in Accounting from Kutztown University. Essential read: Don't Price Your SaaS Product Until You Understand Positioning. Lauren’s professional career started as an international economist in the Office of Computers in the US Department of Commerce, where she represented the US supercomputer industry in trade negotiations in Japan and Europe. This can…, Deferred Revenue vs. Revenue Backlog Deferred Revenue Deferred Revenue is a current liability account used in financial reporting. The saas subscription model template is available for download in Excel format by following the link below. A subscription revenue model helps you capitalize on the compounding value of customer relationships. in political economy from Columbia University. Prior to joining OPEXEngine, Eleanor was part of management team of fast-growing digital start-up L2 Inc., which benchmarks the digital performance of brands for marketers. Prior to Fiberlink Greg held financial leadership positions at CIGNA and State Farm Insurance. Lauren’s entrepreneurial career started in elementary school when she created tie dyed wastebaskets and enlisted her friends to help her sell them by calling numbers in the phone book with similar phone prefixes – an early, manual version of direct marketing. Normalization refers to the process of making disparate contracts similar in some way so they can be measured in context to each other or to other performance metrics. Normalization is typically performed by assigning either MRR or ARR to a contract element. Bookings, billings, and recognized revenues are calculated differently for SaaS than for non-recurring business models. In 5 minutes I can put together a great financial data report to present to our Board.”, “We use the benchmarks to get the whole executive team on the same page in terms of the budget and targets.”. SaaS affects revenue recognition inasmuch as the revenue is recognized ratably over the course of the subscription term, instead of being recognized all up front. First, it probably makes sense to spend a couple lines on the difference between subscription and SaaS. Typically, SaaS clients pay a subscription-based fee to continue using the services. In his various leadership roles, he has driven financial operational and business strategy, scaled organizational infrastructure, raised outside capital and arranged financing, implemented financial reporting, customer care and KPI driven process improvement, accelerated product innovation, and expanded operations into global markets. All rights reserved. We sometimes hear companies call themselves “SaaS” companies, because they sell subscriptions, but they do not host software. This generally allows you to get more from larger customers while still being able to provide value to smaller customers. In on-premises software, the vendor does not have the cost of hosting the software, but has to ship out the software to the customer somehow, so the distribution costs are different. In a SaaS model, the customer “rents” the use of a software product – the customer has the right to use the software but does not own it. The product is hosted by the vendor or a 3rdparty (like AWS). Let’s look at the different factors that affect each pricing model so you can determine the right pricing strategy for your SaaS company. Like deferred revenue, Unbilled AR (accrued revenue) is an essential element and concept of revenue recognition for subscription businesses. Rather than selling one subscriber one subscription, a company can sell subscriptions in larger increments for a … This throws off traditional expense ratios and typically makes the ratio appear higher than in on-premises software. As SVP of Research and Strategy at The Online Publishers Association (now Digital Content Next) and as the President and Founder of Powers Media and Entertainment Consulting, she specialized in benchmarking and corporate development for digital publishers. In addition, it affects cash flow. This affects cash metrics, revenue recognition and expense ratios at differently at different stages. Software as a service (SaaS) is a delivery and licensing model in which software is accessed on the web via a subscription rather than installed on local computers. Moving to a subscription model is often the first stage for traditional software companies transitioning to a SaaS model. In the Term subscription model, the business or consumer executes an electronic or a paper contract agreeing to a subscription for a period of time. On-boarding is the process of taking on a new client. It has a straightforward revenue formula and customers like the predictability of a one-time charge. SaaS vendors provide users with software and applications via a subscription model. Monthly subscription models may include fixed or variable fees, or a combination. A SaaS customer can relatively easily end a subscription and move to another vendor without having to go through a long decision-making and installation process. The bookings associated with this…, On-Boarding Definition for SaaS < Back to SaaSpedia Index What is on-boarding in a SaaS business? Deferred Revenue appears on the balance sheet and is calculated as follows: The sum of (the total of Invoices for all Contract Elements for a single Contract minus the total of Recognizable Revenue for all Contract Elements…. Notes and major health warnings Users use the saas turnover model … Companies that provide software as a service – SaaS companies – often sell their services using a subscription model. Some of the advantages of usage tiers are: Locking Features. Subscribers pay to essentially lease software that is hosted in the cloud. Essential Finance Concepts for Subscription Businesses You are an entrepreneur. It is important to understand the differences in each model and make sure you are