Daniel Saks
It has never been easier for customers to buy software. A couple of clicks or taps, depending on your device of choice, and you can be up and running with even the most sophisticated enterprise business applications.
The result of all of those fast, easy transactions is impressive: According to Goldman Sachs, SaaS revenue is predicted to reach $106 billion in 2016, a 21 percent increase over projected 2015 spending.
So if SaaS is so easy to buy, why does it often seem so difficult to sell?
Simply put, traditional software distribution channels have failed to keep up with today’s on-demand, subscription-based delivery models. In the old world of on-premise licensed-based software, 70 percent of software sales were channel based. Today, only 23 percent of SaaS sales go through a channel. On the other side of the coin, 80 percent of on-premise software vendors operate a channel program to enable other companies to sell their products, while only 20 percent of SaaS vendors operate similar programs.
Today’s software vendors are leaning heavily on direct sales, but it’s not entirely their fault. Many vendors don’t have the technology to support a balanced distribution approach that includes indirect sales channels, such as affiliates and resellers. To make matters worse, there’s no “silver bullet” that will solve every SaaS sales and distribution challenge; not only is every software vendor unique, but these companies will have different go-to-market needs at different stages of growth. In short, there is no be-all, end-all way to monetize software.
With lots of trial and error, however, some SaaS companies have managed to crack their own unique code for selling software. Let’s look at four strategies SaaS vendors can use to sell more software, as well as companies that have used them to successfully scale and drive new revenue.
Affiliates And Referral Programs
These types of programs usually operate in one of two ways. In one, customers refer others to a product for some form of incentive. In the other, vendors establish formal relationships with affiliate partners who direct qualified leads to the vendors’ websites or products; again, in exchange for an incentive.
Looking across the SaaS industry, Dropbox offers one of today’s strongest examples of a successful referral program. The cloud storage company encourages users to invite a friend to join in exchange for 500MB of free storage. This program helped Dropbox grow from 100,000 to 4 million registered users in just 15 months, a jump that represents a staggering 1,950 percent year-over-year growth rate.
Another common referral strategy is based on the use of affiliates who share leads with an organization in exchange for a portion of revenue or a one-time payment. For example, online store platform Shopify operates one of the most successful SaaS affiliate programs, paying out $2.3 million in referral fees in 2013 and $1.1 million in 2012. Overall, affiliates accounted for roughly 23 percent of Shopify’s revenue in those years, making its program a runaway success.
Reseller Programs
Reseller programs can generate revenue at incredibly low margins, which makes them one of the most attractive channel initiatives for SaaS vendors. Moreover, when partners are doing the heavy lifting and selling products, companies can focus on what really matters: innovating and building better software.
Xero, the SaaS-based accounting solution, provides one of the best examples of a successful reseller program. By 2009, Xero had acquired 12,000 customers solely through traditional direct sales and self-service efforts. To grow faster, it launched an innovative program in which accountants would be Xero resellers. In short, accountants would bundle Xero with their own expertise and sell them as a package deal.
Xero used telemarketers to engage and educate nearly 2,000 accounting firms in the company’s home country of New Zealand. The results have been impressive: In just three years, Xero grew from 12,000 customers to 135,000, 60 percent of which were acquired through its reseller program.
Listing In Application Marketplaces
Building on their success in the consumer space, application marketplaces have become a popular way to distribute SaaS software. There are a few major types that have emerged in the SaaS sector over the past decade or so. The first are app directories, which use a marketplace-like listing as the primary driver of traffic to off-site vendors. You can look to companies like GetApp.com and Capterra for examples of this type of model.
Second are add-on stores, which are marketplaces that offer API-powered services that enable developers to build on top of a SaaS platform. Atlassian, the SaaS-based project management and messaging company, launched this type of marketplace in 2012 with 1,000 integrations to third-party services. Since then, the company has onboarded about 1,700 add-ons, and it processed more than $30 million in transaction volume in 2014 alone.
Third, we have full-service marketplaces. These stores offer the actual SaaS product instead of a “connector” to a third-party site. In other words, customers can use full-service marketplaces to buy third-party applications without having to leave the marketplace and sign up elsewhere. For example, ADP, the world’s largest cloud-based payroll company, launched a full-service marketplace earlier this year that utilizes its latest API and extends its platform through third-party plug-ins and services.
Self-Service Commerce And Your Sales Team
Last but not least, let’s circle back to where we started, direct sales. The fact remains that direct sales still power the majority of SaaS sales, simply because the model still works; if you have a product, selling it yourself directly to customers can be an incredibly effective no-brainer.
Take Zendesk, for example: Fresh off a recent IPO, the popular SaaS-based customer support company currently serves more than 50,000 customers, all of which came through either their direct sales teams or self-serve sign-ups. But, it’s important to keep in mind that even Zendesk recently implemented a reseller program. Eventually, almost every company will run up against the limits of what can be done with direct sales alone.
The bottom line is this: SaaS companies need to find the sales models that work for them, and they need to do so as quickly as possible. However, you should strive for an approach that’s more “experiment smartly” than “fail fast” — failure can be expensive, distracting and demoralizing.
Look for tools and partners that can help you monetize your software in the ways that work best for your business. There may be no silver bullets, but you can find something even better: Your own unique mix of sales strategies that work for you.
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