially for those vendors that want/wish to embed yr technology into their product offering ( like
a Intel-inside )

29. 29
Cost-based pricing
Basics: this exercise must always be done to get a feeling what the
revenue per user should be in order to obtain ROI and profitability
• TCO of your solution
• Divide TCO by number of estimated licences you will sell over the next
12 months ( forecast )
Problem: Method is internally driven, not market driven
Understanding Costs Helps to Understand Pricing
• When adding or deleting a line, successful marketers know exactly what price
points can weaken or break the competition.
• What proportion of cost is raw material or component parts?
• At different levels of product, how does cost vary?
• At what production levels can economies of scale be expected?
• Does our firm enjoy cost advantages over competition?
• How does the “experience effect” impact our cost projections?

30. 30
Cost Concept Analysis
• Direct Traceable or Attributable Costs: All costs, fixed or
variable, that are solely incurred for a particular product,
territory, or customer (e.g., raw materials)
• Indirect Traceable Costs: All costs, fixed or variable, that can
be traced to a particular product, customer or territory (e.g.,
general plant overhead)
• General Costs: Costs that support a number of activities not
directly related to a particular product (e.g., administrative
overhead, R&D)

31. 31
Target Pricing
• It starts by examining and segmenting the market
1.Determine what type, quality and attributes each segment
wants at a pre-determined target price
2.Understand the perception of value to the target selling price
3.Then calculate costs considering margins
• Target pricing forces marketers to understand what buyers want
and are willing to pay.
• Target costing forces companies to understand their cost
structure by direct/indirect costs, fixed/variable costs, and their
contribution margins
• Combining target pricing and target costing says that instead of
using cost-control techniques, a better approach is to compute
the total costs that must not be exceeded, allowing for
acceptable margins.

32. 32
Prices and Customer Value

33. 33
A Value-Based Approach for Pricing
Define the key market segments
Isolate the most significant drivers of value
in customers’ business
Quantify the impact of your product or service
on each value driver in customers’ business
Estimate the incremental value created by your product
or service, particularly for those features that are
unique and different from competitors’ offerings
Develop pricing strategy and marketing plan
SOURCE: Adapted from Gerald E. Smith and Thomas T. Nagle, “How Much Are Customers Willing to Pay,”
Marketing Research 14 (winter 2002): pp. 20-25.

34. 34
Demand Determinants & Assessing Value
Issues when considering demand:
1. Usage and importance of the product/service by various segments
2. Price Sensitivity (elasticity of demand)
3. Assessing Value: Competitive Value comparisons
• Economic Value: Represents cost saving and/or revenue gains when
purchasing a product (instead of next best alternative)
• Commodity Value: Value customers assign to features that resembles
competitive offerings
• Differentiation Value: Represents the value of features that are unique
and different from competitors
• Questions to ask ?
o Assume same product by 2 different competitors
o Assume: (“A” charges $24 ; “B” charges $20)
o Why might a buyer prefer “A” over “B”?
o Could it be that buyer prefers “A” more than “B” because “A’s” total offering
provides more value than “B”?

35. 35
Value Drivers
1. Goal is to identify significant drivers of value
• Cost Drivers: Create value by economic savings
• Revenue Drivers: Add incremental value by facilitating revenue or margin requirements
2. Quantify impact of firms product/service on customer’s business model
• Does it make or save money? How much?
3. Compare firm’s product/service to next best alternative (competitor’s
product/service)
• Isolate unique features that differ from competitor
• Do those features provide value that customer cannot get elsewhere?
• How much value does it create?
4. Understand how customer uses the product and how much value will
s/he realize
5. Set the price & develop a responsive marketing strategy
6. BENEFIT: Business marketer can gain a competitive advantage by
employing a value based approach and by developing tools to
document and communicate their unique value to customers.

