Choice is always good. But along with choice comes the burden of understanding the details of the choices involved. The same is true when looking at print management contracts with subscription or license pricing options. Here we discuss the considerations for subscription pricing from an SMB solution provider and SMB customer point of view.
First, what is subscription pricing? Subscription pricing, often referred to as Software-as-a-Service, or SaaS, pricing, is where payments are made in increments, usually monthly, for services. Similar to an apartment lease, there is often a minimum number of months of commitment but following that, commitment is on a month-to-month basis. With the SaaS pricing model, the customer is paying to use, but does not own, the software.
Contrast that with traditional licensing, where the customer purchases the software. Using the same analogy, it would be buying instead of renting your home. Both traditional licensing and subscriptions usually include upgrades and service/support agreements.
SMB solution provider: Which model is right for you?
If you are a solution provider, you know that sales cycles always take longer than you’d like. Having many customers in various parts of the sales funnel is wise and each has to be nurtured along. Traditional licensing models yield large, but more infrequent, revenue income. Subscription model pricing can bring in more frequent deals but with smaller, up front revenue. Those are obvious points. Other considerations include:
- With fewer but larger deals in the pipeline, is your business at risk should some of those deals fall through?
- With fewer but larger customers, is your business at risk should you lose some of those customers (either by going to a competitor, getting acquired or going out of business)?
- Can your sales organizations pursue deals through traditional licenses while also pursuing subscription models to balance your revenue risk? How do you manage sales compensation under licensing and subscription models?
- What does the impact of “services owed” have on your business? If your customer buys a multiyear service contract, is this counted as a liability on your business until the service term has been met?
- What are the tax implications of recurring subscription revenue versus licensing revenue for your business?
- Can your organization adequately support monthly billing accounting and collection?
So, which model is best? The answer, of course, is “it depends.” Each solution provider has to consider what is right for their business, if they can support both models or shape their business for one or the other. Work with the right print management solution provider that can provide you with the choice and answers your questions on how it works for your customers and your accounting systems.
SMB customer: Which model is right for them?
SMB customers also have to consider the choices and implications of the two solution pricing models. Some considerations that customers evaluate include:
- Minimizing risk – shorter contract commitment and paying on a monthly basis makes it less of a revenue risk.
- On the other hand, shorter contract commitment does not give them leverage for price negotiations.
- A one-time payment for purchasing is less burdensome on accounting and contracting personnel whereas subscriptions need to be verified monthly (or quarterly — whatever the agreement period is for)
- Organizations are often called upon to reduce operating expenses. Will such a reduction impact your subscription revenue forecast? Additionally, by purchasing and being considered a capital expense, the organization may have beneficial tax implications.
- Because print management solutions are often deployed in phases, monthly subscriptions ensure they only pay for the solution that is in use (if pricing is on a per-MFD basis). Similarly, if an MFD is no longer used, pricing decreases easily. Does the organization anticipate significant changes in the MFD needs?
As an SMB solutions provider, it is important to understand your customer’s business and what is important to them. Advising customers of the details behind the choices is what can turn you from a solutions provider to a trusted partner.