That’s right! Continuing last week’s post, we are again putting a stake in the ground on a real, actual, number! (With similar caveats, of course, but still, a real number!)

Why? Because, at least in North America, the one question everyone asks but no one wants to answer, is,

how much for that product on the SaaS cloud
the one with the advanced software
how much for that product on the SaaS cloud
I do hope that software’s priced fair!

Most vendors, especially in the enterprise software space, want to get as much as possible (as failing to do so, especially if they are public or owned by a PE Firm with a tight timeline to enhanced profitability, gets them a “bad” rating), and, thus, obscure their (true) pricing. Their (big) analyst clients want them to get as much as possible (as they all dream of the day they get that Million-Dollar PO from a vendor in exchange for simply keeping the vendor at the top of the charts). Clients who think they got a deal don’t want you to underpay (and then have their renewal prices hiked up as the vendor seeks to maintain it’s profit margins) … and clients who think they’ve overpaid don’t want to tell you. And when some of the bigger vendors won’t even talk to you unless they think you’re good for seven (7) figures (i.e. One Million Dollars) a year or more, you might be tempted to think good (DIY) suites are out of your grasp.

However, as per our last installment, they’re not! And, if you’re smart, they can be quite affordable (especially for baseline end-to-end functionality with some advanced functionality sprinkled here and there) and lead to not just an identified, but realized, ROI in a short time frame.

But sometimes the base is not enough! What if you need advanced features such as:

• strategic sourcing decision optimization (SSDO)
• enhanced analytics with market intelligence (commodity pricing, GPO/anonymized community pricing), ESG data, project tracking
• supplier development with orchestration, network management, discovery, enablement, etc.
• CLM with analytics or enhanced authoring with augmented intelligence
• I2P with smart OCR/Free-Form Processing and partial m-way match

These, and other advanced features, are going to pump up the price. How much? It varies. For the list above,

• the most advanced commercial solvers, which most of the SSDO offerings are built on, charge 5K+/month for their solver to be embedded in a third party application, and that’s one of the reasons this software is not cheap (and the other is that these models require extremely skilled and experienced PhDs to build and deploy; but considering it is the only application that, when you’re ready, will consistently identify 10%+ savings on categories that have never been optimized, it can be worth it)
• you can get the most powerful analytics solution on the market for 2K/month, but if you want market intelligence, you’re either going with a company that has a large enough install base to build that (and paying a lot more for the company to collate, anonymize, and offer that) or multiple third party market feeds; this will cost you another 3K to 5K a month (but you don’t understand your should cost without this data, and can’t identify the true opportunities in some categories without this data, so it can be worth it)
• networks seem easy enough (all the big vendors have one), but you need a lot of suppliers, and true networks are multi-tier (meaning every supplier is a buyer in a sub-network), orchestration requires a lot of different data of a lot of different types and sometimes requires complex graph algorithms to get right, discovery isn’t easy if you need specific capabilities and not just commodity products, and enablement, well, as you can tell if you go back and review the CORNED QUIP mash of vendors, there really aren’t that many that do true enablement for the supplier
• core semantic tech seems pretty cheap with a lot of open source models, but well tuned and well trained semantic tech on appropriate data is not (because training it on social media garbage produces the electronic equivalent of hazardous waste as output, as per a piror/upcoming article), so you’re going to pay for this, especially if you want technology finely tuned to analyzing your contracts, auto-building suggested templates appropriate for your business, guiding you on where legal focus needs to be (due to low confidence or ambiguity), etc.
• if the invoice comes in as a PO-flip or using an EDI/XML standard, any platform can process that efficiently and cheaply; but if you’re tying to process PDFs, even if a supplier sticks to a template, that’s work; you not only have to train models, but build customized models to each invoice type; that’s a lot of manpower on the vendor’s part to build those for you (or on the vendor’s part to build tools you can use to define those templates for the software using WSIWYG low-code or no-code interfaces)

The reality is that any advanced application you need/want is going to triple to quintuple the price you’re paying for that module, depending on how advanced the functionality is, how much expertise is needed to build and maintain it, and how much the vendor itself has to pay in SaaS/license fees to third parties for advanced models/capabilities it is building off of or appropriate, reliable, human vetted data sources. What was a 2K module is now going to be 6K to 10K a month (or, if you have to augment what you have with a third party application, an additional 6K to 10K a month).

