Axcient Intros Channel Compensation Model for SaaS
In a move that may redefine how software-as-a service (SaaS) is sold, Axcient, a provider of cloud-based recovery-as-a-service (RaaS), has developed a new compensation model designed to make it easier for channel partners to implement its Business Recovery Cloud platform.
As part of the new SaaS:FLO program, Axcient will offer to compensate channel partners up-front for the sale, delivery and support of its Business Recovery Cloud solution. This new model is significantly different from the way SaaS vendors typically compensate channel partners, as well as how SaaS solutions are sold and deployed.
The SaaS:FLO (Software as a Service: Front Loaded Option) program is designed to make it easier for VARs to grow their business in the SaaS model compared to traditional licensing and procurement methods for on-premise software and hardware, said Axcient. The up-front compensation model was driven by a key issue expressed by VARs that selling SaaS solutions is not a lucrative business opportunity due to low profit margins.
Axcient believes VARs play a critical role in ensuring the quality of SaaS deployments, which is counter to the general industry perception that VARs' specialized skills aren't needed as much in the SaaS ecosystem compared to on-premise software. As a result, the company aligned the SaaS compensation model with the VAR channel's existing business model so they are incentivized to deploy cloud services.
"We believe the VAR, even in SaaS and cloud, plays a critical role in the go-to-market strategy because they are the trusted IT advisor of midmarket IT executives and enterprise IT executives, and they provide that last-mile support to ensure seamless deployment of new technology," said Justin Moore, CEO at Axcient. "They play a critical role in ensuring that technology is deployed with best practices, which leads to customer satisfaction and increased customer retention."
But Moore believes SaaS and cloud compensation models for VARs are completely broken and are not economically aligned with how VARs have built their businesses. SaaS is a completely different business than traditional hardware and software, and it has required a different approach in every element of the business, but the one area that SaaS and cloud companies have not taken a different approach is in reseller compensation, he said.
SaaS and cloud companies use the same legacy approach to compensation by giving partners a discount off of list price and a margin delta between list price, what the partner discount is and what the customer pays for the solution, explained Moore. "That works for hardware and software when you're selling a big ticket item, and at the end of the day, you get 10 or 15 points of margin on a $100,000 or $200,000 sale."
"But if you're selling a solution that's $1,000 or $2,000 a month and the partner is getting a margin of $200 a month, it's not conducive to how VARs have set up their businesses," he added.
This model is the reason most VARs and resellers, which are responsible for the majority of IT spend, don't sell many SaaS-based solutions, said Moore.
Axcient plans to change this by financing, or underwriting, the customer contracts and providing VARs and resellers with the equivalent of two or more years of SaaS margin up-front starting on day one.
Here's the math: Using the Axcient example that a customer pays $3,383/month for the Axcient Business Recovery Cloud, under the new model, the VAR partner receives roughly $17,000 for selling the solution instead of $500/month based on the traditional model. This translates into the first five months of revenue, not margin. In addition, every year the partner renews the customer, it receives a check equivalent to the first month of recurring revenue as margin, so in this case, $3,383.
Moore admits that for companies to implement the same model they would have to be "very bold," along with having deep financial pockets, and industry-leading retention. "You will have to know that you'll keep your customers for at least five years, if not, seven or more, to make this model work. It will be a challenge for the industry to adopt but I believe others will follow suit."
Axcient is financing the new partner compensation model with an additional $25 million in funding that it recently announced. Part of the funding will also be used to invest in the Business Recovery Cloud platform and expanding sales and marketing.
Axcient's goal is to sign up 100 VARs on the new platform. During its soft launch in January, the company signed 30 partners. Although Axcient is a channel-only company, it has primarily worked with managed service providers. With the new program, the company is focusing on expansion into the VAR channel.
Gina Roos, a Channel Insider contributor, focuses on technology and the channel.