I work with enterprise software customers in a post-sales role. I’m often asked to justify the ongoing costs that are part of the SaaS model, i.e. subscription based. Here are my thoughts that I am going to share next time I am asked.
I like to think of it as discounted innovation. To begin explaining why, some assumptions need to be established:
- It really is innovative software you have purchased, with useful and usable functionality and features. You will have determined this hopefully when you made your selection.
- Users have been properly supported in their adoption and use if it. It won’t be innovative on its own, without it being properly applied.
- Efforts have been made to align it to business purposes and outcomes that drive value.
Beyond this, what you are paying for is.
Current discounted value
This refers to the features and functions you get at the point you start using. In other words, what went into the version you are currently using. This would include all the investments prior to launching the product and then all subsequent updates.
Think about all the time, effort and money invested in getting the product to its current state.
If a mature product, this will also include all iterations based on customer learning and feedback.
Future discounted value
New features that will be released is also something you are paying for. Assuming the vendors track record is good, you are paying for innovation in advance.
The nature of Software as a Service is that it’s an evergreen platform, always changing and evolving.
This change and evolution should also include innovation. If not, question continuing your subscription.
Lower risk of innovation failure
The vendor takes all risk in case things go wrong or the innovation fails. Customers just stop paying, even if stopping and having to switch is painful.
Risk avoidance is one of biggest causes for companies to stop innovating which is fine. But you have to pay for that elsewhere if you want to innovate, you just won’t pay the full price.
Lower upfront innovation investment costs
There are no development costs for the customer to think of. The vendor has sunk costs to consider.
You are paying for these investments to some degree, amortized in the subscription fee. But they will be a fraction of total costs.
Lower ongoing innovation investment costs
While customers pay a monthly subscription fee, it won’t be at the scale that the vendor is paying.
Maintenance costs are shared among many customers, reaping economies of scale. Continuous innovation built into the product is the same.
InnerVentures 
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