Since 2019, there’s been a rapid increase in cloud adoption, with companies increasingly turning towards both using and offering SaaS solutions. Recent reports document the number of SaaS apps used by companies based on their size, showing that those with over 250 employees use over 251 apps to do business. A significant number that indicates the increased complexity of doing business requires the widespread adoption of this technology.
The trend of SaaS migration is referred to in different ways: SaaSification and SaaSify are two common variations. But whatever you call it, the fact remains the same, companies today have little choice and those that don’t adapt, may find themselves falling behind. Although most companies prefer SaaS solutions themselves, many are slow to adopt is as a business model for their own solutions.
It’s understandable as the transition is complex and requires a great degree of planning and consideration. It involves every facet of your organization to make significant changes, and companies need to map their SaaS migration before they ever get started. One of the first steps to creating this map is to first understand the pros and cons of the transition so that you can get buy-in at every level of your organization. Because this transformation will involve everyone from sales to development, it’s important that everyone understands what’s involved.
This blog explores the pros and cons of SaaS migration for those looking to make the transition with their products and services. Get a clear-sighted view of what to expect and the common challenges you’re likely to face. When it comes to SaaSifying your offering, preparation is key, and there’s no better preparation than knowledge.
The advantages of SaaS migration for your products and services
1. Predictable revenue makes it easier to strategically forecast income and allocate resources
One of the core reasons companies transition to SaaS is the benefits of having a more predictable monthly income. Particularly in the current economy, where disruption can destabilize organizations at the drop of a hat. Companies can create a robust payment ecosystem that makes scaling growth more predictable by implementing this business model.
One of the ways to do this is to pay close attention to churn metrics. This information helps build sustainable revenue streams, allocate resources, and forecast income more predictably. By using these, good data management, and best practices for dealing with recurring revenue streams (e.g. automating revenue recognition and deferrals), you can alleviate some of the pressure on your team.
Further reading: 10 best practices in data management for finance teams
2. Shorter sales lifecycle due to strategic pricing models and strategies
Traditionally, software development companies might spend months building relationships with prospective clients. Terms need to be negotiated, price settled on, scope and customizations defines, and implementation timeframes established. With the shift towards SaaS solutions, things have sped up considerably. Often all the information a customer needs is available on your website, with transparent pricing tiers, accessible demos, and clearly defined SaaS contracts all just a few clicks away. Many companies balk at the idea of giving this much control to the customer, but the fact remains, that if you don’t, your competitor will.
Figuring out how to operate in an economy where the customer expects to be able to make the decision without ever meeting you can be daunting; it means a sizable investment in UX and less traditional methods of sales enablement. But the advantages far outweigh any challenges here because you’re effectively enabling rapid scaling by taking a process that once took months and, in some cases, reducing it to minutes.
3. Reduce the customization workload allowing you to work faster
One of the issues many software companies face is building customized solutions for certain clients. The cost of development can quickly add up, and it can limit your team’s ability to scale DevOps because they’re simply trying to keep pace with what’s been promised and reach the implementation deadlines.
With SaaS business models, you can price customizations so that customers will be happy to choose one of your standard options. It’s not that you won’t offer any customizable option; it’s just that by limiting these to higher tiers, you can charge appropriately for developing unique features. Overall, it will cut down on time spent negotiating and allows you to invest resources in better customer services and add valuable features to your core products faster.
It’s important to note that getting the balance right means knowing your audiences and building out the features and functionality that are most important to them at each level. Often companies implement a hybrid pricing strategy, combining elements of both tiered and feature-based pricing to best meet their customer’s needs. If you’re not sure where to start with market research, check out this guide to choosing the right subscription strategy for your company. It details the information you will need to price your services accordingly.
4. Remain competitive with the ability to pivot in disrupted markets
One of the biggest takeaways from the past few years of doing business is that disruption is constant. Regardless of your industry, companies need to be poised to pivot at a moment’s notice. A state which is not limited to internal operations but includes your products and services. Regardless of what you sell, you need to be able to embrace a permanent state of innovation. Whether that’s building a financial transformation backbone, embracing DaaS strategies or tweaking the tiers in your subscription-pricing strategy based on user insights. Migrating to SaaS means equipping your team with the tools they need to survive, regardless of what happens to the market.
5. Expand customer base and reduce barriers to expansion
SaaS business models allow you to position your products and services to build a broader customer base and scale your growth. Traditionally, long implementation timelines and significant upfront investments hampered the progress of software companies. By moving your offering to the cloud and allowing customers to self-serve, you can build a more transactional product that can lead to more sustainable growth.
Pricing psychology tactics allow you to grow conversions, and freemium or penetration pricing strategies can help you break into saturated markets. If you’re curious about how to market to a wider audience using these tools, check out the following guides: 4 secrets to better subscription pricing psychology.
