Selling Software Solutions vs. Selling Software Products

May 11, 2015 Brian Beattie

Most software companies were established because the founders have identified a pain point within their target market, and created a ‘product’ designed to solve that specific problem.  However, in order to become a successful software operation with staying power, the company’s offering needs to move beyond this singular point-product.

Below are 5 benefits of why every software company needs to develop add-on solutions for their core product.

 

1. Greater wallet share

A point solution typically serves a single department or a subset of people within that department. However, with the right add-on products, vendors can increase their user base in their accounts, touching multiple departments within one organization.

In the case of vertical or niche markets, customer needs can be very specific. Horizontal software vendors are often unable to meet these needs, so customers will encourage, and even push their specialized vendors to develop additional functionality around the core product.  From the clients’ perspective, working with one vendor is advantageous as it mitigates integration risks, such as a costly implementation and disruption to the business.  From the vendors’ perspective, they stand to receive a larger wallet share from their customer base.

2. Reduced cost of sales

Acquiring new customers is vital to the growth and development of a software company.  However, finding new customers is time consuming, expensive and sales cycles can be long.  

Developing add-on solutions allows for both upselling and cross-selling into existing accounts, which is more cost-efficient than finding new customers.  A satisfied customer is much more likely to open their wallet to a vendor they have a solid relationship with, than having to convince a new prospect to sign on the dotted line.

3. Increased success rate of new products

Having a greater footprint within an organization will typically lead to closer collaboration between the client and the vendor. This is especially true for vertical-specific software solutions with specialized requirements. 

Top software companies spend time on-site with their customers, observing how end users interact with their software and listen carefully to customer feedback.   Moreover, they encourage their key customers to participate in crafting the product road map to ensure that the solutions they develop are what the market will pay for. 

4. Increased pricing power

Normally, there is reduced risk involved in using a single vendor’s solution over multiple vendors’ offerings that come with integration requirements.  Not only is the operational risk greater due to integration issues, but managing multiple vendors can be a headache and pose significant strain on the companies’ resources. This strain is especially true when workflows break, or when one of the vendors upgrades their existing product.

With a well-built and comprehensive solution, the software vendor has greater leverage when negotiating pricing terms.  The customer also benefits from working with a vendor that knows their industry and is intimately familiar with their operations.

5. Predictable revenue streams

The product life cycle of a large, ERP-type solution that touches multiple departments within an organization tends to be in the 15-30 year range.  These comprehensive solutions are considered more ‘sticky’ than software products that solve a narrow business problem.

The vendor’s familiarity with the customers, their needs, and industry-specific knowledge make it very difficult, risky, and expensive to replace the solution once it has been implemented throughout the organizations. Once a customer is satisfied, the software vendor reaps the benefits of predictable and stable revenue streams well into the future.

 

Your turn

What benefits has your company seen in developing add-on products?

About the Author

Brian Beattie

Brian Beattie is the Chief Financial Officer at Volaris Group. Besides overseeing the financial health of the company, he works closely with Volaris’ legal and M&A team on all new acquisitions. Brian is an expert on every stage of the M&A process – from sending out the non-disclosure agreement to executing the sales purchase agreement.

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