Startup Codex

This is a great article for anyone working on a SaaS project, or wondering about its sales model.

Joel York deconstructs in detail what makes up the sales models of the SaaS industry, to explain how the pieces fit together.

Here is a summary of the topics he covers, and I really recommend reading it in its entirety if you are interested in the subject.

  • The importance of price in the choice of the model. Price is for him the most representative feature of any business. It sets a ceiling to your acquisition cost and will de facto limit your options in terms of model.

  • The complexity that there is for a customer to buy your product. Once all efforts have been made to reduce it, it is your sales model that has to assume what is left.

  • The three common sales models: Self-service, Transactional and Enterprise. The model is determined by the complexity of the product and the value it creates for the customer, the level of price and risk for the customer. Each model brings its own needs in terms of sales and marketing efforts.

  • The three strategies to avoid ending up in the SaaS Startup Graveyard and which consists in aligning price and complexity: Increase Velocity, Increase Value, Increase Profit.

  • SaaaS Startup Evolution**. York shares his thoughts on the possibilities and complexities of SaaS startup evolution according to their models.

Regardless of your price, your SaaS sales model must provide sufficient support to enable prospects to navigate the complexity of the purchase or you will not close business. You can give your product away in a Freemium price scheme, but if the purchase is too complex, you can still find yourself hand-holding every single free customer akin to an enterprise sale. You just can’t give away complex software. Only customers that are willing to pay an exorbitant price for your hugely valuable service will also pay exorbitant amounts of time, fear and frustration to wade through the complexity of getting it. When complexity forces you into a SaaS sales model where the costs exceed your ASP, your business is destined for the SaaS Startup Graveyard.