Practical guide to creating a SaaS software investment business case — Part 1

• Cleary lay out the business challenges, pain points, and requirements as well as the business opportunities that can only be addressed with this investment. This requires a clear external and internal capability gap assessment. If management is not convinced of the desirability of the strategy and attendant future state, you might as well stop there.
• A sense of urgency is especially important. Tie the investment to strategic considerations such as a fit with the broader business and IT initiatives (e.g., fit with a strategic initiative for data-driven business transformation).

• This section should include a clear description of the future state of the business once this solution is implemented, and how your recommended SaaS solution addresses the business and technical requirements to arrive at that future state. If you are a vendor building the business case, make sure you include the implementation partners’ capabilities and highlight use cases and capabilities that differentiate you and your partner from competitive solutions/proposals.
• The solution description should also include a high-level implementation roadmap clarifying timelines and resource levels.
• Detailed demonstrations of the software and how it addresses key use cases should typically precede this activity to gain the support of the relevant organizational departments.

• Here you have two options:
  1. A benefits-only business case, focusing on costs, revenues, and margins
  2. A full business case, including investments and ROI
• Sometimes it’s useful to run several scenarios — low, medium, and high financial cases. Make sure you understand the margin structure of the specific product or service lines involved. Get agreement on the appropriate margin definition — gross profit or contribution margin reflecting other direct operating costs.

• Typical full ROI business case criteria include deal timeframe, outputs such as NPV, Payback month (‘period”), and, infrequently, IRR. Also, to derive the discounted values and the IRR, the “hurdle rate” (or minimum required rate of return) on this type of investment must be clarified.

• Investment components include the license and hosting costs for the entire duration of the software subscription, as well as implementation costs — both initial and ongoing (e.g., managed services, related business consulting services). You may also be asked to include internal resources costs. The estimates will be developed with your sales engineers and the partner lead (typically) and approved for use by sales management.

• Benefits include technology cost avoidance — the removal of existing technology costs (e.g., infrastructure, hosting, licenses, subscriptions, IT upgrades, and IT maintenance costs). Often the software subscription and full implementation leads to operating cost reduction in departments such as marketing, sales, operations, customer service, and supply chain/logistics.
• Often the most compelling benefits are tied to new revenue or revenue enhancement opportunities. These may include the ability to address new markets/segments. They can also include increases in campaigns, leads, sales conversions, average order/contract/subscription values, cross- and up-sells, purchase frequency, and share of household and customer retention and lifetime value.
• Solutions that improve business agility and accelerate transformation should also include improved time to value — the ability to accelerate revenue. This can be the result of the ability to produce more campaigns. Or it could be from the accelerated introduction of new products to market. One of our financial- asset-management customers realized that shaving just a few days off the complex regulatory-heavy product introduction process (think new mutual or exchange traded funds) could accelerate revenue by millions per year.
• Proof points: Quantify benefits using benchmarks from prior customer case studies as well as research sources provided by industry analysts and consultants (e.g., McKinsey, BCG, Bain, IDC, Gartner, Forrester, and others). Depending on audience, you may relegate the proof points to footnotes, or include more elaborate customer stories.
• Make sure you understand the timeframe by which these benefits come online. It often moves the payback month out 3-12 months.

• Finally, a useful metric can include the “cost of delay” — a delay of 6 months, as well as a calculation of the value forgone by not proceeding with the purchase or program. It can be derived from cash flow estimates, or simply calculated off the average net benefits number ((average monthly benefits – costs)/investment). Some executives love this approach to highlight program urgency, while others view it as a pressure tactic. Gauge your audience and consult your internal coach(s).

Demonstrate progress on:

• Adoption/usage
• New features used since last contract date

Quantify business outcomes:

• Cost avoidance (if any)
• Operating savings
• Productivity enhancements
• Reduced external spend
• Improved revenue
• Time to market
• Risk avoidance, reduced compliance costs
• Cost of downtime
• Customer and employee satisfaction

• Cost avoidance
• Operating savings
• Productivity enhancements
• Reduced external spend
• Improved revenue
• Time to market
• Risk avoidance, reduced compliance costs
• Cost of downtime
• Customer and employee satisfaction

• Subscription costs or hosting costs
• IT upgrades, integration costs
• Transition costs (for alternative)
  • Contracting & implementation
  • Ramp-up delays and risks
  • Onboarding and training
  • Reduction in business performance during ramp up
• Cost avoidance
• Operating savings
• Productivity enhancements
• Reduced external spend
• Improved revenue
• Time to market for new features, products
• Risk avoidance, reduced compliance costs
• Cost of downtown
• Customer & employee satisfaction