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The "PAY NOW" cash flow model for software companies explained in just 10 slides

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The "PAY NOW" model is perfect for software companies with a bootstrapped growth strategy. Practically all big software companies in the world use this model. These 10 slides explaining all you need to know about this business model

Published in: Technology, Business
  • @gohardesign Hi Muhammad, thank you for the kind feedback. Accountancy software is unfortunately a red market but if you find the right growth hacks, things could work out for the better. Success!
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  • Wow this was a good read. Thanks for sharing Omar . We have launched a Web application that is a free online invoicing, quotation and accounting software. (www.eccountant.co) Do use it and provide your valuable feedback.
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  • Interesting read, Omar. Good to have some target figures too!

    Originally built for medium to large-sized companies, the simple tool Cash Forecaster might help start-ups too managing their cash flow. We're using it for own start-up too! www.getcashforecaster.com

    Nicolas Christiaen | nicolas.christiaen@discover-edge.com
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  • Presentation transcript
    1. THE “PAY NOW” MODEL FINANCIAL BUSINESS MODELS FOR SOFTWARE COMPANIES [BETTER KNOWN AS BOOTSTRAP-THE-CLIENT-MODEL]
    2. THE “PAY NOW” BUSINESS MODEL: Pay Now = on-premise software model • Straight forward approach: • Create software • Sell software • Receive cash • Install software • Bill installation @ $ 800 - $ 1,200 per day • Bill yearly 15-25% for support & updates • Laugh all the way to the bank
    3. CASHFLOW MODEL short period of negative cashflow maintenance fees stop selling = end of the business
    4. PROS OF THE “PAY NOW” MODEL Client bootstrap => cashflow savvy • Perfect for B2B (enterprise) oriented market • Significant value creation through services (installation, configuration, training etc) • Vendor lock-in • Make $ with “shelf-ware” projects that never got fully implemented • Channel friendly => geo-expansion opportunity • One-off sales = no churn
    5. CONS OF THE “PAY NOW” MODEL Long sales cycle => CAPEX decision requires a signatures up to the board level • Legacy (supporting multiple versions is very costly) • Exposure to piracy • Getting on Gartner & other magic quadrants required for selling to enterprises • Slower growth + go-to-market • Lack of hockeystick => not for SV-style VCs
    6. Majority of big software companies are based on the “Pay Now” business model: “PAY NOW” COMPANIES REVENUE (BILLION) NET INCOME NET INCOME ($) (%) Microsoft 78 22 28% 97,000 Oracle 37 11 29% 123,000 SAP 22 4 17% 65,000 Symantec 7 1 17% 21,500 VMware 5 0.7 16% 13,800 EMPLOYEES 6
    7. SALES PLAY • Wine & dine with prospective clients • Sell & forget • Value rather than volume oriented • Support engineer (to handle integration questions) • Based on “Solution Selling” approach • Smooth talking salesman (with car, laptop, tablet & smart phone)
    8. “PAY NOW” ECOSYSTEM: Big 4 (KPMG, PWC, Accenture, Deloitte) making $4 in consultancy for $1 sold in software • Market research companies (Gartner, Forrester, IDC, Aberdeen…) are decision making compasses for CxOs • Channel partners (to grow international) • Client’s ICT department • Hardware vendors get a seat at the table too
    9. “PAY NOW” FINANCIAL KPI: GM: VERY HIGH HIGH • Administration cost: VERY HIGH • Operating cost: LOW • Costs of goods sold: VERY LOW • Marketing cost: • Sales cost: • Gross profit margin: 70 - 95% • Operating margin: 30 - 60% • Net profit margin: 20 - 40%
    10. CONCLUSIONS “PAY NOW” MODEL • The Pay Now model is perfect for bootstrapped organic growth using partners • Considered “old school” but still rules when it comes to revenue & cashflow • Best cashflow generator after the “Pay First” (escrow) model and superior to • ”Pay Soon” (consultancy) model • “Payer Later” (subscription) model • “Pay Never” (advertisement) model • Churn, the # 1 SaaS-killer, is practically unknown • Valuation = 0.5 to 3 times revenue (or 5 to 30 times EBITDA multiples) • The Pay Now model requires a perpetual sales force machine • The Pay Now model generates more short-term cash as growth accelerates • Size matters = tension between profitability and growth
    10SLIDES2SUCCESS © sirris | omar.mohout@sirris.be
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