IP Applications Billing and Payments blog

The overwhelming predictions among SaaS writers is that companies replacing outdated software or implementing new software capability will seriously consider SaaS alternatives. One big reason in 2009 will be to avoid large capital outlay.
 
According to a 2008 survey released by Softletter, 55% of SaaS companies sell their licenses as yearly or multi-year paid in advance subscriptions.  From a cash flow perspective that's great, but many of the prospects you are likely to work with in 2009 will be directed to conserve cash. As a result charging annually in advance may not be a good customer acquisition strategy.
 
Consider your prospects decision criteria in an uncertain cash is king environment. Their thought process is probably something like this:

• Do we need this or can we do without it? See our blog entitled The Economic Downturn and SAAS Companies.
• If we need it.
• What companies can provide the solution we need?
• What will it cost?
• What am I committing to?
• What if I need more or less of this service throughout the term?
• What are the payment terms?
• Am I comfortable with how and what I am being charged?

If all else is reasonably equal (product functionality, vendor viability, total cost, contract terms etc.) your prospect will surely prefer a monthly or quarterly payment option or some form of value / usage based pricing.
 
In SaaS, customer retention, renewal and growth are what drives continued revenue and profit. Your products and value based pricing is what attracts them and helps retain them. If you are one of the 55% asking for annual payments up front you may want to reconsider or at least keep a close eye on your prospects buying (or lack of buying) habits in 2009. If you are one of the 45% offering subscription flexibility with pay for use or monthly or quarterly payment structures, 2009 is the time to herald that advantage just as loudly as you can.
 
2009 could prove to be a pivotal year for those SaaS companies that are able to match the purchasing and payment criteria of their prospective customers.