10 Tips for Software Executives Planning to Migrate from On-Premise to SaaS
Migrating a software portfolio from on-premise to Software-as-a-Service (SaaS) will most certainly impact every aspect of your organization – not only with regards to business, product, operations, and revenue models, but also with regards to clients and employees. And, with new opportunities and change inevitably come challenges and obstacles. Enter the need for sound planning and effective leadership.
Based on our observations of the best, the bad, and the downright ugly when it comes to SaaS migrations, we have captured the top considerations for software executive teams embarking on their company’s journey to SaaS. These include best practices, lessons learned from other organizations, and early-stage leadership team planning activities that should be top of mind to navigate the complexities and nuances of migrating to SaaS.
The top 10 tips to drive SaaS success in your organization include:
1. Develop a detailed change management and communications plan that captures key messages around the SaaS vision … and what’s in it for your team.
Strong leadership that shows your passionate belief in the benefits of moving to a SaaS model is the price of market entry for a successful transition. Beyond your commitment to the change, a well-articulated vision can play a major role in gaining employee buy-in and motivating successful change. Your employees’ day-to-day world is about to change, which is why having a detailed plan for communicating and helping navigate through this transition could be the difference between success and failure. This plan will also help achieve alignment on expectations, which will be critical as teams will be re-prioritizing activities and resources, as well as launching their own departmental projects to ensure their people, processes, and systems will be SaaS ready.
2. Create an effective SaaS transition and implementation committee.
This project team will be your eyes and ears, as well your internal SaaS champions and problem solvers. Consisting of both management leaders and key representatives across departments, this team will drive a laser-focused co-ordination of efforts. The future success of the company needs your brightest minds and most skilled implementation experts. Team members should plan for dedicated offsite workshops and allocate a fixed percentage of their time to this initiative.
3. Be involved with the SaaS roadmap from day one.
Many executives and management teams can be left disappointed with a SaaS transition because they don’t fully understand the nuances early in the process. Educate yourself and be involved from the onset for some major decisions. For example, ground-up rebuilds for SaaS might be required in cases where on-premise coding cannot be leveraged (impacting time-to-market and business case), or perhaps dedicated cloud servers will be required for your top clients (negating expected SaaS cost efficiencies). Being involved in early stages of SaaS will address all aspects of the process and ensure there is no confusion or surprises prior to SaaS transition.
4. Be realistic about the short and long-term financial implications of SaaS (especially with board members).
In 2012, Adobe announced a widespread migration from legacy on-premise perpetual licenses to cloud subscriptions. Revenues declined the following two years by as much as 8% because of a drop in larger one-time lump sum perpetual licenses in exchange for subscriptions. Disappointment? Hardly.
Overall revenue growth from subscriptions began to materialize in 2015 - Adobe has now nearly doubled in revenue since 2012 with a company valuation that has exploded by almost 8 fold. Their 5-year plan on subscriptions has paid off and recurring revenues far outweigh the work effort required to acquire one-time perpetual license fees. Many board members (and CEOs for that matter) can fear the possibility of an initial drop in revenues migrating to subscription. It is important to be realistic about the short-term and long-term implications of SaaS subscription pricing and educate all stakeholders around the financial forecast and underlying SaaS pricing assumptions (see tips #6 and# 7 below).
5. Prepare for new performance metrics and incentive plans.
SaaS companies apply different performance metrics compared to traditional on-premise perpetual license companies. These new metrics will translate to new benchmarks, targets, and incentives for yourself and your management teams: Annualized Recurring Revenue (ARR), Customer Lifetime Value (CLV), and Churn Rates (CR), for example, will become the key performance indicators. Sales teams will also be quick to request an outline of new incentive plans under a SaaS subscription model; many companies will switch from one-time bonus payouts for perpetual licenses to on-going annual incentive payouts with subscriptions. The key will be to get your management teams quickly accustomed to new metrics and tackle the sales incentive question sooner rather than later.
