This morning, I attended a program at the Massachusetts Technology Leadership forum featuring John Lewis, Regional VP of Sales, of athenahealth. John’s presentation centered on his company’s  experiences of selling what he referred to as health care’s first cloud-based service.

Following on the heels of recent conversations, I’ve had with CIOs, about placing confidential patient data in the cloud; I expected John to tell us how he overcomes this objection.  Instead, he spent the morning convincing us that operating in the cloud is his company’s competitive advantage.  John supported this thesis with figures, facts, and logic.

The figures

athenahealth supports 33,000 health care providers and processes $5 billion in collections/year.  The company has a 30% growth rate.  This growth rate is an indication of satisfaction–since as a SaaS provider, athenahealth’s success depends on client renewals.

The company also offers an Electronic Medical Record (EMR) application and a patient portal.   John told us that the majority of recent prospects have been buying both the revenue cycle and the EMR products.

The facts

Health care standardization has been slowly evolving for the last twenty years.  Nevertheless, it is still largely a world of “one off” transactions.

Each patient is different, has different ailments, and therefore requires different treatments.  Each health care provider has a different system for treating patients and recording the services and results.

Some of this variation is attributable to the differences between patients.  Some is an artifact of a largely manual system that has made it difficult to group like patients and develop standards of care.

To complicate matters, each health care payer pays differently.  This is because payers’ rates take into account volume discounts.  Furthermore, health care providers sometimes need to collect payments from more than one payer for a single patient.

Knowledge management

John argues that by providing services in the cloud, one of the main advantages athenahealth offers its customers is simplification of a complex process.   Because the company process claims for thousands of practices, it collects a lot of data and can spot, and respond to, trends quickly.

Visibility leads to continuous improvement

The company’s original goal was to speed up revenue cycle payments and reduce receivables.  They did so by reducing the number of claims that payers reject.

The company constantly analyzes the revenue cycle to identify hiccups in the system.  Each time a payer rejects a claim for any of its practices, athenahealth updates a central rules set.

Anything the company learns on behalf of one practice benefits all the practices.  Today, the company flags most errors before the claims reach the payer.  Because claims go in right the first time, practices also save on small claims that its clients wouldn’t formerly have bothered to reprocess.

Meaningful use

athenahealth also uses knowledge management to help its clients comply with meaningful use criteria.  For example, the company noticed that a lot of clients were falling behind in measuring demographics.  Once it spotted the problem, athenahealth developed a program that taught users to ask patients about their races, so that the practices could then qualify for greater reimbursement.

Streamlining workflow

athenahealth now reviews the data to spot opportunities to streamline practice workflow.  For example, they now batch all their clients’ claims before delivering them to payers.

There’s power in numbers

What struck me as interesting, is that John indicated that because, athenahealth serves so many practices, they are–or will soon be–in a position to negotiate with other parties about the way in which the two entities exchange information.   If so, this may be an important step in accelerating data standardization in health care.

Responding to change

John points out that his company’s cloud-based solution is particularly compelling when you consider how quickly health care is changing.  Since everyone is running on the same instance of software, athenahealth can respond to changing rules quickly–without requiring clients to install new software.  For example, when athenahealth obtained certification for its software, all of its users received certification at the same time.

Readiness for bundled payments

When someone asked whether bundled payments would erode athenahealth’s competitive advantage, John responded that the company already supports capitated practices.  He said that while fees may decrease on the revenue cycle side, the complexities associated with health care payment will merely shift to the clinical side.

Will cloud solutions triumph?

The jury is out.  Hospitals are under pressure to contain costs, but patient privacy remains important.

Even though IT professionals in other regulated industries are also beginning to move data to the cloud, John admits that his is still a missionary sell.    Nevertheless, the facts, figures, and logic that John presented convinced me that athenahealth offers advantages that many practices find appealing.  The bonus will be accelerated data standardization if athenahealth gains sufficient market power to influence some of the parties with which it exchanges information.

See examples of how BB Marketing Plus works with health care clients in the health care marketing section of this website.

