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This Week's Theme: Customization and Standardization

The questions I have selected for this week center around standardization and customization. Is customization worth it? How do you do it while still maintaining a standard product? Can you productize a custom application? Can you customize a SaaS product?

So let's see what our readers have on their minds.

Dear Product Manager,

Our company has a product that is sold to large corporations. We have few customers, and each one is significant in terms of the license fees we collect. During many of our sales, the prospects ask for features that aren't in the product, and the management team has a big debate about how to accommodate this. We have accommodated requests in the past thinking they would be good new features to add, but they turned into one-offs that we pay to maintain but which are free to the customer. How do we deal with these requests, and how do we price for them?

— Holding to a Higher Standard

Dear Higher Standard,

Looking at the structure of your customer base, it seems like you depend upon a small number of customers, each of whom pays a big-ticket price for the software. I would say that it's less likely that you can fully standardize like you could with an application that has many customers, each of whom represents a small percentage of total revenues. You probably can't afford not to accommodate some of these requests in order to win deals.

What I recommend is that you set up a process to evaluate these incoming requests. The first step is to determine whether a request is really necessary for the sale, in the prospect's eyes. If it isn't necessary, get the prospect to agree to go without it altogether or else to pay for it. If it is necessary, reach out to your other customers to determine whether you've got a suggestion for a feature that multiple customers find valuable, or one that is a one-off. If multiple customers express interest, consider adding it as a standard feature. You can go the configuration route and provide a way to turn the feature on or off, to accommodate the fact that only some customers will want it. For a one-off, you can make it a customization.

As for charging for these, I would definitely charge additional license fees for customizations, and make sure that your maintenance is calculated with those additional fees in mind. New features that are used by multiple customers are probably not something you can charge for, however, I would take a close look at maintenance revenue to determine whether you are charging enough. You may need to charge a higher percentage for maintenance to accommodate the nature of your customer base.

— Signed, Product Manager

Dear Product Manager,

Our company develops custom software. We have recently developed an application for a client to their specifications which we think has the potential to sell to a larger audience. How do we go about turning this into a product that we can sell to multiple customers?

— Scaling Up

Dear Scaling Up,

I'll first assume that you legally have the right to take what was developed for the customer and sell it to others, meaning the contract does not specify that the software is the sole property of that customer. Trying to take this custom-made application and productize it requires a different effort up front during the design phase. You'll need to find a representative sample of prospects — perhaps starting with past customers — and determine whether the features of the product have a consistent appeal in a larger market. Getting this information can take the form of semi-structured conversations where you ask the same questions of each prospect to compare the answers. If you have the resources, you can try a more formal survey where you ask very standardized questions via phone calls, or via online surveys if you can get people to respond to them (to get a sufficient response to your survey, consider offering a drawing with a prize related to the purpose of the software, to attract the people who are likely to be potential customers or end users). Then you can analyze the responses.

If you find out that most prospects consistently want the features in the software as it currently exists, you're lucky and ready to move forward with launching the product on the market. (The launch process is a whole topic in and of itself. Click here to see a column that talks about product launches.) If, as is also highly likely, you discover different segments of prospective customers who want to use different capabilities, this is where configurability comes in. You'll want to embark on a development effort to allow customers to turn certain capabilities on or off, so that capabilities they don't want don't get in their way and make the product more complex. You can create an admin screen to activate various capabilities. And you need to rewrite the code so that these features happen (or don't) based on the settings. The advantage of this is that you have a single codebase to maintain and upgrade, without worrying about customizations.

Note that if your survey uncovers distinct customer segments, each with consistent settings, you have the potential to brand and sell these as distinct products where the setup work is done in advance and each type of customer finds the product easy to adopt.

Finally, I'm guessing it's unlikely that the custom application you developed is a SaaS application, meaning that it's hosted by a third party and the customer accesses it over the web. The current gold standard for new products is the SaaS architecture, where multiple customers share the use of the same code (not the same database necessarily) which is hosted securely in a data center. Preparing your product for this will require careful architecting to ensure the right mix of shared services with data that is either in separate databases or securely accessible, only by the correct customer, from within a shared database. This will also require locating a high quality data center and carefully estimating costs in order to charge a price that will make you a sufficient profit.

— Signed, Product Manager

Dear Product Manager,

We offer a SaaS product for banks, and recent prospects have decided against our product because they wanted customization to their installation. Our company is really against the idea of this kind of customization. We feel we get a lot of advantages from having a single product to develop and maintain. Is customization possible or realistic with a SaaS product?

— Custom-Wary

Dear Custom-Wary,

My answer to the previous question talks about configurability, which allows you to keep a single codebase while serving different customers' differing uses of the software.

I would say the decision to customize a SaaS product is not a technical issue — your development must figure out how to do so cost-effectively, but there are ways to do it — however, making sure you account for the true cost of this is vital. You may have to muddy up your standard monthly pricing (assuming that you have that with your SaaS product) with additional monthly charges to develop and maintain the customizations (don't forget the extra testing effort with each release). But don't forget to run some of these custom requests by your existing customer base to see whether they wouldn't have broader appeal. If you can offer them at an extra cost to multiple customers, you can use a lower per-month charge and still recoup your costs. Or the ones with the broadest appeal become competitive new features for future releases. Also, work to get your prospects to agree to receive these features in a future, standard release — and buy your software in the meantime.

— Signed, Product Manager

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