Can you remember the last time you visited a hotel website and found you had to telephone or fax in your reservation? Doesn’t happen very often does it?
The current generation of consumers is accustomed to trying and buying online — without the need for any offline interactions. However, most software companies still require buyers to go through a sales representative to complete a purchase.
Cloud computing technology enables software companies to provide a frictionless sales experience for their customers. This smooth selling process can provide vendors with greater opportunities for growth while increasing customer satisfaction at the same time.
The Evolution of Software Buyer Behavior
There’s little doubt that business computing is moving to the cloud. There are many factors driving the move — including the increasing availability of Software-as-a-Service (SaaS) applications and on-demand infrastructure.
Underlying the drive towards cloud computing is a new generation of technology buyers. We call this group Generation SaaS. This increasingly influential group of IT buyers has “grown up” on the Internet. Technology pervades their lives and the ways they communicate, collaborate, socialize, and buy products as well.
Generation SaaS wants to buy and use software online in an entirely self-service way. They don’t want to talk, fax, or email with a sales rep. They want the product immediately. And they want to be able to use it right away without needing help from the vendor. I refer to this smooth sales process as “frictionless sales.”
The problem is that today’s software companies throw up way too many barriers for Generation SaaS to make software buying easy. Even SaaS vendors often sell with a buying process that makes it seem like the buyer is purchasing a traditional, packaged software application.
Some software CFOs I speak with brag about their ability to get buyers to commit to a two-year contract, paid up front. While such deals look good at the end of the quarter, I maintain that software companies that rely exclusively on these old-fashioned techniques as their primary sales method will hamstring their ability to grow.
By forcing a customer to go through the process of making a multi-year, multi-thousand/million-dollar commitment right from the start, SaaS companies are limiting the number of customers they can sell to and the revenue they can realize per customer — not to mention increasing the cost of customer acquisition to the point it is prohibitive.
Three Elements of a Frictionless Sale
Many software vendors pride themselves on their “self service” buying process. However, too often, “self service” means buyers don’t need to talk to a sales rep. Our informal survey of SaaS software vendor Web sites found fewer than one-fourth of companies sell their products without needing to contact the company.
I believe there are three elements involved in a truly frictionless sale:
- No contact Buyers can purchase the software and receive it without talking, emailing or faxing with anyone at the vendor site. Adding more users or other usage modifications can also be made without vendor contact.
- No commitmentBuyers do not need to commit to purchasing a specific dollar-figure-worth of software or to a specified length of time that they will use it.
- No complexityBuyers can login to the application and begin to use it immediately without help from a vendor rep.
Salesforce.com was the early frictionless-sales leader in the software space. The company used to offer a free trial and a $50-per-month user rate, which made for a very easy buy. The simplicity helped Salesforce.com grow its revenue quickly. However now, the company asks users to send a fax when they want to add users to their contract — a decidedly old-school method that removes the leading SaaS company from the realm of frictionless vendors.
Amazon.com is taking frictionless sales to the next level with their infrastructure offering. Buyers don’t need to make any type of commitment. They allow the purchase of one hour of usage and the lowest purchase price is 5 cents per hour. Amazon.com is truly offering pay-as-you-go pricing, for 1 hour, 10 hours, or 10 years.
This purchase flexibility combined with a fantastic technology offering has combined for tremendous growth: a $1 billion business in just a few years without requiring customers to commit to anything.
Benefits of the Frictionless Sale
Software vendors can achieve significant business benefits when they provide a frictionless sales experience. Consider the following advantages:
- Low Price PointSoftware or services priced at 7 cents an hour sounds inexpensive to users. But multiplied out, 7 cents an hour equates to approximately $50 per month or $600 per year for basic usage. In many cases, the buyer could actually buy the system outright at that cost rather than subscribing to it as a service but the low price tag helps drive interest.
- Low RiskAt 7 cents an hour with no purchase commitment, customers don’t feel they are putting their company at risk by starting to use the product so they are willing to buy more readily.
