Gartner Research

Master Software and SaaS Pricing Principles to Monetize New Digital Business and IoT Opportunities

Published: 08 June 2017

ID: G00321366

Analyst(s): Bill Ryan

Summary

Manufacturers, distributors and other end-user companies are becoming technology providers, but lack the software and SaaS business model expertise to monetize the opportunity. CIOs who develop that acumen will play a strategic role in building and expanding their organizations' digital businesses.

Table Of Contents
  • Key Challenges

Introduction

Analysis

  • Master the Basic Principles of Software and SaaS Pricing, Selling, Support and Service Delivery to Play a Strategic Role in Developing and Introducing New License and Subscription Offerings
    • Software and SaaS firms sell the right to use a product or service, not the product or service itself
    • Pricing metrics and packaging are used to monetize software licenses and SaaS subscriptions
    • Term length and contract terms are also key business model levers
  • Create Realistic Financial Projections to Maximize Profitability and Build a Healthy and Predictable Recurring Revenue Stream
    • Once at scale, gross margins are very high, and the cost to sell each additional license or subscription is very low
    • Heavy investment in R&D, selling and infrastructure is required to produce products and generate revenue
    • Software maintenance and SaaS subscription revenue are recognized over the term, not at time of sale
  • Use Software- and SaaS-Specific Sales and Compensation Practices, a Disciplined Discounting Structure and Negotiating Guardrails to Maximize Revenue Opportunities and Scale the Business
  • Work With Stakeholders to Build Robust Development, Support, and Service Delivery Capabilities to Enhance the Product, Meet Customer Expectations and Ensure High Renewal Rates

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