The Three Eras
Anyone who has seen “Halt and Catch Fire” or lived through the 80s and 90s knows how different B2B business models — and sales — used to be.
The most successful software companies have always been the ones that adapted best to the sales models of the day. In that regard, three distinct eras of B2B software sales stand out:
- The Licensing Era: Before 2010
- The Subscription Era: The 2010s
- The Post-Subscription Era: Today
Until about a decade ago, software was sold using a license model. Think about buying Microsoft Word. You paid once and received lifetime access to that version of the software. Major updates, like the upgrade from Word 97 to Word 2000, cost extra.
Since the advent of the cloud, software has been sold on a recurring basis, with updates included (think Office 365). This is generally referred to as the subscription model. Most early subscriptions were quite simple. They consisted of static deals, in which the terms didn’t really change over time.
Now we’ve entered a new era. Today, B2B SaaS companies have moved toward a more dynamic model for pricing and selling — deals that don’t fit the simple “subscription” mold. They are dynamic deals, ones that are designed to change across one or more dimensions.
Dynamic is the New Black
Teams throughout the business want to offer dynamic deals — or to support them. Product teams want to offer usage-based pricing and bundles that appeal to customers. Sales teams want the flexibility to structure custom-tailored offers like creative upsells and cross-sells, and ramp deals that provide increasing discounts as usage grows. At the other end of the sales cycle, finance teams need to accurately bill and recognize revenue from these deals while remaining compliant. And of course software buyers want flexibility too. They only want to pay for the products and services they’ll actually use.
With all these factors in play, we aren’t surprised to find that companies that embrace dynamic deals grow their customer base and revenue faster than competitors. It makes sense. Dynamic deals reflect the overall trend toward greater market efficiency, where buyers get better deals and sellers are better able to maximize their revenue. It’s a true example of a win-win.
Today’s Systems and Their Unhealthy Compromises
The problem is, quoting, billing and revenue systems weren’t designed to support flexible deals. The concept of a static deal is practically inscribed in their DNA.
In talking to more than a hundred SaaS companies of all sizes ($1M - multi billion revenue), we haven’t seen a single example of a company that is successfully supporting dynamic deals across their quote-to-revenue process using any of the systems available in the market today.
They’ve found various ways to cope:
- Patching the holes: Some do their best with workarounds vendors have created to handle use cases they don’t natively support. The trouble with this approach is that it’s expensive (customers end up paying for it), and brittle (ever seen a good workaround?). As the vendor evolves their product, workarounds break. Or over time, the vendor creates workarounds on top of workarounds until they’ve created a ticking workaround time bomb. This is also the reason why quoting and billing systems take so long to implement and go live. They’re being hacked and patched and welded to somehow support the use cases the customer needs.
- Default to Excel-hell: Companies (especially midsize ones where this approach is barely feasible), might brute-force the problem by doing everything manually in Excel sheets. We have seen interesting examples of companies making as much as $500M in revenue running part or sometimes most of the process manually because they're let down by the solutions they have tried. This is a really expensive, error-prone and non-compliant way of handling the problem. But we empathize, because that's what we’d probably do in the absence of a decent solution.
- Accept defeat: A company might decide to just not structure dynamic deals, or do them selectively for the most strategic deals. This is by far the most expensive way to handle this problem, because you are leaving money on the table by not signing deals that maximize revenue. You don’t want to find yourself in this situation.
The problem is bad enough if just one of the systems in your quote-to-revenue process is lacking. It’s compounded when you have multiple systems built by different vendors, all lacking in some way. Sometimes, those different systems have been acquired from different companies and sold as one, but the problems persist.
The solution? That’s the subject of our next post, where we strip the quote-to-revenue process all the way down to the studs.