comparing your company to peers when benchmarking your own performance and operating model. What are the different types of SaaS or subscription business models? This is a cloud-computing category that assumes leasing access to a ready-made software solution through the internet. There are two core Subscription Models applied in SaaS Subscription businesses – monthly and term. Data is secure in the cloud; equipment failure does not result in loss of data. What is the software-as-a-service (SaaS) model? On-premises software models typically require the vendor to support integrations with other installed systems and to upgrade products. Term licenses are similar, inasmuch as the customer pays for installed software for some period, typically one, two or three years. Subscription-based solutions are very popular SaaS offerings. After 25 years in fast growth high tech companies, she founded OPEXEngine to solve the problem that high tech companies lack good quality benchmarks from a neutral provider — especially operational benchmarks  — to reduce risk and improve efficiency and growth. In fact, many traditional enterprise software providers have been forced to make the shift to SaaS. What is a normalized contract or subscription? Why join our email list? See 10 Examples. In the subscription-based pricing model, customers pay on a regular basis for continued use of a service or product. These terms affect revenue recognition. We are putting together a quick cheat sheet of differences in SaaS, subscription and on-premises software metrics. Greg holds a B.A. In SaaS, where these kinds of development are necessary, they typically fall into COGs, although if the SaaS vendor positions it as “new” development for a new version, then it would fall into R&D expense. 1 Minute of Executive Summary, 1 Minute of Process, and 5 Minutes of Screens. He joined OPEXEngine for the opportunity to work with leading SaaS companies and to leverage his skills in helping to build out the OPEXEngine benchmarking product offering. Use of resources can be scaled depending on service needs. Rick received his B.A. If included for other than for cancellation due to non-performance or uncured material default, cancellation provisions in a term agreement typically include pre-defined recovery charges or penalties. Prior leadership positions involving digital business development and start-ups include being SVP, Corporate Development at United Media (Scripps Howard), and VP, Information Services at Fairchild Publications (CapCities/ABC – Disney). Before ATG, Lauren managed part of Borland Software’s European business from Paris, France; and helped build Compaq’s East European business from Munich, Germany. Moving to a subscription model is often the first stage for traditional software companies transitioning to a SaaS model. Zero-based budgeting makes a comeback, but it’s different this time, 8 Finance Mistakes Growing SaaS Businesses Make and How to Fix Them, Defining Your KPIs – The Importance Of A Yearly Review Right Now And How It Benefits Your 2021 Planning, How To Approach Financial Forecasting In Times Of Uncertainty, How to Strategically Score Customer Health to Drive Startup Growth. Richard is currently Chief Economist at Clayton Economics after 40 years at the U.S. Bureau of Labor Statistics where he was Chief of the Division of Administrative Statistics and Labor Turnover, producing the Quarterly Census of Employment and Wages (QCEW), Job Openings and Labor Turnover (JOLTS), and Business Employment Dynamics (BED). At OPEXEngine, we pull apart the different nuances of each business model to make sure we are benchmarking companies correctly. That’s what makes SaaS such a powerhouse in the world of digital assets. All you need to do is sign up and you can get started immediately. All rights reserved. On-premises companies often are more likely to use a partner channel to distribute, install and support their sales. © 2020 OPEXEngine. While there is typically…, What is new bookings in a SaaS business? SaaS delivers cost savings and improved efficiency as businesses can consume computing resources based on need and usage. Many SaaS startups launch with a fixed charge pay-per-use model, because of its simplicity. Get important insights delivered straight to your inbox and receive access to reports before public release. Sherri is President, Columbia College Women and Board Member of Columbia College Alumni Association. Your email address will not be published. The idea of SaaS appeared in the late 1990s. On-premises sales cycles are typically longer as they sell both the IT department and the business user. Ben. It usually also changes sales and marketing organizations and execution. FLAT RATE PRICING. It is sometimes referred to as "on-demand software", and was formerly referred to as "software plus services" by Microsoft. Your email address will not be published. We promise not to spam you or sell your name to anyone. There is now widespread adoption of software-as-a-service (SaaS). Can you increase it without upsetting people? In addition, we help companies understand these different models, so they can compare themselves to the right peer cohort in our database. This leads to shorter sales cycles and faster revenue growth for SaaS companies. The Per Feature pricing model has different pricing tiers according to the … Flat Rate Pricing. Describe all these elements through simple input form and dropdown menus. While there is typically an electronic license agreement, there is no term or the term is simply a month. Rich is a successful SaaS technology executive with a unique background including roles as COO, CFO and General Counsel in a variety of B2B and B2C organizations. Users do not have to manage, install or upgrade software; SaaS providers manage this. Term licenses are