December 19th, 2008
SaaS delivers return *before* investment
For customers, there’s a welcome quid-pro-quo for all the hefty upfront investment SaaS providers have to make before earning any revenue. It’s an effect that I long ago termed ‘return before investment’ (rBi):
“With on-demand applications, customers don’t start paying until they begin using the application, and they typically pay on a per-user, per-month basis. So it’s quite easy to imagine deploying a procurement application, for example, which achieves enough savings per user in the first month to more than repay the monthly fee. If the fee is billed on net 30 day terms, then the customer achieves the return before the investment has even been made. That’s the essence of rBi.”
I recently discovered that on-demand BI provider LucidEra is putting this principle to work in an innovative sales approach that co-founder Ken Rudin and CEO Rob Reid (pictured below) tell me has helped ramp the company’s prospect conversion rate.
LucidEra’s application analyzes sales pipeline data and is a popular complement to Salesforce.com (as well as other CRM apps). But unlike others in the Salesforce.com ecosystem, LucidEra doesn’t offer a 30-day trial of its software. It’s figured out that letting people try it out before they recognise what it can do is counter-productive. Most sales managers just use BI to see who in the team is missing quota, whereas a more detailed analysis can tell you why they’re missing it. “Trials can’t be effective,” explained Reid (who used to head up Siebel CRM On Demand, and prior to that CRM SaaS pioneer UpShot), “because it’s something new and people don’t understand how to make best use of it.”
Instead, when LucidEra arranges a sales call, it asks the prospect to provide data from its sales pipeline for the provider to analyze 48 hours ahead of the meeting. It then performs what it calls a ‘pipeline health check,’ which looks at 25 different metrics to assess how the prospect could improve its sales performance. There’s no charge. The only stipulation is that the prospect’s VP of sales has to be present when LucidEra makes its presentation.
The LucidEra team churn through the numbers to find some anomaly — for example, are there potentially dead deals sitting in the pipeline that are way past the average time to close? … Which deals work best against which competitor? … Are you spending too long chasing small deals at the expense of bigger ones you could close as quickly? The aim is not only to find something, but also quantify it, for example ‘you’ve got a $100k problem’ or ‘you’re missing a $1m opportunity’.
If the customer likes what they see, that’s when LucidEra closes the deal. The really good thing about this approach is that it focuses the discussion on the business results, not the technology. Most customers never log into the system before signing the contract. Introducing this sales process shortened LucidEra’s sales cycle by 40 percent and increased the average selling price by a third, Rudin and Reid told me. In addition, many customers not only sign up for the application, they also request a quarterly repeat of the ‘pipeline health check’ — this time for a lucrative fee.
For many of them, it’s the first time they’ve really had a payback for their original purchase of sales automation software, said Rudin: “The combination of the two is how people can get the return on investment they were expecting when they bought CRM.”
Phil Wainewright is a commentator and strategist on emerging software industry trends. See his full profile and disclosure of his industry affiliations.
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| 12/22/08
