SaaS delivers return *before* investment

SaaS delivers return *before* investment

Summary: On-demand BI provider LucidEra has ramped up its prospect conversion rate with an innovative sales approach that delivers a return on investment before the customer has even bought the product.

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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.

Rob Reid, CEO, LucidEraLucidEra'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."

Topics: Banking, Cloud, Enterprise Software

Phil Wainewright

About Phil Wainewright

Since 1998, Phil Wainewright has been a thought leader in cloud computing as a blogger, analyst and consultant.

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16 comments
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  • But is it SAAS that delivers?

    Sounds like a great win/win -- but the benefit is in the service, and the sales-pipeline expertise, surely, rather than in the SAAS part? What's to stop a non-SAAS vendor from doing exactly the same? LucidEra might argue that they can do it more easily because their costs to access the data and do the analysis are less than other vendors -- which may or may not be true, but it's an ease of use and analysis argument, not a SAAS one.
    timoelliott1
    • Yes, it's SaaS. Here's why ...

      You've missed the key point that a SaaS application is up-and-running from day 1 and the customer pays a monthly subscription. There's no outlay on technology acquiaition and implementation, so instead of spending squillions before you can even start using the application, you pay peanuts and start getting the full benefit right away.

      Imagine how that changes vendor behavior! If a customer signs up for a SaaS application and can't get the results they expected, they just cancel the subscription a month or two later. Whereas with on-premise, the buyer has already made the full investment and has no recourse. So which class of vendor do you suppose is best incentivized to make sure customers understand how to use their products?

      That's why this a SaaS argument. Ease of use and analysis only comes into it *because* the vendor is a SaaS vendor.
      phil wainewright
      • saas or web 2.0 sales approach

        I agree to your points but your case it not illustrating your points and therefore I have to agree with timoelliot.

        You are stating that the key point of saas is easy adoption, but the case (LucidEra) that you cover is an example of the contrary - users cannot get an instant trial, but are "forced" through a conf call with sales reps from LucidEra.

        I made the effort of visiting Ludicera.com and tried to get a trial of their product - I cannot!

        While their sales approach may be efficient, I hold that it is not typical SaaS. I don't see how it can scale fast with this approach to user/customer adoption.

        From what I know about LucidEra, it takes several weeks to implement their solutions - is that typical SaaS?

        I am CEO of www.youcalc.com - a semi-competitor of LucidEra. As opposed to LucidEra, we offer instant 30-day trials with zero registration. We also offer reporting and analytics on pipeline management as described in your case.

        I would like to hear your view on this. To us, SaaS is exactly as you say, not just about a new delivery form but also about a different approach to adoption customers - a web 2.0 approach to viral spread and easy adoption.
        Rasmusaaen
        • SaaS or Web 2.0 sales approach

          Though the Pipeline Healthcheck is part of a sales process, it is fundamentally possible because it's tied to a SaaS offering. (See my other comment on how the Pipeline Healthcheck differs from a typical POC.) It sounds like your major point is around not providing free trials, which you conclude should make adoption harder.

          The opposite is true. We used to have a free self-service 30-day trial on our website, and we happily watched many competitors take a test drive. But, when we spoke to real customers, they told us time and time again that they didn't know what they didn't know when it came to analyzing their business. Giving them a free trial provided them no benefit, since they often weren't familiar with what to look for. It's like giving someone the world's best carving knife, but then having them tell you they don't know how to cook. Then we realized that because we're a SaaS offering, we can show people what can be done with analytics (and how to do it) very easily and very quickly. It doesn't take a 30-day trial to see the value -- it just takes 48 hours.

          The proof is that the Pipeline Healthcheck has reduced friction/adoption for customers. Our sales cycle was reduced by 40%. Making the decision process easier and faster for customers is definitely very SaaS-like.
          Ken Rudin
      • Alternate "return before investment"

        First, full disclosure: I work for Business Objects, now part of SAP -- but the opinions are all my own.

