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The computer software industry is relatively young. However, in recent years it has become apparent that purchasers of business-to-business software solutions are becoming increasingly disillusioned. Software companies are viewed by many as selling overpriced products that often don’t meet the expectations of their customers and take a great amount of consulting services for implementation and customisation.

This is now so common that in North America software salespeople call this scepticism the prospect’s ‘burn factor’, which corresponds to a company’s experience of being ‘burnt’ in the past.

To realise why these perceived ‘overpriced software solutions’ don’t meet the expectations of their purchasers, it is worth considering the economics of the enterprise (or business-to-business) software industry.

What many software buyers don’t realise is that most software companies spend much more on sales and marketing costs than on actually developing software. And yet many purchasers, especially in the public sector, ask for large RFIs (Requests for Information) to be filled out and request multiple presentations from many vendors.

What these purchasers perhaps do not realise is that through their attempts not to get burnt and their in-depth analysis of the market offerings, they are in fact increasing the cost of sale for the software companies. These costs (including air fares, hotel bills and the salaries of highly compensated sales staff) are eventally paid for by the purchaser, hence the high price of enterprise software.

So, surely it would be madness for any software company to reduce the prices of their offerings? One company in the newly termed ‘CPM market’ (Corporate Performance Measurement) that offers a solution for budgeting, forecasting, reporting and analysis has taken some highly refreshing steps to reduce the pain organisations need to undergo when replacing their old spreadsheet-based systems.

We asked Paul Barber, President of Prophix Software, based in Toronto Canada, to explain: “Until recently, Prophix subscribed to the high cost sales model that can be attributed to buyer behaviour when evaluating B2B solutions. Then, in 2000, we radically changed the way we sell and took the bold step to put our prices down to about 10 per cent of what had been the going rate for this kind of software.”

Barber, who was born in the UK and studied at Cambridge University, adds that “at first glance, the economics of significantly reducing the sales revenue gained per contract didn’t appear to add up. That is unless you sell significantly more software contracts and also reduce the cost of sales.”

Increase sales and reduce costs is surely a standard business exercise to which we have become accustomed, so why has it taken so long for the solution sellers to adopt? Perhaps subtleties in buyer behaviour have hampered this sales model?

“At first, it appeared that companies didn’t want to pay less for a software solution. The perception was that we could not possibly have a solution as good as others in the marketplace at such a low cost. We soon overcame this issue and indeed were winning sales with companies that had been burnt by previous abortive implementations of budgeting solutions.”

Barber continues: “We stopped answering RFI’s and started using Internet technology to give web demonstrations to our prospects. This enables us to keep selling costs down and share the savings with our customers. We offer a demonstration CD of our Prophix software, which also contains comprehensive sales literature, IT specifications and presentations of our customers’ experiences when selecting a solution, the implementation and ROI they have attained since purchasing our software.

“Since we changed our sales model, the company has really taken off”, says Barber. “We now appeal to a much larger target market and are experiencing annual growth rates in the order of 30 per cent to 50 per cent.” Bear in mind that many, more highly priced, software vendors have been retrenching over the past two years.

Prophix is now repeating their North American success in the UK & Europe. The growth of Internet connectivity and the high-speeds that are now available, has made it easier to demonstrate software to companies this side of the Atlantic and reproduce their sales model, but with a British and European accent.

“The European market has been different to North America but only because of our delay in adopting high speed Internet technology.” explains Nick Wyatt, managing director of Prophix Europe, “Fortunately this has changed and we are finding that, as broadband penetration increases, companies are becoming more comfortable with Internet web demos. We are happy to be able to pass on the lower costs of selling to our customers. This is a win-win situation.”

Prophix web demos are not ‘webinars’ that involve many companies and tend to involve a canned sales presentation. Prophix gives them to a single company at a time and these can be tailored to that company’s needs. Prospective customers see the capabilities of the product on their PC screen while talking on the phone to a Prophix sales consultant. They can ask to see particular features and visualise exactly how the product can be used in their company.

Prophix is sold directly to finance professionals who can appreciate why it is a better solution than spreadsheets for planning and budgeting. It enables them to plan more accurately, to spend less time on the ‘budgeting cycle’ and to better analyse both historical and forecast data using techniques such as allocations, to name but one. Prophix is so easy to use that most customers also use it to do their monthly financial reporting.

Having a reasonably priced software product is only half the story. There is no point in saving money on license fees if it takes months to implement the product with corresponding high costs. “From day one we designed Prophix to be easy to implement”, says Barber.  “Because of this we could successfully lower our pricing structure for both software and implementation.”

Bob Elliott is an accountant and business consultant at Consolsoft, who has been implementing budgeting and planning systems for over ten years. “When I first saw Prophix I was very impressed”, says Bob. “I can accomplish as much in Prophix in half an hour that would take days in products that cost over ten times as much.” It is this type of productivity that reduces implementation costs and makes end users very happy and will hopefully help to eliminate ‘Burn Factor’

Of course, there are always companies that are prepared to pay a premium price for a heavily customised solution that meets their exact needs, including the ongoing costs every time they want to make changes. But these are not the kinds of companies that use Prophix.

Even if Prophix does meet only 90 per cent of a company’s perceived needs, achieving the extra 10 per cent with an alternative solution can be very expensive, involving higher priced software and lengthy customisation. Many companies realise that they are better off with a workable 90 per cent solution instead of an expensive and sometimes only a perceived 100 per cent solution, that may never fully meet promised expectations.

In a typical segment of the enterprise computer software market, application of computers to a business need starts with a choice of either building the application in-house or buying and implementing expensive software. Both these approaches are very expensive and typically apply only to large organisations. In time, more affordable solutions become available and this means that more companies can benefit by automating the associated business functions.

As an example, consider accounting software. When computers were first available, only large companies could afford the hardware or the small armies of programmers it took to implement a system. In time, packaged software became popular – but it was expensive and only for large companies. Now, decades later, companies of every size can use computers for accounting.

In the budgeting field, until now, a finance department has had the choice of either building systems in spreadsheets (which typically soon become unmanageable and expensive to maintain) or spending a lot of money on packaged software that takes a lot to implement. No doubt spreadsheet users facing last minute changes or producing a mid-year re-forecast know this is not a trivial task, but until now it has been the only affordable way of producing the numbers. Now, with Prophix, it is feasible for a company to implement a planning system for an affordable investment.

Perhaps we are now entering the days when software providers that have listened to our needs are able to offer refreshingly affordable software solutions that don’t take rocket scientists months to implement!

For further information contact Chris Adams, Prophix Europe via email: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it or tel: +44 (0) 23 80 22 11 50 or visit: www.prophix.co.uk

(This article was originaly published in Director of Finance 2004 edition)