October 30, 2015

How to Effectively Offer Technology Acquisition Options

So, you nailed the technical presentation and crafted a compelling enterprise license agreement (ELA) proposal backed by a very convincing business case. Your prospect is impressed by your technology and business case metrics, but pushes back on the capital expense and asks the dreaded question, “Can you also propose a usage-based option?”

Six months later, after using every delay tactic you can concoct and after setting ablaze more internal and channel bridges than you thought existed, you return to your prospect with a proposal that requires calculus to understand. (The associated contract draft puts a number of first born children at risk, too.)

Another two weeks pass and you find out from your original prospect sponsor that they have gone with an up-and-coming SaaS provider.

Sound familiar?

Meeting Customer Demand with Acquisition Options

The advent of SaaS and the cloud has increased the factors involved in meeting customer demand for acquisition options along the offer continuum.

Offer continuum

Factors include, but are not limited to pricing, licensing, delivery, and payment options. This can be as much a challenge as it is an opportunity. For example:

Opportunities and challenges

So what can be done to take advantage of these opportunities and overcome the challenges?

Step One: Set Realistic Goals

The first step is to identify where you currently are on the offer continuum and then determine where you need to go to effectively meet customer demand. Your strategy may include a phased roadmap to get to your ultimate destination. For example, if your business model is based on upfront perpetual license purchases and the goal is to develop a subscription offering, you may elect to set a shorter term goal that couples term licenses with multi-year extended payments. Or, if your goal is to move to the cloud, consider an interim step that leverages channel partners hosting your solution as a managed service.

Step Two: Establish Cross-Functional Teams to Develop the Offering

Recalling that movement along the offer continuum may involve a number of factors, it is critical to identify all factors and then pull in representation from all functions that will be impacted. Let’s say the goal is to offer a usage-based model using appliance technology. Who needs to be involved? At a minimum:Product management to specify the need and establish the SKUs

  • Product marketing to develop pricing and go-to-market tools
  • Sales management to confirm need and develop compensation
  • Engineering to confirm the ability to deliver, including the ability to measure usage
  • Legal to create the contracts
  • Professional services to architect deployment strategies
  • Finance to analyze the impact on short-term and long-term revenue and profits along with the ability to bill and receive usage-based payments.

And this may just be scratching the surface as other impacted functions could include technical support, customer support, billing and collection, training, partner management, etc.

Step Three: Assign and Train a Deal Desk to Manage Offers

Once the solution offering has been developed, the real work of selling begins. A huge risk of offering multiple options is that, if unmanaged, customers (and sales people) can game the offers to their advantage, negatively impacting profits. A deal desk, with proper training and tools, can help to manage offers so that expected results are achieved—incenting a preferred offer or ensuring that offers are developed to yield rational and acceptable results.

The math involved typically includes a net present value calculation over a reasonable time horizon (at least three years, often five), and factors all sources of revenue and cost for each offer. The following is a simple example comparing the five year revenue impact of three options–upfront, subscription, and usage-based—wherein the upfront and subscription offers are designed to be neutral, but the usage-based offer is at a premium to account for the higher cost to manage and risk of lost revenue.

 Cumulative revenue

Step Four: Make it Easy to Clearly Communicate Options to Prospective Buyers

Going back to our original story, what if the answer had been, “I’d be more than happy to create a usage-based option for you. I need three additional data points from you and then I can put that option together and show you the financial impact over five years for each option. Can we reconvene on this later this week?”

Tools and training are the key here. The whole journey was embarked upon to meet customer demand. Now it is critical to ensure that prospects understand the offer by delivering simple metrics, a clear depiction of financial impact, manageable contracts, and the required infrastructure to maintain a long term relationship.

Presenting a clear executive financial summary that highlights the options and their multi-year impacts is critical to eliminating confusion and accelerating a buyer decision.

Conclusion

Customers make a lot of demands, but in today’s market, a demand that stresses your current business model may be indicative of significant macro changes in the market. Setting business transformation goals, building cross-functional tools, and then providing tools, training and support for field execution—internal and external—are the key steps to turning repetitive deal challenges into a revenue growth opportunity.

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