A fresh approach to SaaS pricing - Plex Systems

Earlier in the week I sat down with Jason Blessing, CEO Plex Systems to get a recap on 2013, a view into 2014 but more important to talk a little about the company's pricing model. It's an important topic for buyers in part because we are seeing something of a backlash against cloud - as indicated by Dheeraj Pandey, CEO Nutanix:

“We’re agnostic about private and public cloud style implementations but in reality what we see is private use dominating our customer requirements.”

By way of contrast, Blessing told me his company is growing a healthy double digits and part of that is to do with the way they price.

Many SaaS solutions are priced using an old model originally devised by the on-premise world, where modules are priced on a per item and per seat basis. Large organizations will expect to negotiate the final total and discounting is common. Plex Systems on the other hand prices using a percentage of customer revenue. This sounds counterintuitive because organizations are often loathe to share revenue where it is perceived the cost is no longer fixed. In fact, many previous attempts at offering this model have failed.

Plex wants its software to reach all parts of the business and by offering an alternative formula, it then becomes part of the cost of sale. As Blessing explained (see video above) its manufacturing and automotive customers like this model because it is easy for them to understand. I get that, especially when seen in the light of standard costing systems which remain common in those types of industry.

To me, this is a refreshing change but it won't suit everyone. Those organizations with a high level of fixed cost such as service industries for example might find that measure as difficult to factor into their costing strategies. However, I could see models emerging where pricing is based upon some formula that takes into account total planned payroll and headcount, with some flexibility built into the model for unexpected shifts.

The risks of this model to Plex are likely minimal. SaaS vendors collect a lot of data on behalf of customers and with the right analytics in place, can more easily spot emerging trends. The fact Plex actively reaches across the entire business gives it the ability to abstract additional insights that are not available to those that only sell into one or two functions.

However you look at this, the model is clearly resonating with Plex customers and Blessing seemed very relaxed with the idea.

Coincidentally, the company announced the appointment of a new CFO with long years of experience working with SaaS/cloud companies and who took Eloqua public. IPO anyone?

Plex is not saying too much at this time but assuming things continue on the current trajectory, then you might anticipate the company going public in the next two years. It needs to hit that magic $100 million in revenue before the market will take it seriously and Blessing has indicated that he might take a couple of small lead up rounds beforehand. Even so - that sort of timeframe fits with what we know and can deduce from the various hints made around numbers and growth.

Verdict

Plex is another of the emerging SaaS/cloud solutions providers that should be watched. The combination of an interesting business model, economic tailwinds (especially in the US) and a broad set of capabilities for different types of discrete manufacture as well as a strong foothold in the mid level automotive supply chain makes it one to watch closely in the coming months and years.

Image via Plex Systems