- Fast DecisionsWith low price tags and a frictionless sales environment, buyers can make decisions immediately rather than endure a multi-day/week/month sales process. Compare the value of a traditional software contract that typically takes 6-12 months to sign (during which time the vendor earns no revenue) to that of a self-service customer, which delivers revenue immediately.
- Fast GrowthFrictionless sales foster an atmosphere for fast growth. First-time buyers can “serve themselves” immediately. Because no sales rep is needed, an unlimited number can be “served” without a corresponding increase in sales costs.
- Easy UpsellsBecause the software is easy to buy with low risk and a low price point, the decision to add users, storage or bandwidth can be made quickly without getting human beings involved. In our system, if you add a new user to the system, we automatically increase the monthly charges by $5.
- Reduce CompetitionThe traditional software sales process involved buyers meeting with sales reps from a variety of vendors to compare offerings over the course of weeks or months.
The frictionless sales process does not typically involve the evaluation of other vendors — either because the frictionless sales experience makes the decision to buy so quick and easy, or because there are no other vendors offering self-service sales.
- Price StabilityThe old-school tech sales process involved an onslaught of sales reps hitting the streets during the last days of the quarter. Clients came to expect heavily discounted pricing from these meetings so that vendors could increase revenue in time to report quarterly financials. A frictionless sales process holds pricing constant over the course of the year and across the customer base, without any quarter-closing, fire-sale deals.
The Switch from Sales to Marketing
Delivering a frictionless sales environment changes the sales and marketing equation. Where sales costs go down, marketing costs go up. And while the frictionless sale greatly reduces the need for outside sales reps, a positive customer experience still requires the use of inside salespeople and service representatives.
Sales and Contracts are Still Absolutely Necessary
Post purchase contact is critical. After a new customer signs up, an inside sales rep should contact the buyer to be sure there are no usage problems, to answer any questions and to talk about features the buyer may not know about. This simple human contact establishes a relationship with the buyer and greatly increases his or her “stickiness.” The customer is also more likely to get in touch to upgrade their purchase.
And CFOs still love contracts. If a customer wants to pay up front or make a long-term commitment, inside reps can help these buyers get the best deal. In our business, about half of our customers end up on contracts.
The Power of Measurement
One of the best parts about doing frictionless sales is the ability to rely on real metrics. No longer are top executives forced to rely on salespeople’s estimates. No sales figures can be fudged. You’re either selling software or you’re not.
There are several key metrics to monitor when providing a frictionless sale:
- Customer acquisition ratio (CAQ): How much does it cost to acquire a customer relative to how much growth/profit is generated by that customer?
- Cost recovery time: How long does it take to pay off sales/marketing, R&D and other sunk costs before sales/profits pay off my CAQ?
- Marketing and post-sales expense: What is the overall cost of corporate marketing vs. direct marketing? What is cost of post-sales activities?
- Marketing effectiveness: How effective are my marketing campaigns in terms of web traffic volume, lead generation, lead conversions, new user sign-ups, revenue-per-user, and revenue-per-active-user?
The beauty of marketing in a frictionless sales environment is that you know immediately if your efforts are working or not. Do my sales justify my marketing investments? If not, I can move that budget elsewhere.
Time to Invest in Frictionless Sales
Companies must invest in their products and operations in order to provide a truly frictionless sales environment. In the same way that it took time and money to make their apps multitenant, SaaS vendors have to now ensure their products are simple to understand and use without requiring vendor assistance.
Too many vendors use the excuse that their products are too complicated for self-service. I disagree. There are many sophisticated SaaS applications that are bought and used via frictionless sales today.
Another important point to remember: moving to frictionless sales is not an all-or-nothing decision. Software companies can still field outside sales reps for marketing, negotiations, up-selling and cementing customer relationships.
My advice? Don’t be afraid. If you have a good product, make it easy to buy. Customers will be satisfied and they will keep buying it.
Treb Ryan is CEO of OpSource. To find out more about SaaS strategy and best practices, download the latest complimentary whitepapers from OpSource — SaaS Operations: Step-by-Step Best Practices and SaaS Delivery: The Build vs. Buy Decision – or visit the OpSource website at www.OpSource.net.