        I think the future of BI (and applications in general) is a seamless combination on-demand and on-premise, depending on the usage need, and that the on-demand part will grow hugely in the coming years.

        I used to use the analogy of the banking system -- having your money "online" is much easier, cheaper, and more convenient than under your mattress - BUT that doesn't mean cash is going away any time soon. (Of course, given recent events, most of us desperately wish we had indeed kept our money under the mattress -- what might that mean for the SAAS argument?)

        But I reflexively disagree every time people ascribe "magic" to SAAS. Putting things online and using subscription pricing don't in themselves work miracles. On-premise vendors like SAS have been using subscription pricing for decades. And I believe customers expect a lot of on-premise vendors, since they have to pay up-front, and if the vendor wants to do further deals in the future, they have to keep their customers content (OK, maybe not "happy").

        But this particular case was about grabbing a prospect's data, doing analysis, and giving them the results. That happens every week as part of the "proof of concepts" that companies use to choose between their finalist vendors.

        And the results are often suprising/useful to the company even before the deal is signed -- i.e. I believe that "return before investment" does indeed exist outside of SAAS...
        timoelliott1
        • SAAS is just the starting point

          I enjoy reading this thread and agree on a lot of what has been said. SaaS is just the starting point, it is a vehicle to deliver the solution, there are other factors that can complicate the "time-to-benefit" part of SaaS.

          If you chose to deliver SaaS then the next thing to consider is sales & marketing approach and the process to support it. Many vendors feel strongly about self-service due to lack of resources while others don't see any value due to the complexity of the solution. Either method SaaS will be delivered on a different scale focused on intimacy (complex ERP or BI app) or volume (CRM, Accounting). As a SaaS vendor, it is where you put your resources to turn leads into sales.

          Everyone can cook up their own recipes of success with a combination of SaaS or even hybrid model depending on customer needs. Usually the serious customers will conduct a proof of concept regardless of rBi or not, even if you deliver rBi, it does not mean you will get their business.

          Eric Tsai
          elitetuner@...
      • No, it's not SaaS

        The original guy hit the nail on the head. This is technology making a business process more efficient. There's nothing unique about SaaS helping them close deals. They could send in proserve and have it running locally in a day I'm sure.

        I talk about it here:

        http://distincthoughts.typepad.com/my_weblog/2009/01/does-the-service-in-saas-do-a-disservice-to-saas.html
        jusben1369
  • RE: SaaS delivers return *before* investment

    It is definitely SaaS that makes the <a href="http://pages.lucidera.com/complimentry_pipeline_health_check.html">LucidEra Pipeline Healthcheck</a> feasible. I've worked for the large analytics vendors, and the LucidEra Pipeline Healthcheck is very different from a traditional POC. First, traditional POC's take a lot of resources, both on the part of the vendor and the customer. You need to provision the hardware, install and configure the software, create the database schemas and OLAP cubes, etc. There is a significant investment of time and energy -- so that kills the "Return Before Investment" idea for the traditional POC. In contrast, the Pipeline Healthcheck takes 48 hours from start to finish (including the final presentation to the customer with quantified results), because the service is already up and running.

    Also, with traditional POC's, usually only a portion of the full application is developed. It's intended to give customers a taste of what they can get. But how long does it typically take on-premise BI to be rolled out after the traditional POC is complete? Months? With a SaaS solution, the service is ready for the customer to start using the moment the Healthcheck is complete.

    Saying the Pipeline Healthcheck is no different from a traditional POC because the deliverable is the same is like saying that ordering dinner at a restaurant and getting it 30 minutes later is no different than having someone build you [i]part[/i] of a new kitchen and cook you a sample dinner, and if you like it they'll finish building the kitchen for you. In both cases you get a dinner, but are the experiences at all comparable?
    Ken Rudin
  • RE: SaaS delivers return *before* investment

    I suppoe if it's a more complex product, I can see the reason for a more direct sales approach, being more successful. However where is the down side of making a 30-Day free trail available? Is it wasted time on tyre kickers?

