The last blog post discussed Which Territories to Consider for International Expansion and the SaaS market sizes for the top 10 SaaS markets in the world.
A framework to generalize and explore the customer acquisition and support process for an enterprise SaaS vendor breaks down the marketing / lead generation, sales and support functions into their component steps:
For an enterprise SaaS vendor developing its initial international distribution strategy or refining its existing strategy, it must envision the processes introduced in Figure 3 in new territories far from its home country:
- Marketing and Lead Generation – How does the vendor attract prospects residing in the new countries to its web site? Once prospects visit the web site, how to entice them to trial the product?
- Sales – when prospects are trialing the product, how does the enterprise SaaS vendor convince them to license the product? Since most SMBs and large enterprises initiate usage of an enterprise SaaS product with just a few seats, how does the vendor get these users to increase adoption across the enterprise?
When international sales begin, SaaS sales compensation issues can arise. SaaS compensation is different from the traditional on-premise software sales compensation model. For on-premise enterprise software sales, reps or channel partners earn front-loaded commissions on the large one-time payment when a customer licenses enterprise software. Many SaaS companies pay commissions on 12 months of subscription fees even if the SaaS subscription is month-to-month. Additionally, staffing the international sales operation can be challenging across different cultures. The functions required are:
- sales / channel management;
- technical staff for both pre-sales and post-sales technical support
- Technical Support (post-sales) – getting the new customers operational on the enterprise SaaS products in countries far from the home office is the first challenge; language and time zones can be issues. Once customers are operational, usage issues (level 1 support) and software issues/bugs (level 2 support) are inevitable. Level 1 support can be done by the channel partner support or be outsourced, whereas level 2 required incremental staff in headquarters, close to the software development lab.
- (spanning all functions above) Channel Partners – if an enterprise SaaS vendor chooses channel partners, which are usually an integral part of a SaaS vendor’s initial international expansion strategy, the vendor must determine which of the 7 steps from Figure 3 are to be performed by the vendor and which by the channel partners.
Channel partners are crucial to the international operations of many SaaS vendors. Reliable local partners provide cultural awareness, an inherent knowledge of local business practices and language skills to entice prospects to trial, buy and add additional seats. A strong local partner can perform local implementation and integration with existing applications, as well as increase customer retention and the addition of incremental seats-key to any SaaS revenue model. A key challenge is identification of channel partners where the vendor has never operated. Finding, managing and retaining local international SaaS partners requires specialized expertise.
Many enterprise SaaS vendors consider a mixed direct / channel sales strategy that evolves over time. For example: In larger international territories, the vendor sells direct to the very largest prospects and the partner sells to the others. It is crucial to not grant any partner exclusive territorial rights and spell this out clearly in the partnership agreement.
Software is uncommonly easy to export around the world with little modification other than local language translation, which is not that difficult for software developed using modern development tools. SaaS products appear to be easy to sell internationally, since anyone in the world with an internet connection can become a customer. However, it can be challenging for SaaS vendors to develop profitable international operations that find new international customers and provide good local support to them. This article explores several aspects of the SaaS business model to adapt for expansion outside a SaaS vendor’s home country. No matter how comprehensive the planning is for international expansion, there is no substitute for hiring in-house staff or consultants with experience planning and operating in the new international territories being targeted.
About the Author
Jay Greenwald is the Managing Partner for International Revenue ACCELERATION, a consultancy that helps on-premise enterprise, SaaS and Cloud software vendors expand their sales, channels and go-to-market capabilities outside their home countries. His enterprise software sales, product and M&A experience spans the U.S. and 65 countries.
Mr. Greenwald has published International Markets for Enterprise Software Vendors: Europe, East Asia, Latin America, Rest of World. You can find this book on Amazon by searching for “Jay B. Greenwald” on Amazon or at this URL.
Mr. Greenwald earned his MBA from Harvard Business School.