This Isn’t A Hope and A Prayer: SaaS Takes Center Stage at ITA

The Fall Collaborative of the IT Alliance was held this past week (December 3-6, 2011)  in Austin Texas. The closing session “The Cloud – SaaS Best Practices” moderated by Avalara’s Rob Johson and presented by a panel including Taylor Macdonald – VP Channel Sales Intacct, Jaqueline Tiso , President JMT Consulting and Craig West VP Channel Sales at Netsuite.

Record attendance of 260 technology members was announced. Most IT Alliance members provide mid-market ERP or related services. The conference is marketed as a collaborative and is heavy on member to member sharing of experiences.

One of the hottest topics at this year’s event was cloud computing. Each conference day spotlighted sessions on creating, adapting and how to change a VAR practice to market SaaS offerings which typically charge customers a lower initial price which means VARS have had to retool their thinking about how to market and provide SaaS services.

During last year’s ITA Fall 2010 collaborative I noted that most IT Alliance member VARS who had adopted SaaS as a business offering were in the early stages of ramping up and offering services. This meant there was not much live feedback about actual results of converting from an on premises to SaaS VAR.

This year’s conference was different and one session about SaaS business best practices featured a prominent Sage partner – Jackie Tiso of JMT Consulting – who is  a 9 year Sage President’s Circle winner and one of their top Non-Profit VARs. Jackie and her firm have been providing a SaaS solution since October 2010.  Here are some notable results that Jackie shared during her session.

Observations: JMT Consulting and Intacct

JMT Consulting has been offering non-profit services for 20+ years. They’ve serviced over 2,000 organizations – primarily with Sage MIP Fund Accounting. According to Jackie, aside from customer and market demand,  their incentive for moving to the SaaS model was that it evened out their revenue stream. Rather than chasing a quarterly sales goal they’ve found the recurring revenue evens out cash flows as well as increases business valuations for the practice.

Craig West, VP of Channels for Netsuite, pointed out that SaaS offering produce much higher recurring revenues for partners than on premises. The common misconception is that SaaS offerings are small (Netsuite’s average sale is $40,000+ which recurs each year) and that they’re collected monthly (both Intacct and Netsuite bill annually).

One thing that promotes renewals? The service for SaaS can be shut off. While this tactic sounds harsh it’s not entirely different than some on premises offerings which can issue expiring license keys that also effectively close down a software solution if maintenance isn’t paid.

Taylor Macdonald, VP of Channels for Intacct , remarked that most customers defecting from SaaS are involuntary churn – typically either because the company goes out of business or is acquired.

One question I offered to Jackie was whether offering SaaS meant that the portion of consulting services – long the bread and butter of most consulting firms – trended downward. According to Jackie they’re still selling similar consulting volumes though the consulting services switch to focus on value added offerings such as reporting or work flow versus prior services which may have required more “break fix” type services to configure workstations and servers and potentially wrestle operating system conflicts.

Typical Lead To Close Times

Both Taylor and Craig indicated that typical lead to close times for new users to purchase SaaS offerings is anywhere from 30-90 days. This lead Craig West to remark “This isn’t a hope and a prayer” – companies are adopting SaaS.

Ramp up times for new VARS to feel as if they’re true experts in SaaS was pegged at 12-18 months by Taylor Macdonald. This is similar to the times other VARS have found when working with more traditional on premises solutions.

Why is it so much faster to close SaaS offerings? According to Taylor it’s because :

  • There are so few offerings in on-premises and most of those customers have already seen/used
  • Customers are looking at a limited number of cloud options (most likely Intacct, Netsuite, SAP)

According to Jackie:

  • Technology sales (customer requires SaaS) are the fastest
  • Nobody wants to deal with their IT Department – SaaS is their off-ramp

SaaS Business Model of JMT Consulting

When creating a new SaaS “division” within JMT Consulting Jackie indicated they setup a separate sales division for SaaS. There’s no cross selling of their on -premises customers to migrate to SaaS (which although not mentioned might create serious issues with the on premises software publisher and has reportedly lead to revocation of authorizations for other partners trying similar tactics).