Related posts:

1. How will Electronic Medical Records (EMRs) improve quality and reduce costs?
2. Health care reform: people, processes, data, oh my!
3. Health care social media is in its infancy says panel
4. Enabling health care delivery in the community

Program description

Unlike traditional software business models which are based on one-time license sales and lump-sum cash payments, the SaaS model is predicated upon building annuity-type revenue and cash streams. Over the long-term this business model is highly attractive, but especially for early-stage companies ramping SaaS revenues poses a unique set of challenges. MassTLC has gathered a panel of accomplished SaaS operating executives to share their insights on getting the initial revenue ‘flywheel’ turning and building sustainable SaaS enterprises.

The panel

Skip Bestoff, General Partner, at Castile Ventures did a great job of moderating the discussion–asking all the questions we hoped he’d ask.  Fred Mather, Global Head, M&A and AI Sales at IntraLinks and Richard Turcott, CMO at RatePoint drew on a wealth of experience to share best practices, lessons learned, and advice about how to get the revenue flywheel going.

Determining market positioning and value propositions

Skip asked, “How do you find the sweet spot for your business?”

Advice:

• Understand your market and follow through–too often people find their target market and then later ignore what they’ve learned.
• Meet with prospects to gather market insights.  Nothing beats seeing someone’s reactions as they talk about what’s important to them.
• Ensure that the opportunity you’re pursuing addresses a significant problem
• Tie your value proposition to cost and/or time savings.
• To ramp quickly, aim for those who already recognize they need a solution to the problem you’re addressing

Tips:

• Accelerate your learning by using pay-per-click ads to test various terms you’re considering using to market your solution
• Then, apply what you learn to other channels

Skip asked:  What’s the impact of the subscription model on the value proposition?

• SaaS enables you to target the economic buyer, since you don’t need to put anything in “on premise”
• The sale is more transactional.   When the entry point is just $/month, perceived time savings and ease of use often trump classical  ROI
• Customer centricity is more important than ever.  You need to deliver a great customer experience if you lead with a trial.

IT’s involvement in the sale

Comments:

• The IT budget is shrinking, so you need to attack the operating budget if you want to make a lot of money
• IT is still involved for enterprise sales, that require custom development such as integration with other applications the customer is using
• You need to tell IT what’s in it for them
• Although it’s all over the place, most IT departments today are economic buyers
• If IT approval is needed, there is one more step in the sales cycle, and the company tends to grow less quickly.

How much should you pay to acquire a customer?

Advice:

• Start by determining the lifetime value of a customer (LTV).  The calculation is (1/attrition rate)*Average sales price
• In the beginning, you may need to pay more than the LTV because you haven’t proven your value or developed a brand.
• In the long term, you need to pay less than LTV to achieve profitability

Best practices for acquiring customers

• Depend on prospect and customer anecdotes to get your messaging right.
• For small price point products, you’re conducting focus groups every day (as you watch online buying behavior)
• Leverage the community: start with those who wield the greatest influence with the target market
• Then, focus on getting customers that are willing to serve as spokespeople for your case study
• Work your network:  with the advent of social media, no one needs to make cold calls
• Set limits and success criteria to ensure that your trials encourage conversions:  give prospects just enough time and functionality to experience value
• Hone your process by analyzing the sales pipeline:  key metrics include visitors to trials, trials to conversions, time to progress through cycle, level of discounting

Customer support strategy is essential to success

• Having a well thought out support strategy is essential to success
• Business users are less technically savvy and require more handholding
• To scale, you need to make people comfortable with on-line support
• To maximize profitability, you need to bake support into the product over the longer term.
• Initially, however, it’s likely you’ll need to  provide personal support to compensate for gaps in the product and/or training materials

These are some of the insights I gained from the panel this morning.  What have you done to get the revenue flywheel turning for your SaaS business?

Looking for more ideas?  Download  5 actions you can take today to get more sales ready leads.

Related posts:

1. SaaS distribution model challenges vendors to take customer service to the next level
2. Accelerate revenues, reduce the cost of sales, and boost profitability
3. Clean energy technology: Building an ecosystem in New England

The question is does it work?  And for whom?

Discounts do increase sales volumes

There’s no question that discounts increase sales volume.  To find evidence, you need look no further than to a Reuters article that ran earlier this month about automobile industry sales.

