In this guest post, Scott Niemann, director of product management at Revenera, looks at the practical ways in which software suppliers can streamline and strengthen the move to SaaS deployment for their software products.
SaaSification—the move toward software-as-a-service (SaaS) deployments—is on the rise for both software buyers and suppliers. The appeal of SaaS is clear. From the perspective of those who are buying software, moving from on-premises to SaaS is one of the top cloud initiatives for 2022, as reported by 42% of respondents in the Flexera 2022 State of the Cloud Report. Additionally, the Revenera Monetization Monitor: Monetization Models and Strategies report, based on a survey of software suppliers, found that, for respondents that use one deployment model for more than half of their software lines, 34% use SaaS. Product managers rely on SaaS even more heavily, with 44% report using it extensively.
This is a component of an overall trend toward growing reliance on SaaS as part of hybrid offerings (in combination with on-premises and embedded deployments) that meet customers’ varied needs. SaaS deployments fulfill the demands of buyers’ current purchasing behaviors, provide the opportunity for improved customer experiences, and can drive ongoing revenue for the supplier.
Making the move successfully requires product managers to rely on procedures that facilitate the transition. Implementation of SaaS is most successful when SaaS offerings are approached with a comprehensive plan, supported by a clear understanding of entitlements. Whether you’re a product manager at an on-premises software supplier that’s moving to SaaS or hybrid solutions, or if you’re part of the team at a SaaS vendor that’s looking to scale and grow your business, prioritize entitlement management for successful monetization of your SaaS products.
A software entitlement is the right to use software. Typically, it’s purchased for the use of particular software, enabling software vendors to manage software usage, monitor license compliance, and maintain product data. An entitlement system fulfills a customer’s order, delivering appropriate access to the software application (whether on-premises or SaaS).
Entitlement management for SaaS involves much more than authenticating a user and logging that user into an application. It requires clarity about what the entitlement holds. When the user interacts with the software, the entitlement system maintains insights into how the software is consumed—an audit trail of information that can be pulled from the supplier’s analytics or entitlement system, demonstrating how end-customers enter the application and consume licenses. This information then feeds into the billing system, which is maintained by the entitlement system.
Self-service capabilities within an entitlement system allow customers to manage entitlements and use rights across the organization, offering transparency into usage data. This streamlines entitlement changes, which may be necessary due to a new order of products or services, or to meet an end customer’s evolving needs to keep pace with their work. With the move to SaaS, software suppliers should implement a centralized way to interact with entitlements, whether the entitlements are for the new SaaS offerings or for different applications.
Support the full sales cycle
The full sales cycle—the quote-to-cash (QTC or Q2C) process—relies on the smooth operation of business processes. When monetizing SaaS products, product managers must recognize customers’ needs and support customer retention to create and sustain a recurring revenue stream. Entitlement management plays an important role.
Business processes and systems involved in the QTC process include:
- Customer relationship management (CRM), which holds the amount for the quote and the stock-keeping units (SKUs) for the products and services the customer will be purchasing
- Entitlement management, which knows what SKUs the customer purchased and what they have rights to use
- Accounting, which kicks in for billing. SaaS deployments are often monetized through the subscription monetization model. With a flat-fee subscription, for example, the customer pays the same amount (e.g., $10/month, $1 million/year) in each billing cycle. With SaaS, the flat fee subscription may have a usage-based component. The supplier can capture and identify the actual usage via the entitlement management system, which then pushes this information to the finance system to ensure appropriate billing.
- Usage management and compliance management, which support the supplier’s enforcement strategy by comparing entitled usage to actual usage, protecting from overuse. These systems can also track movement from freemium or trial to paid usage.
Rely on a central monetization strategy
When a CEO needs a status update on the strength of a company’s software business, product managers must be able to report on metrics including higher product adoption levels, greater customer satisfaction and retention, and increasing revenue. But silos across product lines can undermine each of these goals.
If each product line has its own system, revenue recognition gets unnecessarily complicated. Relying on a central monetization strategy to streamline and align back office systems and process across areas—product management, orders, operations, and finance—can break down silos, eliminate headaches, and help make the move to SaaS a successful part of overall digital transformation initiatives. This approach provides a single source of truth that provides clarity into the metrics that show the success of monetization initiatives: annual recurring revenue (ARR), changes (increasing or decreasing) in software usage, customer churn, and profitability.
A central monetization strategy, with a centralized entitlement management system, makes the work of product managers more efficient in multiple ways. It:
- Supports systems that span multiple products and offers a complete view of what customers own,
- Manages entitlements by directly communicating with SaaS applications, serving licenses to on-premises applications, and interacting with local license servers that may be used in air-gapped environments,
- Delivers the data required for the supplier’s intelligence reporting by integrating fulfilment technologies (the systems that customers interact with) and information about those customers’ entitlements, and
- Reduces complexity and operational overhead, such as for reconciliation of what customers own.
The bottom line: streamline business
Entitlement management is critical when adding or expanding SaaS offerings across product lines. Having an effective system in place for entitlement and licensing offers product management teams the agility required to differentiate their products through effective pricing and packaging, automating use rights, driving rapid revenue recognition, and easing renewal management. Ultimately, focusing on entitlement management helps SaaS providers focus on overall business success.
There’s more where that came from! Access more great content on Mind the Product
- SaaSifying an on-prem offering: a case study
- An introduction to OODA loops and SaaS scaling – Kausambi Manjita on The Product Experience
- The analytics-led path to digital adoption