similar, inasmuch as the customer pays for installed software for some period, typically one, two or three years. Number one, it’s ready-to-go and easy to implement. There are two core Subscription Models applied in SaaS Subscription businesses – monthly and term. Good SaaS vendors better support and engage the customer than on-premises vendors who’s engagement with the customer falls off after installation. While unusual, some monthly subscription businesses do offer quarterly and annual payments. Maybe by superior innovation, by pure muscle & force, or…, Cash Flow Projections & Forecasting in Subscription Businesses How do you forecast cash flow in a subscription or SaaS business? Subscription payments are smaller and cash flow is reduced initially, but once a base of recurring revenues is established, can generate a great deal of cash flow. Per Feature Pricing Model. Is your subscription pricing too low? SaaS companies normally use a subscription model where customers pay for the service over a set period and as a result, receive a particular service for as long as they're paying the fee. Both subscription and term (and SaaS) payment contracts may or may not include a right to cancellation and refund of fees already paid. Typically this includes: Establishing a contract or legal arrangement between you and your client Establishing accounting, billing and financial records Providing client directions, including login information and steps forward…, What is Unbilled AR and how do you calculate it? However, many SaaS companies charge for a “premium” version, which in effect, is charging extra for additional services but those services are part of the product pricing. James oversees Accounting, Planning, Treasury, Human Resources, and Information Technology functions at Maxwell Health. The payment method, frequency, and payment terms in themselves do not change the nature of the customer and vendor obligations if the model is a true monthly subscription. Monthly Subscription Model In the Monthly subscription model, the business or consumer is charged and pays each month, frequently via credit card of automatic e-payments. Moreover, SaaS delivery model provides users with the flexibility and option to try the software or discontinue usage if it fails to meet the required software needs. SaaS is a method of delivering hosted software applications to customers in a cloud based computing environment. You can always unsubscribe from our content at any time. This means that customer relationships may span several years. In the Monthly subscription model, the business or consumer is charged and pays each month, frequently via credit card of automatic e-payments. Lauren is also a big believer that data and benchmarks level the playing field in decision-making, reducing all sorts of biases that can cloud management decision-making, affecting efficient growth. Hi Greg, Yes, but you would need to modify the the revenue models a bit to accommodate usage-based revenue projections. Software-as-a-Service (SaaS) encompasses both product, product delivery and financial/contractual aspects of the vendor/customer relationship. While SaaS vendors are growing the use of channel sales as well, channel still is typically a smaller percentage of overall revenues. After sales support and engagement with customers is often a poor step child of the sales or services organization in traditional software companies. in Business Administration and a Master of Arts in Economics, both from Ohio University. Get B2B SaaS subscription managementwith SaaSOptics and scale financial operations. SaaS, or software as a service, is a delivery model in which a centrally hosted software is licensed to customers via a subscription plan. This SaaS pricing model allows you to have multiple price points. Greg is responsible for overseeing Pepperjam’s finance and accounting operations. These investments by the vendor may fall into COGs (and affect gross margin) or into R&D or be allocated between the two. Prior to joining Pepperjam in 2017 Greg served as IBM’s Security SaaS CFO and additionally was responsible for rebuilding IBM’s global SaaS financial management and planning processes. Unlike the traditional on-premise applications that require a hefty investment in infrastructure, cloud-computing services are accessed online. SaaS is a licensing and distribution model that delivers software via the Internet. from New England Law Boston. Should you have a free plan? Software companies have transitioned from their old business model … A former McKinsey consultant, Eleanor has an MBA from The Stanford Graduate School of Business and graduated summa cum laude from Harvard Radcliffe College. Flat rate pricing is probably the simplest way to sell a SaaS solution: you offer … Most SaaS companies do not charge additionally for maintenance or support, although some companies have an additional charge for higher level support with faster response times, etc. Eleanor is an accomplished digital media executive with proven experience in corporate development, new businesses and product development, with a special expertise in businesses driven by membership and client renewal. With SaaS, companies need not manage applications or invest in hardware to run their applications. Sherri is a seasoned finance and operations professional with deep experience in the operations and financial structures of emerging growth companies. Read our Privacy Policy. With Term subscription agreements, payment terms are flexible, including monthly, quarterly, annually, or an agreed-to schedule or invoicing and payment terms. Tiered Pricing Model: Tiered pricing model is based on the tiered pricing strategy when it comes to … Eleanor has served on the board of Rainbow Broadband, a start-up internet broadband access company for B