The lead sentence reported:  US auto sales jumped to a seven-month high in March led by a 41 percent surge at Toyota Motor Corp after the Japanese automaker offered the steepest discounts in its history to win back sales lost during its recent safety crisis.  Here, it’s worth noting that discounts were so successful in increasing sales volume that they did so despite the fact that the company had experienced a number of setbacks that tarnished its reputation, and presumably its brand.

But, discounts can reduce profitability

Nevertheless, just because discounts can increase sales, doesn’t mean that discounting is a good strategy.  Discounting is only a good strategy if it doesn’t impair long term profitability–which it often does.

In the automobile example above, Toyota took a loss on any cars that they sold to customers that would have bought from Toyota anyway.  Unless they could attract enough customers–that would otherwise have bought from the competition– to offset those losses, any increases in volume would come at the price of reduced profitability–on the cars themselves.

Discounts don’t–and shouldn’t–happen in a vacuum

Of course, there’s also the issue of cash flow.  Automobile dealers have a lot of cash tied up in inventory.  Especially since this inventory loses value as the next model year approaches, it may make sense to discount even if only to keep customers from delaying their purchases.

The issue, however, is even more complicated.  In the automobile industry, service revenues depend on automobile revenues.   Therefore, companies may discount automobiles if they believe profits from service sales will offset any losses on the cars themselves.

Finally, before discounting companies need to take into account the competition.  Any time one organization starts to discount, it runs the risk of starting a price war as the competition rushes to meet or beat its offers.

This post has focused on the auto industry.  Yet, every industry faces similar considerations.

Different industries, different discount considerations

In the airline industry, inventory is perishable.  If an airline flies with empty seats, it will never recoup the associated revenue.

Yet, we don’t see airlines routinely discounting empty seats, even as the departure date nears.  If they did, people whose schedules were flexible would wait to buy, eventually driving down the price of all seats.   Therefore, when airlines do discount they do so upfront–and only make those offers available to those who have flexible schedules and/or will fly at non-peak times.  In so doing, they ensure that those who will pay a premium for seats continue to do so–and thus preserve profitability.

Subscriptions are at the other extreme.  They’re not perishable because the customer gets the latest greatest features when they’re available–as long as they renew.

Yet, both magazine and software publishers often discount to attract new subscribers–often in the form of a free trial.  While they hope that customers will upgrade to a paid package to either retain the service, or get more functionality, this often is not the case.

For one thing, free and/or discounted offers often attract people who would never otherwise consider the product–and therefore abandon it when the price increases.  When this happens, the company wastes sales expense on unqualified prospects.

For another, even qualified customers who buy at a discount often come to associate the discounted price with the value of the product.  Therefore, they become disgruntled when the price increases without the addition of new features that they find valuable.

Thoughtful discounting  works

As I mentioned in my article, Marketing is so much more than promotion: just ask my hairdresser, thoughtful discounting works.   I went to my current hairdresser when my former hairdresser missed our appointment because she was running late–fully intending to make this a one-time visit.

After styling my hair, the new hairdresser gave me a coupon that offered almost 50% off my second visit.  As a strategic marketing consultant,  I was impressed with the move.

Had the salon offered newcomers discounted services, it may have attracted individuals unwilling to pay the salon’s normal prices.  On the other hand, offering a discount after the first visit, encourages clients who have already demonstrated their willingness to pay full price to come again.

When I commented that the salon had done exactly what I encourage my clients to do,  the stylist confirmed that the decision was strategic. She said most first-time clients come because their current stylist is unavailable. The owners, knowing it takes time to create a relationship, use the coupon to provide an incentive for satisfied clients to return for another visit.

It worked.  I returned–rationalizing that my hairdresser could have called to let me know she was running late.  A year later, I continue to go to the new hairdresser, even though I pay full price.

Review the pros and cons before discounting

Before you discount, review the pros and cons.  Ask first:

• What do we hope to achieve by discounting?
• How much business will we now win that would otherwise lose to a competitor?
• How much profit will we forego  by selling discounted products or services given that customers who would have paid full freight can now pay less?
• What’s the benefit to us if someone buys sooner rather than later?
• How will the competition respond to the discount–and how will that affect us?
• How will discounting affect perceptions about the value of our product or service?

Then, you’ll know if discounting is a good way to increase sales.

Want to evaluate other ways to increase sales?  Download 5 actions you can take today to get more sales ready leads.

