A version of this article previously appeared on Forbes.
Software as a service (SaaS) is a popular business model because it facilitates the delivery of incremental value to customers, while allowing the vendor to adjust their prices over time. However, such price increases generally occur after new utility has been provided to the customers.
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A hybrid of the SaaS model is emerging. It combines transaction pricing with a standard SaaS subscription price. This TranSaaSion approach increases the amount paid by users as the value they derive grows. This variable pricing methodology allows TranSaaSion vendors to scale their revenue in close correlation with the utility they deliver. Four companies which utilize this business model include, Vitrue, Sideqik, AppFolio and Invoca.
In addition to a SaaS subscription fee, Vitrue and Sideqik both base their pricing on the size of the digital audiences served by their respective solutions. AppFolio supplements its SaaS revenue with add-on services for customers that include background (credit / criminal) screening and credit card processing, both of which generate transactional revenue.
In the case of Invoca, customers pay a monthly subscription price for the company's inbound call marketing platform. This base fee includes the call volume typical for a customer of their size. Like cell phone pricing, overage charges motivate fast-growing customers to step up to higher monthly license fee levels. According to Invoca's CEO, Jason Spievak, "Our subscription pricing provides predictability in our customers' marketing spend and allows them to manage their marketing budgets in direct proportion to the revenue we drive on their behalf. This approach has allowed us to scale our revenue much more quickly than is typical with SaaS subscription pricing while ensuring that our customers are receiving value for every dollar they pay to us." (Note: I am an investor in Invoca via Rincon Venture Partners).
Focus on Existing Customers
Irrespective of your pricing model, the most expeditious source of revenue is typically not new customers. For most companies, existing customers are the most economical and lucrative source of incremental sales. In fact, the authors of Guerrilla Selling recommend that companies focus 60% of their sales efforts soliciting additional revenue from their legacy customers.
Nearly every startup struggles to optimally compensate their sales team with respect to up-sell revenue generated from current customers: Too high a commission and salespeople won't spend enough time prospecting new customers; too low and they are apt to ignore untapped revenue from their existing clients.
The approach that I have seen work most consistently is to assign the primary responsibility of legacy revenue growth to the Professional Services (PS) team, supported by the sales department. This division of labor facilitates a "spike and spread" of your product across a customer's entire organization.
PS folks are typically "farmers" rather than "hunters." Their service-oriented temperament makes them better suited to exploit ongoing revenue opportunities because they are considered trusted, value-added consultants, rather than quota driven salespeople.
To reduce potential conflicts between the PS agent and the sales rep, both should be compensated for new revenue generated from existing customers. This ensures that the salesperson is suitably motivated to assist the PS agent and remain engaged in the up-sell process. The percentage commission to both employees should be relatively modest (i.e., 1% - 3% of the additional sales).
The incremental revenue generated by PS personnel often arises from selling additional features, more licenses/user seats and expanding usage of the solution to additional departments, divisions and/or geographic locations.
Give First, Then Take
Although the spike and spread approach is an effective way to grow your revenue, you can also accelerate your sales by delivering value to your existing customers before you ask for anything in return.
A clever example of giving before taking is practiced by Central Desktop. Their PS agents offer their users free, onsite training, in exchange for a warm introduction to other departments within the customer's organization. This is mutually advantageous; the customer receives valuable training and Central Desktop has the opportunity to expand the usage of their collaboration platform.
Up-selling is best done consistently, rather than episodically. To this end, establish quarterly business reviews with your key accounts. The goal of these meetings should be twofold: (i) to remain apprised of changes within your customer's organization that might allow you to deliver additional value, and (ii) to stay apprised of the customer's satisfaction level and reduce the risk they may abandon you for an alternative solution.
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