and C class buildings in NYC, and Endurance Business Media, a real estate franchise publishing company. The debate about whether the software industry will move from a traditional license and maintenance model to a subscription-based model is long over. Readers also enj… To generate a cash flow forecast in a subscription business such as SaaS, you project three different sources of cash in: Cash from invoices from existing customer subscriptions Cash from invoices from future renewed subscriptions…. For half a year after joining L2 in 2013 she was Acting CFO, managing all aspects of Finance including a successful fund raise of $16.5M from General Catalyst. On the other hand, the longer sales cycle and installation and integration can work in the vendor’s favor and make it difficult for the customer to change. For example, ABC, Inc. has been a client since 2005, but a new division signed a new term agreement. You know enough about a problem to believe you can build a successful company by solving that problem for the marketplace. After leaving the capital markets, Sherri became a Managing Director at Internet Capital Group (ICG), an Internet venture capital organization with 80 business-to-business e-commerce companies in its portfolio. SaaS/recurring revenue modeling Define the subscription term, prepayment term, and churn assumption for each of your SaaS/subscription products. Modalities: While SaaS/subscriptions are most commonly thought of as single sales to individual subscribers, the SaaS/subscription model also works with bulk sales. Software-as-a-service offers several key advantages for businesses. His industry expertise includes technology, media, financial services, and consulting. That means that as long as your customers continually see the value your company provides for them, they'll continue to pay you for it. SaaS affects the vendor’s financials primarily in that the vendor is carrying the cost of the hosting and updates of the product (COGs), and the vendor has to invest in customer success and other programs to ensure retention (can affect COGs, Sales, and Marketing. The SaaS/subscription revenue model usually works best when a company is servicing ongoing and continuous customer needs. Lauren Kelley is the founder of OPEXEngine. Software as a service (SaaS) is a type of software that is only licensed by subscription and only deployed in the cloud. Traditional software companies typically invest most of their sales resource on finding and closing new customers. Plus, the massive amount of capital that has been invested in the SaaS sector by venture and PE firms over the past 20 years means there can be tremendous competition among SaaS vendors. SaaS companies are typically able to track customer usage and engagement closely, because they are hosting the customer and can monitor customer activity. When there is not a perfect peer cohort for a particular company’s model, we help them interpret the data to understand the differences. You are passionate, motivated, and confident. Rich resides in Boston and holds Master’s Degree in Finance from McCallum Graduate School of Business at Bentley University and a J.D. Flat rate pricing is probably the simplest way to sell a SaaS solution: you offer a … SaaS sales are typically departmental, since SaaS customers do not have to go through a centralized IT organization to buy and install the application, but just use a browser to access a cloud-based product. Unbilled AR is an Asset account on the balance sheet that represents amounts recognized as revenue for which invoices have not yet been sent. New Bookings typically refers to the portion of bookings attributed to new customers, or more specifically new contracts with new or existing customers. Ben says: Reply. Subscription models typically include maintenance and updates like in SaaS and term licenses do not. What are the different types of SaaS or subscription business models. by Lauren Kelley | Sep 13, 2018 | Benchmarking Best Practices, Lauren Kelley on SaaS, SaaS & Software Best Practices | 0 comments. Recurring revenue models lead to higher revenues and stronger customer relationships. Again, how the customer pays and the frequency do not in themselves define the nature of the subscription.Freemium is often described as a model. This is a real benefit of using OPEXEngine's benchmarking platform.”, “As a fast growth, mid-sized, public software company, OPEXEngine’s benchmarking is a critical information source for operational metrics you can’t get anywhere else.”, “OPEXEngine’s EdgarEngine with EDGAR Online’s robust XBRL financial data ratchets up the quality of tools companies can use to maintain a competitive edge.”, “OPEXEngine's On-Demand Dashboards service takes all the headache away. Before Evariant, James held Finance roles at American Tower, Kaz, and Decision Resources Group. Typically, the customer can cancel at any time without penalty or fee. Some well-known SaaS products include Microsoft Office 365, Amazon Web Services (AWS), Slack, Jira, Stripe, and (of course) Vertabelo! When compared to an all-access flat subscription model, tiered pricing can be a great addition to help your company’s pricing. James also holds the Chartered Financial Analyst designation from the CFA institute. She joined OPEXEngine to be a part of a rapidly growing high tech Company that has an impact on how financial professionals make day to day operating decisions. This means the strategies for setting subscription prices are very different than pricing traditional products—ongoing customer payments and complex product packages mean SaaS companies need to put more thought into their pricing. Does the saaS model support a both a “subscription” revenue stream and a “consumption” revenue stream that is based on a model that aligns 1 – subscriber to many