36. 36
Value Selling
• In B2B marketing, customer value is a cornerstone
• The unifying goal of marketers is to be “better than your very best
competitor” in providing value
• “You get what you pay for” is what many provide
• A better approach: “You get more than what you pay for” by offering
lower cost and higher quality
• How do customer’s view value?
• Everything costs something (sacrifice)
• Everything of value adds something (benefits)
• What’s the difference? Benefits – Sacrifice = Value
• Value Creation :
• efforts that increase customer value % loyalty
• relationships are more valuable than price and costs
1.Building trust
2.Demonstrating commitment
3.Being flexible
4.Initiating joint ventures
5.Working on developing deeper relationships

37. 37
Differentiating Through value-creation
• Research suggests that most companies offer similar
services, however, the following seem to be more
prominent.
• 1. Service support
• 2. Personal interactions
• 3. Supplier know-how
• 4. Ability to improve customer’s time to market
• Moderate differentiating factors include:
• 1. Product quality
• 2. Delivery
• 3. Acquisition and operation costs

38. “
”
38
The components of a Business Model
2. How do we sell
Pricing Types :
1. 1. Saas – model ?
2. 2. Fremium

39. 39
SaaS — a simple definition
Software as a Service is usually provided as follows:
• A company creates a software product and hosts that product on
multiple servers. The company manages the hardware and
software—and realizes the cost of that management.
• Customers subscribe to the service—getting the right to use the
software for as long as they continue to pay the recurring subscription
fees.
• The company makes both major and minor updates to the software,
and the customers automatically get those updates as part of their
subscription.

40. 40
Challenges /Treaths of SaaS models
• How to finance :
• Customer Support delivery :
• Professional Services
• Training
• Help desk
• SLA cost
• new development = new releases / upgrades
• How to align customers all on 1 version ?
• Limitations :
The experience of ASP models learned that this business-model
• only works for heavy / big software packages that nobody wants to
remake for several reasons ( know-how, resources, cost )
• only works when nr of licence fees is not too big ( multiplication factor)
• Start-ups need deep pockets to be able to survive
• Revenue ramp-up is slow
• Break-even period is elongated, which is unfavourable to
investors and increases the risk

41. 41
SaaS vrs Licensed Software
• Economics of Software as
* a Service ( Saas )
vrs
* a Product ( On-Premise sware )

42. 42
Elements of Busines Models for selling software
Revenues streams Licensed Software SaaS
Right to use
• One-time + Runtime license Fee
• Basic License + additional licenses.
MRR = Monthly Recurring Revenue fee
Minimum one year & pre-paid
Professional
Services
Paid in mandays Should be extra to MRR
• Set-Up fee To cover cost of first workload to set-up customer
account. This is a flatrate charge
Tbd
• Training Remote(via website/webinar
Or Local at customer site
A must
• Sw-development /
customisation
Moving from MVP to „ whole product“ many early
adapters will ask for additional features
• Low probabilty in Tier3
• Very Probable in tier 1
• Integration In customers IT-architecture Appropriate ??
Maintenance % of sware cost as f(new sware, SLA,..) Can we charge Back-ups ????
• Help Desk Helping customer out with a problem, mostly using yr
software. Could also be bug-reporting
Automatic ???
• 2nd line Bugstabilisation / split Hware-Sware
Local on yr server / need good website for
reporting
• 3rd line Bugfixing AND prepare/send patches
• upgrades
1-2x/year when too many patches corrupt sware Minor updates are usually free
Minor updates often include bug fixes or features that were intended to be in the major release, but were
delayed. Or they might just be the introduction of capabilities with “small” value to the customers. A lot of
software will automatically notify you, download the update, and install it for you. That’s great service.
• New release
• New functionalities
Extra charge to maintenacne fee Tbd
Major updates usually require the purchase of an upgrade. Major updates are usually more
significant; they introduce capabilities that have “large” value to their customers or are intended to

