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July 17, 2017

How to Finance a SaaS Solution

The way clients order and pay for Software-as-a-Service (SaaS) solutions continues to evolve. While many SaaS offerings are available on a month-to-month basis, most enterprise deals offer a discount for pre-paid multi-year contracts. This practice, which is now ubiquitous in the industry, offers clients an opportunity to lock in much lower prices if they can come with the cash/funds to pay for it.  IBM has devised an innovative way to balance the customer’s need to manage cash flow with the desire for the best possible per-seat pricing on SaaS.

Prepaid SaaS is simply the new reality in IT. All the major SaaS vendors are making comparable offers to customers. Why is this happening? Indeed, one of the early arguments in favor of SaaS was its ability to replace capital investment in software (CapEx) with ongoing operating expense (OpEx) payments. There are many reasons the industry has shifted to this new model. For one thing, SaaS vendors have cash flow needs, too. It can take a sizable investment to set up a SaaS resource and provision it to a large client. The vendor may want to bring cash back in rapidly to offset its investment.

The client, too, has its financial constraints. Your business is probably facing budget pressure. You likely need a strategy to manage or even shrink expenses while you simultaneously pursue growth. Managing cash flow and matching costs to anticipated benefitsare essential todelivering a strong return on investment on your IT initiatives.

How can you tackle this challenge? One approach IBM Global Financing offers its clients is the option to finance the SaaS pre-paid purchase. This way, the client can structure payments (monthly, quarterly, semi-annually) for the SaaS solution, but at a lower level than would be possible on a month-to-month plan.

For example, let’s say you wanted a SaaS solution that comes with a month-to-month seat cost of $100. If you order 100 seats, you’ll be paying $10,000 per month, i.e. $120,000 paid out in monthly increments over a year. However, what if the vendor offered a 20% discount for a one-year prepaid commitment? Then, for an up-front payment of $96,000, you can save $24,000 on your SaaS solution.

What if you don’t want to pay $96,000 up front? Or, what if you simply can’t? That’s where financing can be a lifesaver. If you finance the transaction at 5%, for instance, you would be paying $8,218 per month. That’s a $1,782 savings per month — $21,384 over the life of the deal.

IBM Global Financing has made financing even more enticing. The organization has a history of providing the purchasing powerclients need to build competitive advantage. It enables the financial stability needed to save, re-invest and innovate. Customizable payment plans offer simple contracts, rapid approvals and flexible payment structures.

IBM Global Financing is now offering rates as low as 0% over 12 months, with attractive rates for longer terms when you finance your prepaid SaaS structures. In the example cited above, the payment at 0% interest would be just $8,000 a month over the twelve-month term. You would save $2,619 in interest.

Financing plans can also include IBM Software licenses, subscriptions and first year support. You can pay month-to-month or with a custom payment schedule for IBM offerings like Analytics, Cloud, Mobile, Security, Social, Customer Engagement and Watson. These financing offers are a good way to lock in great value for prepaid SaaS and help preserve your cash with a flexible payment plan.

IBM Global Financing likes to say, “We finance possibilities.”Its financing programs help you accelerate value from technology. The benefits of working with IBM can contribute to an Internal Rate of Return (IRR) two to three times higher and a payback period shortened by 5% to 20% percent when compared to making upfront payments, according to analysis by Cabot Partners.IBM Global Financing routinely works with a range of organizations, from small businesses to majority of the Fortune Global 100 companies.

One further advantage of the IBM approach is the ability to include non-IBM products in the financing arrangement. Subject to some restrictions, you can pay for SaaS or software licenses from other vendors with low-rate financing from IBM Global Financing.

For more information on IBM SaaS financing programs, please visit IBM. It’s time to explore your options. The cost of waiting is high.