individuals that will have variable usage ? Lauren has a BA from Tufts University and M.I.A. A number of SaaS vendors appeared; hundreds and thousands of … Please click here to get your free copy of our ‘Cheat Sheet’. The saas revenue model forecast produced by this template can be used as the starting point for our Financial Projections Template, as part of a saas sales model business plan. Subscription models typically mean that the customer installs the product as in on-premises software sales, but pays the vendor in increments instead of all up front. There are two core Subscription Models applied in SaaS Subscription businesses – monthly and term. It is often challenging to convince new customers to commit to long-term contracts, especially in the case of companies offering novel products or services. He is excited to have a hand in helping evolve Maxwell Health’s positive, mission-driven culture. You hear the terms SaaS, subscription, term licenses and perpetual license software tossed around frequently. At first, it was simply a concept without real applications. The concept is simple: Customers pay a set amount each week, month or year, and receive an agreed-upon service in return. The subscription agreement may or may not include provisions for cancellation during the term. However, in recent years, the situation changed. “The Benchmark Engine™ is a powerful ally for us to help analyze and shape the organization as we scale.”, “OPEXEngine delivers key SaaS and other operating benchmarks that aren’t easily available anywhere else.”, “OPEXEngine provides us with the data and benchmarks to fine tune and improve our operations.”, “OPEXEngine’s benchmarking report is a key element of our planning process and helps us set the right targets for 2-3 years out.”, “The great thing about OPEXEngine data is there are several peer groups to look at … private vs public, companies with similar revenue and headcount.”, “OPEXEngine’s benchmarking is the only tool that enables us to perform quality comparisons with similar types of companies.”, “OPEXEngine benchmarks the key business metrics we can’t find this kind of information for private companies anywhere else.”, “OPEXEngine, one of our strategic planning tools, provides us with key benchmark data that we struggled to find elsewhere.”, “OPEXEngine’s comprehensive benchmarks enable us to evolve our strategy and make operational changes that drive growth in profitability.”, “OPEXEngine helped us align our internal data to produce consistent metrics and benchmark comparisons. Sherri began her career on Wall Street with Salomon Brothers and then became an equity research analyst with Adams, Harkness & Hill, a Boston based investment bank where she covered information technology services companies. The terms aren’t universally understood, nor are the implications of each on the financial model of a company, so the following is an effort to provide an overview. Partner and ISV channels may be better supported than end user customers. These three programs provide critical data on the US economy and are highly valued by the business community, the FED, and innumerable other users. The SaaS business model relies on recurring subscriptions for its income. Sherri has spent the last 15 years working with start-ups in the information services and consumer goods markets in a variety of financial and operational roles. SaaS sales and marketing organizations must invest both on attracting new customers as well as on existing customers. Maybe better, faster or cheaper than someone else. SaaS stands for Software as a Service. The vendor does not incur the cost of hosting or integrations with other applications. Required fields are marked *. Saas Revenue Spreadsheet v 1.0 Download Link. Below are some of the best proven examples of SaaS pricing models that worked for other companies. James received his Master of Science degree in Finance from Brandeis University, and a Bachelor of Science degree from Boston College. Freemium as actually a sales and marketing strategy that can be employed in either the monthly or term subscription models. Software-as-a-Service applications are typically are typically hosted and managed by a third-party provider on a subscription basis. He leverages his operational, finance, legal and business expertise to transform business outcomes and build shareholder value for start-up and growth companies, including as CFO at OLB Inc., FISC Solutions (acquired by WAUSAU Financial Systems), and Relevant Equity Systems (a Thomson Financial portfolio company). Save my name, email, and website in this browser for the next time I comment. May 28, 2019 at 8:52 am. Software as a service (also known as subscribeware or rentware) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. Under a monthly subscription model, an annual prepayment would typically be refunded if the customer cancels prior to the end of the period for which he prepaid. Any company that leases its software through a central, cloud-based system can be said to be a SaaS company. Sherri has a BA in Economics from Columbia University and an MS in Finance from MIT Sloan School of Management. The QCEW is the most valuable federal administrative dataset (as determined by COPAFS) for its details, accuracy and frequency and also its many uses by both states and federal users; and BED provides insight into the underlying movements behind the net job change data. There is no rigid definition of Subscription versus Term Licenses, though, so we’ve seen companies use the terms interchangeably. |   © 2020 OPEXEngine. Prior to OPEXEngine, Lauren led WW revenue and operations for internet and ecommerce pioneer, ATG, as SVP of WW Sales and Strategic Development, from start-up through ATG’s IPO (with one of the highest market valuations in the industry).