Why SaaS Companies Should Be Offering Customer Financing…

Traditionally reserved for equipment sales, customer financing programs are not novel to the market. The mechanism has been around for a while and has proven immensely valuable. Heavy upfront cost is one of the most common sales objections leading to a lost opportunity. Customers may see a five or six-figure price tag and take a big step back, but at the same time, companies don’t want to forego the upfront fee for their product; this leads to friction in the sales pipeline.

Historically designed for the equipment manufacturing and sales industry, companies have been structuring financing programs for their customers for decades. Now, what about SaaS subscriptions? Some of our clients may charge $30,000, $60,000 or even upwards of $100,000+ for an annual software license to their customers. For a small enterprise customer that could be the make or break point as to whether or not they're signing the contract. SaaS startups need the cash flow of the annual upfront cost, and customers want the flexibility and cash flow reprieve of a monthly payment.

Saas Companies are seeing customer financing as a tremendous value add. Here are some key highlights of the benefits that SaaS companies are seeing when they have the ability to present this type of offering to their customers:

1. Remove the“price tag” objection from the conversation
Customers may negotiate the upfront cost of a subscription costing $100,000 much more than a monthly payment spread through the term of the contract. Offering them the option to finance the cost allows you as the SaaS company to minimize the flexibility you need to have when structuring these annual or multi-year SaaS agreements.

2. Convert existing monthly customers to annual
Investors and acquirers love annual customer contracts. Customer financing enables you to convert your current monthly customers to annual, allowing you to reduce churn metrics, increase customer value and lock in long-term client relationships.

3. Realize the full value of multi-year contracts upfront

When SaaS companies structure multi-year agreements, payments are typically made upfront, each year of the contract. Here’s an avenue to realizing the full three-year value of the contract upfront while they make smaller monthly payments during the term of the contract. This allows you to extend your runway and invest in growth.

The way it works is pretty simple, not much different than buying a car. You’re selling an annual software license that costs $50,000 - $150,000 a year. Your customers range from small businesses to fortune 500 companies and your sales team runs into the cost objection. Your team now offers the ability to finance the subscription versus having the customer pay the full amount upfront. By having a pre-structured customer finance program in place, the lending partner quickly reviews your customers’ financial information to provide approval to extend the financing to your customer. Once approved, your customer enters into a software financing agreement in the form of a lease with the lender. The lender finances the full cost of the subscription to you as the SaaS company and the end customer pays the lender a monthly payment for the duration of the subscription.

It’s never great when a price objection leads to a lost sale, this is a way for SaaS companies to offer a tried and true solution to their customers that has been updated to reflect the technology age.