Cloud computing enables users to access their services and/or software on a 'use and pay' basis. There is no ownership of the software, source code or the purchase and sale agreements that are part of the software buying process. Instead, its a service, a utility - hence the Software as a Service acronym. The big question is how do you pay for what you use?
Let's be clear - several enterprise software vendors offer per-seat licenses and/or installment payment terms for their software. These are not SAAS products (generally speaking). A true SAAS product should enable you, the user, to engage and dis-engage easily and cleanly. Use just what you need. The software service is through the 'door on your right'. Enter, enjoy, and exit. Now SAAS metrics like CAC, ARPU, MRR, churn, LTV, among others, are really the only rational way to evaluate the business value of the service.
Moving on, how are these services paid for? The simple answer is - by a credit card. A user submits a credit card, and is billed according to a fee schedule. In a 'freemium' version some basic services are free to use, and more robust functionality requires payments according to a fee schedule. From the business side, the credit card acceptance is reasonably complex: The business needs to be PCI compliant and either self-certify or be audited by specially trained auditors. Internal controls must be very strong - no one can afford hacked or compromised credit card details falling into the wrong hands. When one actually sees credit card acceptance on a large scale being practiced at various Internet businesses, it's quite scary. Slips lie unshredded in waste baskets. Copies of computerized information are so easy access at a point of entry. PCI compliance requires tightening the belt here. Thank the powers that be that credit cards protect unauthorized use for 60 days. Make sure you have a 'special credit card' to use only for Internet (read - SAAS) transactions.
For a business, credit card use is expensive - factor in the middlemen processors and excessive chargebacks - and sometimes the business can find itself with a cancelled credit card system, right in the middle of its revenue cycle. So what other alternatives are out there?
Not too many, especially those that can handle mass billing and collections. Direct billing through the USPS with a printed invoice, is so 20th century. It's expensive and collection rates are not good. Using Paypal, Amazon Payments can cut down on fraud, but certainly add a layer of expense to the offer. The telephone bill has been a home to many businesses' billing and collection process. While very smooth and systematic in certain cases, the net in hand amount can be as little as 75% of the gross invoice, and so chalk this as the most expensive system. For mass, micro-payment billing and collection this one is a joy to operate if one knows what one is doing.
I am not going to talk much about ACH billing here, but note that it is, like telephone billing, quite neat for mass recurring billing scenarios.
One pricing systems I'm hearing more about these days is the 'monthly subscription for use, else free' approach. I like it, and most casual or first time users love the no-obligation approach.
The mass invoicing systems for monthly subscription billing that lie behind this ability to bill tens of thousands of micro-payments can be an Achilles-heel for SAAS businesses. Let's hope all of them are getting it right.
Let's be clear - several enterprise software vendors offer per-seat licenses and/or installment payment terms for their software. These are not SAAS products (generally speaking). A true SAAS product should enable you, the user, to engage and dis-engage easily and cleanly. Use just what you need. The software service is through the 'door on your right'. Enter, enjoy, and exit. Now SAAS metrics like CAC, ARPU, MRR, churn, LTV, among others, are really the only rational way to evaluate the business value of the service.
Moving on, how are these services paid for? The simple answer is - by a credit card. A user submits a credit card, and is billed according to a fee schedule. In a 'freemium' version some basic services are free to use, and more robust functionality requires payments according to a fee schedule. From the business side, the credit card acceptance is reasonably complex: The business needs to be PCI compliant and either self-certify or be audited by specially trained auditors. Internal controls must be very strong - no one can afford hacked or compromised credit card details falling into the wrong hands. When one actually sees credit card acceptance on a large scale being practiced at various Internet businesses, it's quite scary. Slips lie unshredded in waste baskets. Copies of computerized information are so easy access at a point of entry. PCI compliance requires tightening the belt here. Thank the powers that be that credit cards protect unauthorized use for 60 days. Make sure you have a 'special credit card' to use only for Internet (read - SAAS) transactions.
For a business, credit card use is expensive - factor in the middlemen processors and excessive chargebacks - and sometimes the business can find itself with a cancelled credit card system, right in the middle of its revenue cycle. So what other alternatives are out there?
Not too many, especially those that can handle mass billing and collections. Direct billing through the USPS with a printed invoice, is so 20th century. It's expensive and collection rates are not good. Using Paypal, Amazon Payments can cut down on fraud, but certainly add a layer of expense to the offer. The telephone bill has been a home to many businesses' billing and collection process. While very smooth and systematic in certain cases, the net in hand amount can be as little as 75% of the gross invoice, and so chalk this as the most expensive system. For mass, micro-payment billing and collection this one is a joy to operate if one knows what one is doing.
I am not going to talk much about ACH billing here, but note that it is, like telephone billing, quite neat for mass recurring billing scenarios.
One pricing systems I'm hearing more about these days is the 'monthly subscription for use, else free' approach. I like it, and most casual or first time users love the no-obligation approach.
The mass invoicing systems for monthly subscription billing that lie behind this ability to bill tens of thousands of micro-payments can be an Achilles-heel for SAAS businesses. Let's hope all of them are getting it right.
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