6. Steer clear of using “rule-of-thumb” pricing for SaaS v. On-Premise.
Google searches will quickly create a new breed of internal experts around pricing SaaS. Establish a rigorous SaaS pricing and offer design evaluation that link SaaS value to price and that also clearly outlines the total cost of ownership (TCO) conversation for migrating clients. In particular, for B2B, more complex cloud architectures can command subscription pricing 2 to 10 times higher than the original one-time on-premise perpetual license fee, thereby breaking any traditional “rule-of-thumb” SaaS price assumptions. Ultimately there is value to SaaS, and that value story needs to be closely linked to your pricing strategy.
7. Develop one pricing strategy for new clients and another for migrating clients.
A one-size-fits-all SaaS pricing strategy catering to both new and on-premise migrating clients drives sub-optimal pricing and profitability outcomes. On-premise clients have already made investments with your software as well as respective purchases of supporting hardware and third-party software. The TCO SaaS benefits conversation in their case is going to differ compared to that with a new client – this is a significant factor when designing a SaaS pricing strategy. Your on-premise clients will also potentially require incentives to upgrade from both a value-add and pricing perspective. Separately targeting new vs. migration clients with two different strategies ensures your sales plan drives to a more favourable financial outcome.
8. With SaaS comes new services – this value-add needs to be a part of all future sales conversations.
Everything from hosting, to application management, to cyber security and data protection represents new value-add offerings to your clients. Unfortunately, many sales teams are ill-equipped to message these benefits other than being “on the cloud”. It is not uncommon, for example, for an ill-prepared sales team to migrate on-premise clients to SaaS by merely converting dollar-for-dollar the client’s original Maintenance and Support (MS) fees to a SaaS subscription fee. This practice negates any part of monetizing the SaaS value story and is a quick way to erode margins as your company bears the burden of hosting and application management costs. It will be critical to arm the sales and marketing teams with the necessary SaaS value story. This leads us to our next tip…
9. Set your sales team up for success – train, incentivize, track, and reward success.
Transitioning from selling one-time perpetual licenses to SaaS subscriptions requires a new level of sales expertise. Training, change management, and new incentives are key considerations when leading a sales force through this transition. Where budgets allow, consider planning for a SaaS sales summit combined with announcements and workshops around new SaaS pricing strategies. Selling the SaaS value story, overcoming objections, and introducing incentives will solidify the transition. This will be a significant change for sales teams and a degree of hand holding is required. Top sales leaders who are on-board and “get it” can quickly become your company's go-to SaaS evangelists.
10. Take this as an opportunity to improve your software offer.
Migrating to SaaS is an opportunity to make major enhancements compared to your original on-premise offering. There is an expectation among users that SaaS equates to leading-edge user interfaces (UI) and user experiences (UX), as well as ease of accessibility (anywhere, anytime, from any device). Workflow and improved analytic dashboards are also typical upgrades in the case of B2B SaaS offerings. With new and improved value-add and features also come opportunities to improve how you monetize your software offering and convert your on-premise clients.
11. (Bonus Tip) Be excited about your company’s journey and celebrate success!
Transitioning to SaaS is an exciting journey for your organization and establishes the groundwork for future successes. SaaS also brings a renewed opportunity to innovate and establish market differentiation, delivering continuous value-add improvements to your clients and tapping into new market segments. In addition, with a renewed discipline around software product development, your teams will be better prepared to meet the speed-to-market demands of a fast-paced digital transformation era. Take in those moments of success, celebrate, and reward those who helped make the company’s journey to SaaS possible.
Scott Miller is the founder of Miller Advisors (www.miller-advisors.com), a boutique software strategy and marketing consulting firm with a specialty in B2B software pricing and offer design. He is also a speaker and instructor on best pricing practices with the Professional Pricing Society (PPS) and International Software Product Management Association (ISPMA) bringing over 15 years of experience from a variety of consulting and global corporate pricing roles.