forced contracts

SaaS used to stand up for something much bigger than just software delivered over the internet.

At its inception, SaaS was the anti-thesis of big, stodgy software companies: IBM, Microsoft, Oracle, SAP. Where big software companies had hefty prices, SaaS was affordable. Where big companies had convoluted pricing licenses (Microsoft’s Licensing, anyone?), SaaS promised straightforward per-user pricing. Where big software companies required upfront long-term contracts leading to “shelfware,” SaaS promised paying for only what you truly needed.

As both a SaaS customer and a SaaS vendor, I want to talk about three tactics where I see the industry veering off course.

Obscure Pricing
I frequently get sales pitches from other SaaS companies around A/B testing, marketing automation, SEO software, analytics, pricing and competitive intelligence. When it matches one of our priorities (and the pitch is good enough), I head over to their site to check them out. I want to learn a bit more and see if the company is credible before I even engage in a sales call.

There’s info about the product, the team, their latest round of funding, and… many times, no info on pricing. I know from our experience that the pricing page is consistently among the top 5 visited pages. Why do SaaS companies choose to hide this information?

This trend bothers me. There are a few different reasons why vendors don’t make their prices public. I’ll dive into those in a later post. But none of them gives me confidence as a prospective buyer. I get selling into Enterprise vs. SMB. I get it. As a marketer, I’ve done both. There was a thread on Quora about this very same topic with opinions both ways. I hear the case for companies targeting bigger customers, but I’m still very distrustful of companies with no transparent pricing.

And it’s not just about getting the absolute lowest price. Sometimes I want to make sure the company is ready to do business with us. Pricing sends a signal – both ways. And that’s the key. It’s a signal to prospective buyers.

You know who else has less-than-transparent pricing? Airlines. You get this price if you buy on a Tuesday morning, stay a Saturday, and book using incognito mode. Are you a big fan of airlines?

Speaking of airlines, I can’t think of a more “enterprise sales” scenario than selling jets years out into the future to airlines. And yet, Boeing publishes some price list/guidance.

Over-Reliance in Sales to Sell
I’ve been cold-called by a number of companies that do not allow customers to try out the software without talking to sales first. Freemium is not for everyone – and that is perfectly fine. But I don’t see a reason customers shouldn’t be able to try the software easily if they so choose, without having to sit through a sales call first and “explain my needs.”

Some customers need some guidance, and some other customers know what they want. Most of the times, I am in the first category. When it’s something I don’t understand well enough quite yet, I’ll let you walk me through it.

Yesterday, software was installed – allowing people to try the software was cumbersome (and could lead to potential piracy). Today the software is already online. To prevent possible customers from trying it out speaks volumes about your confidence in your product.

Of course, we all want to sell more. That’s exactly why companies need to enable different ways to acquire customers. At Zoho, we are growing healthily, and a sizable chunk of our business comes from customers who visit our site, try our products, (CRM for example), like it, and subscribe online – and then stay with us for a long-time.

Forced Contracts

You know what scares me as a customer? Contracts. If you require me to sign a one-year contract for your service, that sends a very high signal to me that you don’t trust your product enough, you don’t trust your service enough, and that you think the only thing that will keep me using –and paying for– your service will be a piece of paper that says I have to.

Don’t get me wrong – at Zoho we love annual contracts. And we offer them to our customers – even multi-year contracts when needed. But we know from experience that our customers value the flexibility of not having to sign a contract. That also means that we have to earn our customers’ trust every month. And that keeps us honest.

Financially speaking, while we would like to “lock in” customers, our customers already stay with us for far far more than a year, so contracts would make our finance team feel better, but not sure it’d impact our top-line (or bottom-line) that much.

Contracts certainly have their raison d’être. Some customers require them for budgeting, planning or other purposes. As a SaaS vendor, we offer them as an option (along with some financial incentive) – but we don’t have them as the one and only option.

As a SaaS customer, I expect them as an option. I’m happy to pay a small premium for having a monthly contract vs. an annual one – but then again, that’s a decision that’s better left to customers.

Does this mean you, as a SaaS customer have no choice? You do have a choice.
First, you have a choice only to do business with software companies that are transparent and that get high marks on the points above.

Second, you might be surprised – just ask. In the past, I’ve been able to negotiate some of these points with our vendors. I had one high-end enterprise software company tell me that they “never did monthly contracts.” So I said I wasn’t interested.

They came around… And it was worth it, because I ended-up canceling before the year was up.

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  1. Chad Cleveland

    Great points!
    Contracts as an option, and clear pricing is easy.
    Free-trials present an engagement problem; people are less likely to devote adequate time to the learning curve if something’s free, but a free-trial a great way to show confidence.

    Do you have advice or ideas for converting interested prospects into engaged customers using a free-trial?

    Cheers

  2. Patricia Jones

    Your ideas are simply bang on, especially the affinity to force the potential buyers towards a paid package. From my own experience, I have seen CRM software companies underplaying the option of Free Trial. But then the question is why?
    It’s high time that companies understand that who they are dealing today are New-Age highly informed customers. The whole idea of underplaying the Free Trial option gets quickly evident to them – which is a negative sign for the company. Not only does it puts the company in a bad light – but also mars the chances of any future collaboration.
    After all, which customers would choose products of a company that is only interested in rolling in the cash registers?

  3. Shivanand Biradar

    Hi
    I have been to quite a few SaaS cloud market place, I havent seen contracts quite a lot, however I have seen quite a lot of translucency on Pricing.

    Your ideas are wonderful. I am sure it will help a lot of developers who are starting their own apps, and SaaS products.

    Keep bringing these insights to the developer community, it will help them speed up monetizing their Great products.

    Thanks
    Shiva