Transformation areas for ISVs - Financial

In this article, we will share the most important financial considerations and insights that play a role in the switch to the cloud.

Published: 19 March 2020

When you decide to transform you legacy application into a SaaS application in the public cloud, there are a number of transformation levels that you need to bear in mind. One of those is financial. Have you properly taken stock of the costs of the cloud? How can you prevent bill shock? And how can you plug the gap when switching from a license model to a subscription model? In this article, we will share the most important financial considerations and insights that play a role in the switch to the cloud.

Pricing models – from licenses to subscriptions

Many legacy ISVs base their business on a license model – clients purchase a one-off license for your product and then often pay a fee for maintenance and support. When you transform your legacy application to a SaaS application, it is recommended that you switch from a license model to a subscription model at the same time. This makes the introductory price more attractive, and is a more reliable basis on which to build your business.

However, you cannot make a switch like this in a single step. Where previously you generated turnover with a single sizeable deal, this turnover will now be spread out over a longer period of time. If you make the switch to a subscription model in a single step, there will be a gap in liquidity, and there is a reasonable likelihood that the company will be unable to absorb it.

The most important advice when switching to a subscription model is to roll out the transition in phases. For example, you could start a pilot with the new subscription model for new products and clients. At the same time, you can retain the license model for existing products and clients. If the pilot proves successful, you can switch the current client base to the new model over a longer period of time.

Cost management in Azure

In the era of the cloud, cost management plays a very important role. How can you gain insight into future cloud costs? And how can you ensure that there are no unexpected big bills? Azure offers plenty of tools that allow you calculate and monitor the costs of the cloud. It is recommended that one of the first actions you take is to appoint a member of staff who can be responsible for this, who can keep an overview, and sound the alarm if needed. The following are some insights that we like to share with our clients.

Current hosting costs v cloud costs

If switching from a private data center to a public cloud, you will undoubtedly want to know how costs will change. Resources should be determined in advance and expenditure forecasts and budgets should be prepared. This way, you can allocate resources and budgets to business units, products, and/or roles within your organization.

The majority of cloud providers offer a tool to compare the costs of the current situation with future costs in the cloud. If you want to start using Azure, you can perform a detailed calculation of the costs here.  Or, read this article by Microsoft that provides further information on the financial models involved in the cloud transformation. Or, download the SaaS playbook and price calculator.

Cloud governance

Governance refers to the process of managing and monitoring Azure resources in order to better dovetail with the objectives and requirements of your organization. When it comes to cloud governance, we have some tips:

  1. Use Azure Cost Management. This allows you to monitor and manage cloud expenditure, and gives you a complete dashboard where you can see an overview of the use of resources. Based on these statistics, you can take well-considered decisions that will help you to minimize costs and use the cloud more efficiently.

  2.  Create a policy that details how resources should be labelled. By working with labels, you can always identify which resources are being used by which users and the costs associated with that use.

  3.  Using identity management is recommended. In the event of misuse of resources, you can identify who is responsible. By using Role Based Access Control (RBAC), you can specify which users can view, add, edit, and remove which resources.

Preventing bill shock

You’ve almost certainly come across it before – bill shock, where costs are suddenly much higher than you had previously anticipated. To prevent bill shock, it is essential that you take a number of measures to take control of your costs. We would like to share the following:

  1. Many companies convert their costs in Azure to the cost price per user per month, offering a better overview of the change in costs when scaling up and down.

  2. In Azure, you can set notifications to appear if your budget looks likely to be exceeded.

  3. You can also set the system to prevent staff members from rolling out large servers without consent. This way, you have control over your business and expenditure.

  4. You can also choose to scale down on certain days according to use. If users of your applications are fairly inactive at night, then you can scale down at night to reduce costs.


Prevent non-payment

When you make your application available in the cloud, it’s very easy to scale it worldwide. You can put your application in Azure’s Marketplace, for example, for purchase by clients around the globe. This offers a range of new options for your business, but financially, it’s an important point for attention.

You will want to ensure that you international payments flow smoothly, which is easily achieved with an international payment service provider such as Digital River. With a service like this, international clients can complete payments in their language and currency with their preferred payment method and there will be no unexpected or additional international transaction costs.

If you make your application available internationally, there is a greater risk of non-payment. To prevent non-payment, it is important that you understand the potential risks and have a policy in place to minimize them. The following are some tips that we would like to share:

  1. Contact new clients personally – this is particularly useful for client satisfaction and retention.
  2. You can check the details and background of clients with the help of a credit reference agency or Digital Identity Service Provider.
  3. Use multi-factor authentication to keep robots at bay.
  4. Formulate a detailed description of your collections process and the consequences of non-payment.

Would you like to read more about transformation levels for ISVs?

This article is part of a series of articles on transformation levels in the switch to the cloud. If you would like to know about what the transformation to the cloud involves on an organizational level, you can read in our next blog. Sign up here and we’ll keep you posted.