Barbara Bix is the Managing Principal of BB Marketing Plus and and specializes in helping companies with complex products and services increase sales.

Related posts:

1. Linked In: 5 tips for generating sales

The customer service bar, however, is especially high for service providers. That’s because while product companies tend to recognize revenue at the time that they make the initial sale, service providers depend on recurring payments to maximize revenue. Those that fail to meet customer expectations run the risk of never realizing a return on their upfront investments.

SaaS vs. On-Premise Software Distribution: What are the implications?

Last month, the Massachusetts Technology Leadership Council invited Bill Bohen, VP of Client Services at TimeTrade Systems, to speak about the implications of this distinction for companies like his that now sell software as a service (SaaS). Until recently, most software providers sold licenses that entitled purchasers to run a copy of the product “on premise”. Today, however, many software providers, like TimeTrade Systems, have migrated to a model wherein the vendor hosts “multi-tenant” software centrally; and purchasers “pay as they go”, on a monthly or annual basis, for web-based access.

One of the main differences between the conventional and SaaS models is the payment stream. Another is that the SaaS providers typically assume accountability for uptime, security, data continuity, and upgrading the software; since they now host the product (or contract with a third party to do so for them).

Software purchaser benefits and software provider challenges

Many purchasers prefer the SaaS model because:
•  The initial investment is smaller
•  They can scale up or down as their needs evolve
•  It’s easier to administer and places less demand on scarce IT resources
•  Employees can access the product anytime/anywhere via the web

From a provider perspective, however, the SaaS model has created unique challenges–especially for companies like TimeTrade Systems that offer mission-critical applications. For one, if problems arise in a multi-tenant environment, they have the potential to cripple numerous customers rather than just a single company. For another, customers are demanding aggressive service level agreements–and exacting penalties for non-performance–now that they depend on their vendors to assure system availability, integrity, and currency.

Customer Service investments improve software performance and customer satisfaction

To minimize downtime and maximize customer satisfaction, Bohen told us that Time Trade Systems has made, and continues to make significant investments in predictive monitoring and state-of-the-art communication systems. Predictive monitoring enables his company to anticipate failures before they happen, and take preventive action. Rapid, helpful communications reduce uncertainty, minimize unnecessary calls, and decrease delays in getting everyone up and running.

As Bohen points out, when problems occur the company needs to know who is affected and inform them quickly. There isn’t time to let people know one-by-one.

Automated communications, and meticulous maintenance of the distribution database, have enabled TimeTrade Systems to quickly identify and notify appropriate internal personnel, and customers, when problems occur. The company has also instituted a clear escalation procedure to facilitate quick problem resolution and minimize delays in restoring full service.

SaaS upgrades also present unique challenges. In the past, software providers delivered upgrades that customers installed on their own schedules. Today, however, the vendor updates the central site and everyone begins using the new version right away. To facilitate the upgrade process, Time Trade Systems has invested in automated testing and in systems that make upgrades easier to release–and rollback, in the event that issues arise.

Better service benefits vendors as well as customers

As mentioned above, providing outgoing service on an ongoing basis is essential for companies that depend on high customer satisfaction to maximize renewals and revenue. TimeTrade Systems offers customers a number of venues to get quick answers to pressing questions, including online access to frequently asked questions, customer forums, and social networks.

The company also produces reports that enable account managers to monitor any hiccups their customers’ experience. Moreover, the CEO, himself, reviews every incident to spot opportunities for improvements, or situations that may call for his personal involvement.

But can vendors quantify the benefit?

Bill Bohen’s talk was of particular interest to me as a strategic marketing consultant–who advises both technology companies and professional service providers on steps they can take to accelerate the sale–and believes that outstanding service matters a lot. The questions are, “Do the numbers bear out that belief? Will SaaS providers get a return on the investments they are taking to meet customers’ rising expectations?

The answer appears to be “yes”. As they realize that SaaS can meet their performance and security requirements, more and more companies are opting for SaaS applications–even for mission-critical applications. As for TimeTrade Systems, their year-over-year bookings increased by 140% last year–clear affirmation of the marketing ROI that excellent customer service delivers.

Related posts:

1. SaaS: Building the revenue momentum you need to achieve profitability
2. Health information technology: successes, challenges, next steps
3. Price or customer experience–which matters more?