6. Faster implementations and feature-release cycles with SaaS migration
Prior to the introduction of SaaS solutions users had to install software updates on their own, meaning software providers often needed to assist them and maintain security for versions of the software they were trying to phase out. New releases had long implementation timelines, with some customers stubbornly remaining on older versions for months, if not years.
With SaaSification of your products, feature updates and releases can be implemented across all customers, allowing you to focus on fixing bugs and creating training tools. It’s also possible to do phased releases, rolling out a test version of certain features to trusted customers before making it available to the entire customer base.
SaaS gives you enough control to implement changes in the way that works best for your organization without introducing a cumbersome workload. Most find this flexibility allows their team more time to innovate and improve these updates because there’s no need to provide as much change-management support on the implementation side.
The disadvantages of SaaS migration for your products and services
1. Requires cultural transformation to shift to an agile mindset
SaaS migration impacts every fibre of your organization. It’s one thing to move your solutions to the cloud, and it’s another thing entirely to poise your team for what will often mean significant changes for their day-to-day workload. From the front office to back-end accounting, prime your entire team for what will inevitably be a cultural transformation. Communication will be critical and is one of the core transformation challenges companies face. Leaders need to sit with each department and troubleshoot what this transformation will mean daily, allowing for better insights into handling the shift to a more agile mindset.
Failure to manage this change can result in high customer churn rates. These can result from many things, but one of them may be customer service which needs to be adapted to meet the demands of any SaaS migration. By keeping a close eye on performance during the shift, leadership will be able to bolster operations where it’s needed the most and enable success wherever gaps appear. Check out this guide to building a comprehensive roadmap for financial transformation.
2. Transitioning sales team and sales incentives can be tricky
One of the core challenges companies face when SaaSifying their products is moving away from large upfront payments. Often these “deals” are a large part of how compensation for the sales team is structured, with bonuses and incentivization often tied to the amounts negotiated. Before transitioning, teams need to address the new approach and what it will mean for these payment structures. There will need to be a shift to upselling and renewals, so motivating your team will require incentivizing these actions.
Companies can devalue renewals, but often they require just as much work (if not more!) than landing a new client. Leaders should resist the urge to discount such efforts and take the time to develop new ways to engage their sales department and ensure they’re motivated to hit targets. It’s also essential to work with the team closely to help them manage the upheaval. For instance, those who’ve established workflows for several years may find the change daunting and stressful. Often, it’s just a matter of preparing them adequately and making sure they understand there’s plenty of support to help them succeed.
3. Requires a recurring billing system to handle revenue recognition
Moving away from upfront sums means that those migrating to SaaS business models need to be aware of the changes to billing and will require robust recurring billing processes to handle what may be quite a large influx of new customers. Ignoring this back-end detail can result in accounts teams being swamped by end-of-month and unable to invoice customers in time. Setting up recurring billing to automate many of these processes will be central to SaaSification success.
Management also needs to be mindful of operational expenses and keep track of churn metrics to tweak their offering until they’ve maximized monthly recurring revenue. These types of considerations are our bread and butter, so here’s a list of resources we recommend diving into for a better understanding:
- Revenue recognition for subscription billing
- The pros and cons of monthly vs annual billing cycles
- What you need to know about ASC 606 for SaaS
4. Data security policies need to be watertight before go-live
One of the biggest challenges facing companies in recent times is security. With SaaS products and services, there’s often a substantial amount of data collection. Teams require a briefing on data regulations for all regions (as they can differ, for example, GDPR in Europe is quite different from privacy policies in North America) and your data protection guidelines and policies.
Critical data must be protected in every eventuality, and the safeguarding of sensitive information is paramount to any software company’s ability to grow. For instance, security is one of the core considerations scrutinized in any merger and acquisition process. Highly regulated industries such as finance or healthcare may require a considerable investment in securing your data. Failure to do so may result in crippling fines and data breaches. There’s also the requirement that you invest in robust tools to protect sensitive data, which can vary based on industry.
Further reading: 5 steps to reduce and address security risk in mergers and acquisitions
5. Trouble integrating with other software will impact long-term scalability
Most companies tend to use various SaaS providers, and they often look for solutions that integrate easily with their existing tools. It can be challenging for you to scale the use of your products and services if they don’t easily integrate. One of the easiest ways to increase accessibility is to join open data initiatives, publishing well-documented APIs that allow companies to integrate your SaaS tools.
It’s also worth considering what kinds of files your systems export. Ensure there are plenty of commonly compatible formats such as Excel, CSV, etc. Development teams working on SaaS solutions need to keep integration front and center when introducing new features. Even novel features will go ignored if not easily integrated into project flows.