Softletter’s SaaS University is coming to Austin on February 28th/29th and we’ve got discounts, a scholarship program, a free ticket for a trivia content winner, and more. Several Austin-based companies are on the speaker roster, including Transverse Co-Founder and COO Chris Couch who will be presenting on a major shift in how Software as a Service companies bill their subscribers. “I invited Chris to present at SaaS U because over the last five years Softletter has been tracking a major shift in how SaaS firms bill. In 2006, when we ran the first survey, the ‘named subscriber model,’ pioneered by Salesforce.com, was the predominant model, with over 50% of SaaS companies using it,” said Rick Chapman, Softletter Publisher. He continued, “Named subscriber, in which a customer pays $X amount on a monthly or yearly/multi year basis is easy to understand and remains popular in many markets. But over the last several years we’ve seen a steady increase in the adoption of the transaction or “activity- based” model. This approach aligns billing with the subscriber’s business processes. For example, a SaaS provider may  charge based on the number of insurance policies processed, number of books managed in a library, or even number of code components used in an application (these are all real life examples).”

Click here to register for SaaS University and use coupon code AUSTINSTARTUPSAVE100 to save $100 off your registration.

“This year, for the first time in the 2011 Softletter SaaS survey, which had 202 respondents answering 160 questions on their business practices and metrics, the activity model surpassed named subscriber 29% to 25%, with concurrent billing coming in third at 16%,” said Chapman. “The reason for the growing popularity of activity-based billing is it allows a SaaS company greater flexibility in how and what it bills for; it lends itself more to cross and upsell opportunities. Often, named subscriber leaves money on the table. But if you’re going to implement activity-based billing you need to strive for transparency and not create the impression you’re nickel and diming the customer.”

“To truly cultivate activity-based relationships with customers, the initiation and cultivation of the relationship depends on two critical processes: order-to-cash and activity-to-cash”  states Transverse CEO Chris Couch, whose firm provides Tract, a SaaS system that specializes in activity-based billing.

Order-to-cash begins with the first activity in which a customer engages: placing an order or a request for a good or service. This process includes order handling, fulfillment, billing and invoicing, payment processing, and collections. Order-to-cash does not have a recurring or an activity-based element.

That’s where the activity-too-cash cycle starts. Activity to cash involves the critical processes that deepen a relationship with a customer and monetizes the many ways in which they use your product or service. Those activities can include many things, such as:

• Use of bandwidth
• Number of downloads past a defined limit
• Access to additional premium help content
• Creation of an object in a SaaS application, e.g. a new project in a program
• Output from the application such as an expense report or a time-sheet
• Scan of a bar-code or QR code
• Coupon redemption

Regardless of the ISV’s product features, to properly capture activities and transactions, there is a requirement for real-time rating, charging, analytics, and entitlements to charge for different levels of usage and activities. In essence, ISVs have a new opportunity to convert just about any customer activity into an opportunity if they understand how to combine subscriptions, promotions, coupons, discounts, bundles, add-ons, and incentives.

In doing so, SaaS providers can insulate themselves from the variability of customer’s lives and can profit from it. And, the business becomes more sustainable in the face of change. With that in mind, ISVs should not only think about appealing to the ‘greater whole,’ but perhaps to niches where people are willing to pay premiums for content, services, or goods that resonate with their lifestyles, wants and needs.

“SaaS ISVs have to accept the concept that a single market and billing approach no longer exists. What matters is how quickly you can support the launch of new pricing models. While super-segmented markets create new opportunities, the speed by which you capitalize on those opportunities matters more than anything,” observes Couch.

Trivia Question

I have a free ticket for the first person in the comments to answer the following trivia question (if you already registered, I cannot give you a refund). Here it is: Time sharing is considered the forerunner of today’s SaaS systems and some are still in use, for the most part they’ve “transformed” into SaaS offerings, though their mainframe roots remain strong. One of the most venerable time sharing systems still in use is “Sabre.” What industry does it service?

Scholarship Program

Always sensitive to the early stage startups we’re happy to announce the AustinStartup scholarship program for SaaS University. We’ll get you half off the registration if (a) your company’s revenues are under $1M per year and (b) you haven’t already registered. Just email bmenell@austinstartup.com if you’re interested.

More resources for you:

• Click to listen to a January 31^st webinar that analyzed key findings from the survey and provides more info on SaaS billing models (the session runs 80 minutes)
• Click to download the complete 83 slide deck

Find out more about SaaS University in Austin, TX