    JEremiah Ryan
    http://www.bookmeetingroom.com
    webdesignireland
    • saas vs. clever sales methods

      Ken

      I don't doubt that your sales method is efficient and I find it truly inspiring. But I still don't think it is typical SaaS - that said there is no reason why it should not be highly efficient for SaaS vendors.

      At youcalc we have taken an entirely opposite approach to sales and customer adoption - we aim at making it as easy as possible for prospects to try and even adopt our solutions, in less than a minute, with zero sales rep interaction, and with no registration required.

      Prospects can get an instant trial of any of our solutions, not on demo data but on their own real-time salesforce.com data, simply by providing their SFDC login credentials.

      If they like what they get, they can embed the solution as a tab inside their salesforce.com account and use it for free for 30-days.

      It may not take them 30-days to find out if they like the product, but we simply don't allow them to pay anything until the 30 day trial period expires.

      It allows us to turn a lot of leads into opportunities extremely rapidly.

      The challenge is then to convert these opportunities into customers. This, I assume, is where your pipeline healthcheck shows its worth - you already know the prospects quite well and have an ongoing dialogue with them.

      We have taken a different approach to getting a high conversion ratio. We aim at making our solutions as easy to use and understand as possible. I admit that some analytics scenarios can be difficult for customers to understand, but on the other hand BI/Analytics should not for experts only, so if ordinary business users can't figure out how the product works or how they can extract insight and value from the product, then the product may be to complex for them anyway.

      Maybe I should run your Pipeline Healthcheck to see if we are extracting enough value from our pipeline :-)

      In summary, I don't disagree to much of what has been said in this thread, but I actually think that you have come of with a clever way of implementing some not very SaaS typical sales methods into a SaaS delivery platform.
      Rasmusaaen
    • Free trial isn't typical SaaS

      Actually very few SaaS vendors offer online sign-up for their applications, even though this is perceived as the norm. Although the 30-day free trial works for some vendors, it's counter-productive for many others, who find it wastes too much pre-sales resource on inappropriate prospects.

      My own view is that vendors should try and make it work if it's appropriate for their application, but there's no shame in deciding it's not for you. It certainly doesn't make your application any less SaaS.
      phil wainewright
      • it is and it is not about free trials

        Phil

        I have to challenge you again on this one.

        I agree that it?s not about making a product or strategy more or less SaaS typical ? it?s about finding the approach that works for your business.

        My point was not that free trials is typical SaaS, but rather that trial and zero or very low sales rep involvement in turning leads into customers is typical SaaS.

        You state that very few SaaS vendors offer free trials. Let?s take a look at the CRM domain, which is where your case story LucidEra operates.
        - Salesforce.com offer a free 30 day trial
        - SugarCRM offer a free 30 day trial
        - RightNow offer a free 30-day pilot
        - Highrise (from 37Signals) offer a free 30 day trial

        I believe that covers the large majority of the SaaS CRM space. I am sure you can come up with plenty of examples of SaaS vendors that do not offer free trials, but I hold that free trials are typical to SaaS.

        And why is that?

        You are making a point that SaaS vendors without trial offerings risk wasting too much pre-sales resources on inappropriate prospects. My point is that SaaS is, typically, about converting leads into customers with little or zero sales rep or pre-sales involvement. That turns your wasted opportunities into zero marginal cost ? it does not cost you anything to let them run the trial because they help themselves.

        The world?s most successful SaaS vendor Salesforce.com recently reached I believe 50,000 customers, with more than 1 M users. Imagine SFDC had had to squeeze those 50,000 customers through a 48 hour health check with heavy sales and pre-sales involvement. SFDC would most probably never have made it to 50,000 customers and I take it they would not have been profitable either due to too heavy costs of customer acquisition.

