Is the SaaS Model Better in a Slow Economy?

Many clients ask whether switching to a Software-as-a-Service or SaaS model might benefit a software company in the current slower economic climate. Of course, since lower initial customer startup cost is one of the main benefits of SaaS, that will make it easier on a customer's budget (and therefore perhaps less likely to get cut in budget shrinking times).

Some experts do believe it makes sense if you're seeing negative sales impact from a slower economic environment on your software licenses (and thus you have less of the revenue cannibalization impact that can occur when switching to SaaS).

Others believe you should try to aim for some type of subscription pricing model with low initial cost to the customer, but make it difficult to throttle (ie, pricing by usage or volume, rather than by user which can be easily throttled back by the customer).

But is a slower economic climate a good reason in and of itself to make the switch to a subscription-based or SaaS business model?

Probably not. Although it should certainly drive all software vendors to re-scrutinize their business and pricing model.

Any change in business model or pricing strategy has to be made carefully with a longterm market strategy in mind. Not on impulse... Changing mid-stream is likely going to either confuse or upset your customers (unless the net cost to them goes down...). In any economy (good or bad), it’s critical for a software vendor to get pricing right before moving forward to software marketing, selling, etc.

Regardless of the current economic climate, a vendor that has a usage model that is amenable to a SaaS model (or subscription) is going to have a lower hurdle to initial customer adoption. Yes, that can especially help in the current financial situation but only if it makes sense for your software and customer usage model. Then one of the other benefits of SaaS is that you can include add-on services or features, and/or charge by usage, to make each bite small and budget-friendly to your customers without allowing them to force the users to throttle back too easily.

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