Salespeople at JMT either sell on premises or SaaS. They don’t offer both. Leads are filtered through a central sales area where JMT Consulting sends out a form that is completed by the prospective customer. Once the form is returned JMT determines which solution potentially fits the prospective customer’s needs.

Commission structure for sales people was determined from within a meeting of the group at JMT Consulting. The sales team opted to receive a stream of payments that matched the revenue stream of SaaS as opposed to lump sum commission payouts that would have more closely mirrored the on premises solution sales commissions they were accustomed to.

The Renewal Is Critical

I’ve long believed that the primary measure of customer satisfaction is the annual renewal of software maintenance / subscription. Craig West reiterated that the most important thing is the renewal and continued long term satisfaction of the customer. SaaS business models based on renewal of ongoing subscription will quickly weed out the “Quick Hit” artists who might gear up to sell a lot of new licenses and reap a quick commission.

Under the SaaS model long term customer satisfaction is rewarded with a steady stream of renewal commission payments. Without these renewal payments the VAR also loses access to consulting revenues because the customer cannot elect to stop paying on SaaS and continue using the software as they presently are often able to do with more traditional on-premises offerings.

Interesting Metrics from JMT

Several interesting metrics were shared during this session.

JMT Consulting has approximately 20% of their on-premises customers subscribed to a JMT Consulting support plan. With their SaaS offering JMT has 100% of customers signed up on a recurring support plan — and this is all offered by JMT Consulting and not by the SaaS vendor.

I was not able to followup with Jackie on this metric however I believe the 20% vs 100% difference is probably due more to the difficulty of turning a “time and materials” legacy customer into a prepaid annual support customer. I’d be willing to bet that when JMT went to market with their SaaS offering they removed the ability for customers to pay “time and materials” for support and therefore have a 100% subscription to their own support plan primarily because no other option is offered.

I was curious about the deal level that JMT Consulting observed with respect to sales of on-premises vs SaaS. Jackie indicated that as of now they were seeing about 10 sales of on-premises for every one sale of SaaS.

On the sales lead side of the business it was mentioned that for some webcasts offered by JMT’s SaaS partner there were upwards of 400 people attending. Jackie also indicated that several of their marketing seminars about cloud services had been standing room only.

The SaaS Market and IT Alliance

At the ITA Fall 2010 collaborative there was more of a tone during this same session (summary here) of why should a VAR practice adopt SaaS / Cloud offerings. During the 2011 Fall Collaborative a year later the tone had shifted to not why but “how do we get started”.

Netsuite had 9 firms were staying over after the end of the conference to attend an introductory meeting and learn about becoming affiliated with Netsuite.

Netsuite and SAP have in the past provided VARS to talk about their experiences though this year’s meeting was the first time when members were able to get a first hand look at another member who reported tangible results of their year long marketing effort.

For most VARS SaaS and Cloud offerings are no longer why – but how.

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Comments

  1. I’m surprised that the SaaS vendors don’t provide their own support plans. Or do they offer them but Jackie’s plans are just that much better – either in services or pricing?

    One of the best ways for a publisher to keep the channel happy is to stay out of the support arena. On the flip side, it would seem that a certain segment of customers want to call the publisher direct.

    Can you clarify this – do you have any additional information as to what Intacct and NetSuite offer?

    • Hi Peter –

      At Intacct, the VAR owns the entire customer relationship – from contract to billing to collections to support. Intacct generally supports the VAR rather than their client. Intacct does offer US-based support (just check our website) – but we find most VARs prefer to handle customer support themselves as they wish to own the entire customer relationship. And we also prefer that VARs provide support for their clients – we think it’s better for the VAR and better for their customers.

      The other thing to be aware of are that support is typically much higher margin for the VAR in the cloud world – with no software installed, there is a lot less to go wrong at the client site – which means less cost of support for the VAR.

      Also note that the rapid pace of new feature introductions (quarterly for Intacct) means that you can also build a nice ongoing revenue stream helping customers adopt new features every quarter.

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