Since we kicked off this blog early last year, one of our major themes has been the importance of a recurring revenue model. Heck, at this point, I’ve covered the topic from all sorts of angles. Today I was presented some information at the RSPA INSPIRE conference that made me realize that I missed one of the most obvious angles: simple math.
In this morning’s session, speaker/consultant Tom Bouwer shared a couple of spreadsheets that clearly illustrated the long-term benefits of a SaaS model. Below are some shots I took from my seat to share with you.
Here’s what you’re looking at. Both charts depict a $10,000 sale. The cost of goods is $6,000. In the top example, after you pay out the commission and take out some other costs, the sale nets you $2,560 immediately. In the next two years, you’ll get some additional revenue from maintenance. After it’s all said and done, after three years, that $10,000 sale yielded $3,480.
In the bottom example, which is an -as-a-service model, that same $10,000 deal is on a $425/year plan. All the other costs still exist. The net result at the end of year one is a loss of $3,308. Hang in here with me. Look what happens in year two. You make a large portion of that money back due to that recurring $425. By the time year three ends, rather than netting $3,480, you’d make $5,688 on the SaaS model.
Bouwer shared another set of charts which illustrated the difference in revenue over three years using many customers. I won’t share the images here with you, but I will share the punchline of his example of a fictitious business: Starting with 12 new customers in year 1 and ending with 72 total customers in year 3, the SaaS model brings in about $410,000, while the traditional model yields a paltry $251,000. Same hardware, software, and services, just bundled and sold differently.
I’m sure you have lots of questions. Unfortunately, in the short-term I can’t answer them because I’m here at the event soaking up all this great info. I can’t be any stronger in my suggestion that you make the investment to come to events like this to learn firsthand what it takes to be a market leader. In the long-term, I’ve spoken with the RSPA and I think you can expect to see some co-branded education coming in the future on this topic. I’ll keep you posted.
For now, this data should make one thing clear: if you’re not offering your solutions as-a-service, you’re missing a BIG opportunity.