43. 43
Metrics : Saas vrs Licensed sware
KPI ‚ s SaaS Licensed Software
Growth New Customers New Customers
Revenues
Monthly Recurring Revenue (MRR)
$
Initial License $
Upgrades
% Incremental Add-on Subscription
?
% Additional Add-on License Revenue
New releases % Yearly Subscription Increase % Maintenance Fees
Maintenance Months Prepaid Subscription Months Prepaid Maintenance
Cash Impact ST
• delayed revenue and cash payments to
the vendors and conversely payments T
• Result is a “cash crunch” in the early
period after the launch & delays revenue
recognition.
• If limited assets = run out of money before
enough customers
• problematic for valuation by VC / Investors
• Ramp-up might take several years
• Traditional software companies gain the
majority of their revenue at the time of the
license purchase,
• the recurring revenue stream of software
upgrade and maintenance fees provides a
substantial income driver for software
companies with a large installed base.
Cost Structure
cost effective for infrastructure
costs
Customer Churn
• % Attrition
• % customers that pay upgrade
• % Attrition / Locked in
• Different sware versions to support
CaC
Lower ?? New vrs Existing
customers
TCO ???
Diminishes in time by Macc-planning &
release management

44. 44
SWOT

45. 45
Value Model for Software Vendor
• To understand the economics of software license purchases, one has to look at both the
value over time and the costs over time of purchasing a software license.
• Assumptions : the model includes minor updates happen frequently and are free, and
major updates require the purchase of an upgrade to the latest version of the software. It
is also assumed that every new update introduces something valuable to the customer.
• As each new customer purchases a license to the latest version of the software, the
company gets more revenue. As each existing customer purchases upgrades to their
existing software, the company gets more revenue. Therefore, a company makes money
both from finding new customers and from keeping existing customers.
Figure demonstrates the value
model for software over time
from the software company’s
perspective.

46. 46
Value Model from Customer‘s eye
?
?
!!! Subscription fees increase over
TIME = hidden upgrades

47. 47
Cost Structure comparison
SaaS Classic
• Both models have costs that increase over time. For many technical reasons, the SaaS
architecture is more efficient and has lower costs for the software company, which tends to
result in lower costs for the customers. This is not always the end result, but it is
directionally correct
• Another interesting factor is the financial pressure on the SaaS provider. Where a software
licensing model creates pressure to prioritize finding new customers, a SaaS model creates
pressure to keep existing customers. ( = CLTv / Customer LifeTime Value).
• In most cases, it is cheaper to keep an existing customer than to find a new one. ( CaC )

48. 48
Comparison of revenue and cash receipt
break-even points
In this scenario,
• cash receipts for SaaS exceeded those of the Licensed Software company ONLY after 3 years
• The revenue of the SaaS model surpassed the Licensed Software model after 48 months.

49. 49
Scalable Sales Models in SaaS – It Starts With Your Pricing!
1. Get Rid of Free Plans. Use Freemium Model : good for B2C – for B2B ??
• If you’re selling a product or service with a low cost, consider the freemium model instead.
Successful companies can realize up to a 10% customer conversion rate by letting users “try
before they buy.”
• The freemium model improves the quality of leads and customers. F.I. : Dropbox-model : only
2GB of free storage
2. Shorten the Free Trial
• Most free trials are for 30 days. Some companies go so far as to offer 60 or 90 days of free use,
but it’s usually not a good idea.
• A user isn’t going to discover something about your service in four weeks that she won’t learn in
one week. The longer a potential customer has to delay the buying decision, the harder it will be
for your salesperson to close the deal. Remember that the vast majority of free users don’t
convert to paid service, so cut your losses early and focus on real business.
• 14-day trials create the perfect conditions for your salespeople. Your service or product engages
the prospect . . . for a finite period. The short window of use tantalizes your customer, adding a
greater sense of urgency to the buying decision. Also, offering active users an extension to their
trials can be an excellent way for your salespeople to keep the selling process moving forward.
3. Raise the Price
• B2B startups often set prices too low. Have confidence in your services and charge for value. An
active sales team can help educate your prospects and sell at non-discount rates.
• Customers buy results and performance. Focus on quality and charge appropriately. If you
undervalue your offerings, you’ll find yourself cash-strapped and dealing with hordes of
problematic low-budget customers.
• Marketo’s cheapest plan starts at $895 per month

