Say No to Contracts

Most contracts for SaaS services really deserve a second look, if not a full reboot.

Good SaaS applications make it easy to onboard new customers, with minimal upfront cost and effort. Likewise, it should be easy and painless for a customer to exit a SaaS relationship.

This ease is structural. SaaS applications do not require upfront hardware, installation or customization. It should be both fast and routine to add a new customer. Moreover, SaaS applications typically enjoy significant economies of scale.

So why do so many SaaS contracts require upfront charges and a minimum term (often one to three years)? Well, there’s a few reasons.

• Service providers love to “lock-in” the business. And many customers, trained from years of using heavyweight, installed applications, accept these upfront charges and minimum terms.
• VC and PE investors strongly prefer revenues that are under contract.
• And service providers point to customer requirements that are often complicated and extensive.

Our experience at HubTran pointed us down a different path, one we’re still following at BravoTran. You see, when we started HubTran we knew we had a phenomenal product and what we wanted most was for 3PLs to try it out. We removed all the upfront charges and term requirements from our agreements to take risk off the customer and put that risk on us.

Here’s what we learned.

1. Contracts don’t lock in customers, but great product and great service do. 3PLs under contract to poorly performing competitors would eventually find a way to exit the relationship in order to move to the better provider. The contract might buy time, but at what cost? On the other hand, we knew that our customers could exit at any moment, with literally zero notice. That focuses one’s attention. We knew we had to continually improve our product and listen - really listen - to our customers. Result – we experienced essentially no customer churn.
2. We’re responsible for running our business, not our PE investors. That meant that when we raised capital, we clearly communicated our strategy and how we define recurring revenues. Some investment firms didn’t like this approach. But some did, and those investors understood our company better and aligned more closely with our values.
3. Onboarding a new customer should be easy and result in a deep understanding of their requirements. Our product automates document and back-office work for freight forwarders. Freight forwarders are large, complex organizations with document and back-office processes that are complicated and highly specific. Cookie cutter solutions just don’t work. But providers that “customize” the onboarding process and then “customize” their software are actually building in excess cost and delay. Instead, we deploy a standard and rigorous customer discovery process. We then configure the platform via a large number of standard settings. Building these capabilities is hard but worth it, because now we onboard customers easily, quickly and with repeatable quality.
4. Bonus points for variabilizing the charges. We also decided to charge by the drink instead of relying on fixed subscription fees. This makes it easier for the customer to understand what expenses they’ll incur. $1 per shipment is not a complicated cost structure. Again, most service providers and investors don’t like this because they’d rather lock in revenues. But why shouldn’t our charges more closely track our customers’ business? Why shouldn’t our customers be able to variabilize their cost structure?

We believe that our approach to contracts, while unusual, has greatly benefited our business. What’s your experience with contracts?