Not cheap, but when advanced technology, properly applied on the right categories / problems in the right circumstances can deliver 2X to 3X the cost reductions, it becomes very affordable. For example, let’s say you have a 100M components category in electronics and all a well-constructed RFP and analytics manages to find is a 3% cost reduction opportunity. That’s 3M, if captured, but what if there’s really a 6% opportunity through non-obvious re-allocations when logistics, tariffs, FTZs, and volume breaks are taken into account. That’s 6M, or an extra 3M. If the SSDO module cost you an extra 60K per year, even if used ONLY on that one category, that’s a 50X return! Similarly, if advanced contracted analytics with augmented intelligence allowed your legal team to dynamically build up clause libraries and templates on the fly, reducing contract preparation time by 70% on every category, that’s going to greatly increase your sourcing cycle velocity, allowing you to get through more events, and compound cost reduction opportunities. The manpower savings will likely be 10X the extra 60K a year.

And so on. The value is there, but, as per our S2P series, only if you have a need for it AND are ready for it. (That’s why we suggested implementing one module at a time, and starting with baseline capability so you can get your spend under management, get the data for a proper spend analysis, determine where the true opportunities are, determine what you need to address the true opportunities, and then upgrade to the advanced offerings of the vendor (or augment with third party modules).

But, at the end of the day, based on our knowledge of what provider offerings with best-in-class opportunities start at, average multiples over baseline, and just how much a mid-size organization will need across source to pay, we’re putting a stake in the ground that an advanced S2P offering with advanced capabilities across all 6 core modules should top out at 500K, and, in fact, we’re betting that an average organization, which will only need advanced capabilities in half the modules, should only need to pay 240K to 300K a year — or the cost of 2 FTEs, which is peanuts compared to the efficiency improvements the organization will realize and the cost reductions they will see. Even if a smaller organization (500M-ish in revenue with 250M-ish external spend that Procurement can influence) only gets 30% of their addressable spend under management (75M-ish) and only sees a reduction of 3%, that’s still 2.25M, which is 8X+ the cost, and definitely worth it!

However, all the same caveats from our last installment hold.

[01] You are a true mid-market company, which we’re defining as a company more-or-less between 500 Million and One Billion in Revenues and an addressable spend of 250 Million to 500 Million (as you can’t address payroll, government controlled utilities, mortgages/long term lease rates, etc.).

[02] You have an average sized procurement team of under 30 people. (In a 2019 Benchmark, average organizations had 33.5 Procurement personnel per 1 Billion in revenue.)

[03] You’re doing an average number of projects per year for those people (and likely maxing out at addressing 20% to 30% of the addressable spend per year).

[04] As you have (next to) nothing in terms of modern source-to-pay technology, your primary focus is the baseline capabilities (as defined in our Source-to-Pay series). You might want a few of the more advanced capabilities, but right now, getting the baseline (which will likely provide 80% of the value by allowing you to get all of your processes, and costs, under control) is the primary goal.

[05] This does not include integration costs, training costs beyond access to all of the online-training materials/virtual academy, and the implementation costs are limited to flicking the switch to activate the license and any necessary setup configuration. (Unless you are buying an advanced module, in which case the vendor will include more setup, configuration, and additional data load support.)

[06] The sales cycle is mostly virtual (web demos, video conference meetings, etc.). You won’t get to meet the sales rep in person more than once during the sales cycle (and that’s only if you’re buying a mini-suite or multi-year deal; these vendors stay affordable by keeping their costs down, and multiple on-site demos and meetings do nothing but drive up overhead and costs).

[07] Most vendors will help you with the initial data load (provided you are loading data from a supported system in a supported format), but refreshes will typically not be included in the ongoing support, which will mainly be limited to online help and workaround support for identified bugs while the bugs are being fixed.

[08] With the exception of some market intelligence from anonymized customer data or free public data sources, this will typically not include any data enrichment offerings also offered by the vendor, especially if those data enrichments are coming from third parties, but these will be pre-integrated and you will only pay the third party fee if you want to turn them on.

But what if you’re a borderline/true multi-national enterprise? Or a small company / borderline “small” mid-market? What should you pay then?

To be continued.