Software as a Service (SaaS) is growing in popularity. A web-based model that challenges standard software and infrastructure practices, SaaS is instead a software company providing a web-based software solution. With SaaS pricing, gone are the days of expensive software purchases, high technological investment, and paid updates. SaaS vendors instead charge a subscription based fee (typically monthly) and host the software product online where it’s readily accessible to all users.
With SaaS pricing, you’ve either found the secret to your business’ success, or else you’re heading for trouble. It all depends on your organization, needs, and the SaaS pricing model that your vendor applies.
SaaS vendors essentially sell software hosted on server space that is leased out to as many users as possible. There are many different pricing models employed by SaaS vendors, each of which will impact the costs that your business incurs when purchasing software as a service.
Licensing Fees
Be wary of unnecessary annual price hikes as some SaaS vendors increase license costs by about 5% per year to account for inflation. If you look at historic inflation rates, the last time we saw a 5% increase was more than 20 years ago, so there is no good reason to sign on for such a ridiculous annual cost increase.
New Functionality
If your SaaS provider develops new functionality based on the needs of one of its larger clients, they then have the potential to sell this new application and make additional profits. As such, they may in fact remove it from the base software offered, and sell it as an additional module. You already pay an annual fee for upgrades and additional functionality – you shouldn’t have to pay twice to retain the functionality that you’ve come to rely upon if your vendor decides to create another module. Ask questions about this when you are deciding between vendors and understand what their policies are.
Discounts
Many SaaS vendors offer significant discounts up front, knowing that they will make up that difference at a later date. They do this by using little tricks such as charging additional training or upgrade costs, or offering fewer discounts after the first year of service. Discounts also vary between industries, so shop around to make sure that the percentage offered is fair for a software purchase.
As in all business decisions, do your homework before signing a SaaS contract. Make sure you have all of the details; if you’re concerned, enlist the help of someone who knows the industry to ensure that you have a properly negotiated SaaS contract and won’t be taken advantage of as the business relationship evolves.
