One of the trendiest corporate bonding outings these days is going to escape room. By working together, co-workers conquer an ominous challenge, and then celebrate their escape with a hero picture.
That’s a lot of fun one day a year. But it’s not nearly as fun when your business needs to escape something ominous that threatens the bottom line on a daily basis. It’s hard for your business to thrive underneath this kind of looming tension.
Lots of things can cause this kind of tension. One is the cost of third-party software licenses.
Software licenses aren’t bad in and of themselves. Often, they provide powerful functionality at a reasonable cost. Here at Worthwhile, we use three SaaS products as a key part of our everyday operations (even though we can develop custom software for ourselves).
But when your business is highly dependent on third-party software, the benefits come with greater and greater risks.
If that software goes down, your business goes down.
And if that software company decides to double (or triple or quadruple) your seat license fee, you have little choice but to pay up.
Your sales team can still hunt for business without Salesforce, even if it’s not as convenient as using the software would be. But if you can’t build your product or deliver your service without seat-license software, you’re stuck.
So your business needs to know the right way to escape software seat license fees. Here are four key pieces of analysis to do:
1) What is the risk that the seat-license fee will change?
Your business needs to have a solid understanding of the fee structure for the software you’re using, and how likely and how soon it is to change.
* Knowing your contract status and renewal dates
* Knowing whether your software vendor is raising prices with other customers
* Knowing if your software vendor is experiencing a major change—company sale, IPO, or the like
We’ve seen the last case happen to our clients more than once. Sometimes, it looks like this: the software vendor gets bought out, and the new owners decide they need to make a lot more money for their product. If your margins are tight, this kind of dramatic seat-license increase is a devastating bodyblow.
These changes happen quite a bit in the SaaS world. By looking at the possibility of change, you can give yourself some runway to do the next three pieces of analysis so you can act before you’re stuck paying a huge bill.
2) What will it cost to change this software?
The cost of software isn’t just the check you write every month. It takes time to run software, and time to switch it. The time costs of switching include:
* Contract negotiation
* IT support for implementation
* Choosing from potential customization options
* Time spent onboarding and training employees
Depending on how involved your software is, and how deeply it is tied in your business, these time costs can be huge. This means that it’s never wise to make a rash decision to switch software.
But knowing these costs in detail will help you balance the cost of switching against the cost of seat licenses now and in the future. This is vital information, and it’s worth the time it takes to gather it.
3) What other software options are out there?
Now that you know how much a switch could possibly cost your business, you need to research what you could switch to. Look for options in multiple categories:
* Other SaaS products
* Custom software
* No software
The first option is self-explanatory. If you can switch to another software product where the seat license is cheaper or the contracted price certainty is more, you should consider it. Request a demo and see if it will fit your needs. You may choose to demo several products depending on the kind of software you need and the level of investment.
You can also consider building a custom software system that you would own. Obviously, this will require a greater upfront cost, but if you do a custom software project right, you can eventually find a point where ROI flips in your favor.
And you can also consider going away from software altogether. It may seem weird to find this suggestion on a software development company’s blog, but it is an option. Your business can choose to do billing manually, for example. While this won’t often be your preferred option, you should at least consider it to see if this opportunity has any potential benefit.
4) What is the price point that matches our ROI goals?
Now that you know what the cost comparisons are (both in terms of time and money), and what the software options are, you can make a smart decision about how much your company truly should be spending on software seat licenses going forward.
If the ROI supports the seat-license fee (even if it’s going up), then it may make sense to stick with your current SaaS product. This is often the case, because many SaaS programs offer valuable functionality at a reasonable price.
But if the ROI calculation is out of whack, you may need to investigate your options. At Worthwhile, we offer financing to clients that sometimes allows them to build custom software and pay for it over time at a rate similar to a seat license fee. The advantage is that after 24-36 months, the company owns its software, and can drastically reduce the monthly expenditure from a seat license fee.
The other advantage of this approach is that you eliminate the risk of a vendor ratcheting up a seat license fee in the future. This kind of cost certainty proves to be very attractive to many companies.
Your business may not be able to escape software seat license fees. Depending on the situation, it frankly may not be wise or cost-effective to try to escape.
But any business writing a monthly check needs to know whether it’s worth it, and whether the price runs the risk of increasing.
So don’t go on autopilot—even with your autodrafts. Know how to escape from seat license fees.