        SFDC has an average of app. 20 users per customer, i.e. their core customer is a relatively small company with a limited number of seats. That is also typical SaaS ? the core SaaS segment is SMBs. That is why most SaaS vendors need to get a lot of customers and they need to get them with very efficient/low cost sales efforts, in order to turn profitable ? hence the free trials.

        My bet is that most of SFDC?s customer base only interacted with SFDC?s website when they became customers ? we did!

        SaaS success is currently about scaling and doing this in a highly efficient way. That requires marketing driven sales (to attract many leads), and customer self-service to lower sales/pre-sales involvement and speed up sales cycles.

        An even better example I believe is Basecamp ? an on-demand project management application developed by 37Signals, with now more than 1M users world-wide. 37Signals don?t even seem to have a sales force, and the main point of contact is a user forum, where usually other users, not 37Signals, reply. That is what I call efficient and scalable sales.

        Free trials are maybe not the main element in this, self service signup certainly is, and ?forcing? prospects to get into contact with a sales rep before getting a demo or becoming a customer, as LucidEra does, is in my opinion not typical SaaS.

        Again, my point is not that what LucidEra does is not right for LucidEra. The company is obviously run by smart people and they have strong products and good market traction, so I am sure they have figured out what works for them. But in my opinion, their cleverness is actually mixing a not SaaS typical sales method with SaaS delivery.

        LucidEra may have shortened their sales cycle with 40%, but do they get as many opportunities through? How many leads is LucidEra missing out on because some people do not want to sign up for a health check? And how much more does a customer win cost LucidEra compared to a scenario where users trial and sign up themselves?

        I am sure they did their analysis at LucidEra ? after all, that?s what they do for a living. My point is simply, that replacing a trial with a ?48 hour health check? will not work for all. Maybe you get higher conversion on those that run the health check, but you may end up with fewer customer wins or higher cost of sales. Ironically it all about pipeline analysis!

        Anyway, does it make sense to discuss whether trial or pipeline checks are typical SaaS or not ? no, it doesn?t matter, but you have raised a highly relevant discussion of sales efficiency and go to market strategies in SaaS.
        Rasmusaaen
        • re: it is and it is not about free trials

          Rasmusaaen,

          Your detailed comment deserves a fuller response that discusses the whole topic of how SaaS vendors use online signup and free trials as part of a Web-based prospect filtering and sales cycle. But for the moment I'd just like to remind you that I said 'very few SaaS vendors offer online sign-up' which is different from what you've written.

          You go on to cite four companies that offer free trials. Except that one of them can't be self-provisioned online - RightNow visitors can 'Inquire about a free pilot' - while Salesforce.com limits the free trial to its professional or group editions (not the enterprise edition).

          So here are two companies that you cite, both of which in fact are limiting access to trials of their enterprise-class products precisely because the higher-level sales require a different process.

          We can both agree therefore with your final conclusion - which is, what works best depends on the product, the market and the vendor.
          phil wainewright
  • RE: SaaS delivers return *before* investment

    Cloudy Issues / Clear Answers: the benefits and challenges
    I recently had the opportunity to present on the topic of Cloud Computing from the perspective of my employer???SmarterTools, and independent developer of Web-based applications. It was at PubCon in Las Vegas and I sat on a panel with Mike Culver from Amazon Web Services. My take was to separate truth from hype.
    The feedback was overwhelming! So much so that we followed it up with an article and a copy of the presentation:
    http://www.smartertools.com/blog/archive/2008/11/20/cloud-computing-challenges-benefits-and-the-future.aspx
    As Cloud Computing gains market share and market buzz, it is important for us to remember what it really is and???perhaps more importantly???what it really isn???t.

    Be well,
    Jeffrey J. Hardy
    http://www.smartertools.com
    jhardy@...
  • Define SaaS!