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Scalable Sales Models in SaaS
4. Establish an Enterprise Plan
• Attract bigger clients by offering a custom enterprise plan. Armed with this tool, your salespeople
can pursue the “whale” businesses that can bring your business massive amounts of revenue and
prestige.
• Ask companies that identify themselves as large enterprises to contact you for a custom quote.
Then the pricing and packaging of services can be established consciously, giving you greater
margins and the customer better value.
• HubSpot’s Enterprise plan starts at $2,400 per year
5. Offer Prepaid Annual Contracts
• Give your customers the ability to pay up front for an annual contract. They’ll get a better price
and you’ll get a spike in revenues. With prepaid sales, you can pay full sales commissions out of
cash, which is a tasty incentive for your selling team. You also lock the customer into a year of
service, helping to establish longer-lasting client relationships.
• Zendesk offers annual prepaid plans by default

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Scalable Sales Models
in SaaS
6. Don’t Give Away Customer Support
• In SaaS markets, you’re likely to have customers
who require extra training and support. B2B startups
often make the mistake of offering that support for free in an attempt to build clientele.
• Be smart. Offer your clients great customer support, but charge them for it. Savvy clients will
understand that, in order for you to provide quality service, they have to be able and willing to pay
the costs associated with it. You’ll eliminate time and resource-wasting users that never provide
you with actual revenues. Charging for service also helps rein in overly enthusiastic salespeople
who sometimes overpromise in an attempt to close sales.
• Eg. HubSpot requires prospects to choose a training program to become their customer
7. Avoid the Discount Trap
• A startup that lacks confidence is apt to offer huge discounts to attract customers. Avoid the
temptation.
• Tie customer incentives to prepayment: one free month for a one-year contract, two free months
for a two-year contract, and so on. Keep it simple.
• Remember, there are only two reasons customers will balk at your price. Either you’re doing a
bad job of selling your value, or you’re trying to sell to the wrong audience.
• Close.io’s annual prepaid plan gives a 10% discount
• by charging properly for services. : revenues increase and lower support problems
• Avoid the urge to give away the shop; instead, create a value-based pricing model that’s fair for
you and your customer. With the increased revenues , you will be able to support a sales staff
and invest in improving your service offerings.

52. 52
Freemium

53. 53
Freemium model : B2B ???
• Freemium is NOT about a free trial.
It’s about offering a free version that has limited capabilities.
• The freemium model was originally described by Union Square Venture’s Fred
Wilson. As he put it :
• Give your service away for free, possibly ad supported but maybe not,
• acquire a lot of customers very efficiently through word of mouth,
• referral networks, organic search marketing, etc, then offer premium
• priced value added services or an enhanced version of your service to your customer
base.
• The whole idea of Freemium is that 75-80% of your users will use the free version
and never upgrade, but they’ll love it. But, 20-25% of the users will find value in
your upgraded services.
Examples of the freemium model are Spotify, Flickr, Dropbox, Evernote.
• The challenges with freemium are:
• a) making sure the free version isn’t good enough for 95% of your users (see Spotify);
• b) coming out with enough value-added features that users will want to upgrade.
• for most b2b offerings, free trials are a more appropriate way to go – and that the
shorter the better. Most users never touch the trial until there’s 1-2 days left in it
(let’s face it, we’re all busy), so the quicker you can get to the end of the trial the
better.

54. 54
Freemium: a trap for start-up‘s ???

55. “
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55
The components of a Business Model
2. How do we sell
Pricing Strategies