NetSuite dangles 100% margins on SaaS ERP business

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NetSuite dangles 100% margins on SaaS ERP business

Barbara Darrow, Senior News Director
NetSuite will give select partners 100% margin on sales of its Software as a Service ERP offering.

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Specifically, partners invited into NetSuite Inc.'s SP 100 program can get 100% of the software purchase price for the first year of the ERP service.

There are caveats. The customers must be new to NetSuite and sign up for at least two years. In the past, NetSuite partners in good standing could get up to 50% margin on the software license sold plus 30% margin on renewals for the life of the contract. To qualify for those figures, the partner had to contribute $100,000 gross in new NetSuite business annually. That requirement remains in place. Renewal business does not count toward that total.

The goal, clearly, is to get partners to move customers from competitive Microsoft Dynamics or Sage Software ERP alternatives. For VARs, the move from selling on-premises ERP to SaaS can be painful. VARs that are used to getting a piece of a big up-front license sale sometimes find it hard to adjust to SaaS's more incremental annuity model that usually spreads payments out over the year.

NetSuite's 100% margin offer could ease that pain. Its customers do buy subscriptions but are required to pay for the first year of service up front. Once that is paid, partners get their cut, said Craig West, vice president of channel sales for NetSuite, in San Mateo, Calif.

The NetSuite ERP suite costs $6,000 per year plus about $1,000 per user per year.

The AIS Group is aboard. The VAR sells Microsoft Dynamics GP ERP for on-premises use. Now it's adding NetSuite to its portfolio, said Simon Whittle, COO of the Berkeley, Calif., VAR.

Whittle agreed that the 100% margin is unique. "We've been around a long time -- in this business for 15 years -- and I've never seen anything like this offer," he said. "For cash flow, this is fantastic," he noted.

Other Microsoft ERP partners have said that margins on Dynamics ERP are about 40%, but channel sources say that ERP sales -- of both on-premises and SaaS ERP -- have been slow.

NetSuite, like other SaaS players, has had a bit of a checkered past in partner relationships. Some partners have complained about the vendor poaching partner-led deals and taking them direct.

Let us know what you think about the story; email Barbara Darrow, Senior News Director at bdarrow@techtarget.com, or follow us on twitter.