    A great article and commentary, thanks. I feel the back and forth of what defines a typical SaaS company /strategy is a mute point as the industry has out grown it. SMB focussed SaaS companies will obviously have entirely different strategies to enterprise focussed SaaS companies.

    An SMB sale may reap $5k a year whereas an enterprise sale may reap $100k. An SMB focussed SaaS will likely use a partner ecosystem and /or free trials and rapid sign up strategies. An enterprise focussed SaaS warrants an entirely different approach because of the greater revenue potential. It may focus on a direct sales strategy with maybe a handful of industry focussed partners and a more hands on pilot / trial / pipeline healthcheck style strategy. And they are both SaaS companies. To me it is obvious that there has to be these completely different strategies depending on your customer focus.

    Salesforce.com do both and the fact that you can only trial the pro or group editions (SMB focussed) and not their enterprise editions illustrates my point.

    If I may, I?d like to get back to the RBI discussion. I am founder and CEO of REV-ID (www.rev-id.com), provider of an on-demand, enterprise level, carbon footprint management solution called FoundationFootprint?. We focus on heavy industry, multi nationals, governments and cities. This article was about RBI and LucidEra?s strategy sings out to me.

    As well as providing compliance for customer mandated and regulatory emissions programs we show a whole range of BI, KPIs and reports on energy, water, asset and raw material usage. One way we provide an ROI to our customers is by identifying resource usage spikes for individual assets or sites.

    For example, we identified a doubling of gas usage at a leisure center run by one of our city customers which had been missed in their monthly approval process. This started occurring two months before they moved to our system. FoundationFootprint? identified this immediately and it proved to be due to faulty maintenance work. The monthly cost of extra gas for that one site (and there are 450 sites) was greater than their monthly FoundationFootprint? fee.

    We also analyse historic electricity usage against the customers fixed tariff. We show that they?re paying for 100kWhs per month for a set of traffic lights but the site only uses an average 68kWhs. Renegotiating this with their supplier may save them $50 a month. But multiply that by 150 sets of traffic lights and 250 other fixed tariff sites and the savings soon add up.

    Yes, the inventory of a city is more complex than pulling the sales pipeline data out of SFDC, but if we can offer the same healthcheck style service for our carbon footprint customers as LucidEra do for their CRM customers then we have an incredibly powerful incentive.

    And we are now developing a scaled down SMB version of FoundationFootprint? for release in early 2009. And guess what? We?ll be offering an online 30 day free trial. But the free trial will be access to a demo company already loaded into the system for you.
    This is what Xero (www.xero.com) does, an SMB focused accounting SaaS.

    The demo company data shows off the features of the software really succinctly and comes with a well designed help system to walk you through the trial. Way more useful than having the prospect have to enter their own data to see how the software functions. One hour and two cups of coffee later, I knew everything I needed to know about Xero.

    So in REV-ID?s (and salesforce.com?s) case, one company, two entirely different strategies based on customer demographic.

    Apologies for the long post. Thanks again all for an excellent article and commentary.

    Chris
    chris.lindley@...
  • RE: SaaS delivers return *before* investment

    The rBI concept seems just a little bit cute to me. One of the benefits of SaaS (or, on-demand if you will) is that it is easy to deploy, the initial investment is small, and you see results right away, so ROI is immediate. Getting a return before you pay makes a clever sales pitch, but is it really meaningful, even in the short term?

    Also, if I'm reading this post correctly, the pipeline health check is distinct from the application; "... 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." Why? A good pipeline analytics tool does more than describe symptoms such as your pipeline is not working as well as it should (let's face it, you already know this or you wouldn't be looking for help). It shows you through sales best practices how and where to improve your process. Using an analytics tool that looks at your pipeline in a holistic manner will improve your pipeline dramatically and steadily over time.

    A health check should be an integral part of any pipeline analytics tool, but it has to be more than a gimmick to get the attention of decision makers.
    bajohnson111