I recently wrote a blog post for Amphora Consulting titled, “XaaS: Should You Jump on the XaaS Bandwagon?” In it, I contend that the following seven conditions must be true before deciding that switching to a subscription-based model is the best answer for your business.
- XaaS must be the best answer for the customer!
- Your offering must continually deliver more value over time.
- Your offering’s value has an identifiable/understandable unit of measure.
- XaaS will not create a “perverse incentive” for your customer.
- You have an easy way to “turn off” your offering.
- Your cash flow can support a significant reduction in short-term revenue.
- Your business must have a high fixed cost and low variable cost.
There’s no doubt that having an ongoing revenue stream from your offering is enticing and attractive. However, XaaS is likely to fail and potentially cause lasting damage your business if it does not meet ALL of these criteria.
This got me thinking about how shifting to XaaS might impact value-based selling. As it turns out, the first three criteria are closely tied to selling value.
(1) Be the Best for the Customer
A core part of this point is that the customer must receive more value over time by buying your offering as a service than by buying your product once. This means that your customer will be doing a Total Cost of Ownership (TCO) analysis of buying your product vs. buying your new XaaS offering, even if you don’t. And while they may not do it in formal sense, they will at least be considering both options when deciding which is better.
From a value selling perspective, you should be ready to show the economics of why XaaS is better. A key way to do that is to ensure that your offering delivers more value over time, which is the second point.
(2) Continually Deliver More Value
If a customer can buy your product once and receive 100% of its available value, then they are almost always better off to just buy the product than buy your XaaS offering. This means that you must continually improve your offering to deliver more value, and that value needs to be included in the XaaS offering.
That leads to the question of “what have you done for me lately?” How do you demonstrate that you are delivering more value? The best way is to use value realization tools that show the economic performance improvement over time.
(3) Clearly Measure Solution Value
In order to effectively show that your XaaS offering is continuing to deliver more value over time, you need to have an agreed to set of metrics of performance. Again, this leads back to Value Realization tools to show improvement against the original baseline.
Although shifting to or adding a subscription service to your mix may seem very appealing, it can also be very challenging. This is especially true with customers and industries that are more comfortable buying products than something that can be perceived as intangible, like XaaS offering.
Value selling tools can help bridge the gap by validating these three simple truths. Use them to demonstrate to prospective buyers that your XaaS offering is in their best interest; that is, if it really is.
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