One issue that affects a start up SaaS company's ability to generate multi-year contracts is the customer's perception of the start up's viability.
Until a SaaS provider reaches a point where they are perceived as a long term player, many companies are wary of paying cash out for contracts with a term longer than 1 year - whether you offer it or not.
One issue I ran into running Siebel's OnDemand division was that customers wanted multi-year contracts but only wanted to pay for 1 year at a time. If the company was smaller, we had a hard time justifying trying to collect against the long term agreement if the customer elected to terminate early -- so they got the benefit of paying a lower rate for a long term agreement but didn't suffer any negative results if they cancelled before the end of the agreement. We did not have that problem with larger companies.
I like the idea of using flexible billing software (e.g. Zuora) to enable different payment terms/contracts. This needs a lot more exploration.
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