n the book and movie, A River Runs Through It, the river was vital to the Maclean family. As expert fly-fishermen, they
depended on the river's everlasting provisions of life and literature, passions and pastimes.
Technical/ Marketing Writer
Similarly, an ongoing revenue stream is a company's source of existence and expectations. How MARK SYSTEMS, Inc. created this
revenue stream, what effect it has on their company, and how they nourish the stream to guarantee a prosperous future, unfolds
in this true BASIS success story.
It was the turn of the new century.the year, 2000. MARK SYSTEMS found themselves in a rather difficult dilemma. A $400 million
behemoth was about to buy up most of their competitors to 'take over the world of homebuilding software.' While fewer
competitors would seem to be every salesperson's dream, the sheer size of this company's resources presented a daunting
threat. MARK SYSTEMS was about to release their new but semi-unproven GUI version of their very successful Integrated
Homebuilder Management System (IHMS). Dissatisfied with their past pricing models, they had an opportunity to influence their
financial future, and builders around the country. Their strong customer base and 20-year history with their character-based
product was valuable, but this small company, like David versus a modern-day Goliath, needed some rocks in their slingshot to
Don Scattergood, principal of MARK SYSTEMS, Inc., explains, "Pricing is always a challenge. The reason is that the software
effectively does not change based on the utility that it provides. In our case, if we sell our software to one builder that is
building 100 units a year and we sell to another builder that is building 5000 units a year, the 5000-unit builder is getting
greater utility out of the software, but there is no difference in the product. The question is, 'How do you price it to
reflect the actual value to the user?'"
MARK SYSTEMS, Inc., a New Jersey-based company with over 20 year's experience, is the developer and distributor of the
Integrated Homebuilder Management System (IHMS). With over 1,700 users, MARK SYSTEMS' software will manage the construction of
over 40,000 homes in the coming year. Their most recent success comes from moving their application from PRO/5® to Visual
PRO/5®, increasing gross revenues by 30%. They are in the process of moving their application to BASIS' newest BBx®
generation, BBj®. Visit their Web site at: www.virtualbuilder.net.
Pricing based on derived utility is difficult. There must be a reliable way to measure the utility of the product for each
customer in order to design a fair and effective pricing model. Because of this, many companies sell on a per seat or per
module basis. In an effort to build a recurring revenue stream, MARK SYSTEMS tried selling on a per seat basis. Their theory
was that the builder who was building 100 units a year today would build 300-500 in 5 years and therefore would need more user
seats. But this approach was not successful. While builders volumes did tend to increase over the years, so did their
productivity thanks to MARK SYSTEMS' software. New personnel were almost never required, so the number of seats did not
Like many other companies, MARK SYSTEMS also tried selling IHMS on a per module basis, but found that this created a
disincentive to use the whole package. Don explains, "Perhaps the single biggest strength of our software is its single
database; its ability to instantly, not just seamlessly, but instantly tie information between a sales person working in the
office to a construction manager working out in the superintendent's trailer over the Internet on the same database. It's a
huge, powerful tool but only if you happen to have both modules.""
New Licensing Model Spawns the Stream
Fortunately, homebuilders do have a specific, measurable performance criterion on which MARK SYSTEMS could build a pricing
model: the number of houses built per year. With this in mind, MARK SYSTEMS' new approach was to charge per house, effectively
amortizing the total price of the system over 4 years. To arrive at a price, they calculated the average sale price of a full
IHMS installation, and factored in the average number of homes a builder built (at the time, 80-150 per year). From this, they
determined how much they needed to charge per house to receive full payback in the 4th year from a typical builder.
The new pricing model generated recurring revenue, which was proportional to the value each builder derived from the software
and reduced the risk of entry. All builders would pay $100 "per house" for the first 25 houses built each year. They would pay
$75 each for the next 50 houses, then $25 for each additional house after the first 75. The builders loved it. "It was almost
a money back guarantee since they pay for it as they use it. And it simply became a line item in their house budgets just like
a kitchen sink or a door knob,""explains Don.
MARK SYSTEMS created a secure and manageable system for builders to maintain their block of houses. Builders simply request a
"start" from the House File Maintenance. If the account balance reaches zero, the builder receives notification (see Figure
1) with directions to purchase more "Starts." With just a phone call and authorization to purchase more starts, MARK
SYSTEMS generates a new key for the builder to enter and unlock a new block of houses.
|Figure 1. House File Maintenance "no balance" notice.
This newly created stream started to trickle as customers began migrating to the new GUI product. Thanks to superior software
and the new low-risk pricing model, MARK SYSTEMS sales increased while the mighty behemoth was losing sales. The revenue
stream grew to a steady flow. They enjoyed many benefits, some anticipated, and some unexpected. With this new pricing and
revenue stream, they found that:
Monthly IHMS Maintenance Stocks the Stream
- Current customers eagerly upgraded to the GUI version, enjoying new
functionality and a high return on a low and predictable investment.
- Most customers improved their business practices and profits by
implementing the full suite of integrated IHMS modules.
- Sales increased with the low risk of entry for a complete IHMS system.
New customers were much more comfortable with an up-front investment of $12-15K instead of $60-70K.
- New customers liked the fact that the new pricing model meant MARK
SYSTEMS was committed to them over the long haul, sharing in the business risk of an uncertain building future.
- License revenues increased with the cyclical rise in the building
- Recurring revenue streamed in, funding product support and ongoing
research and development.
- A new financial foundation secured a solid future for MARK SYSTEMS.
In addition to selling IHMS per house, MARK SYSTEMS also sells monthly maintenance. The builder receives invaluable help desk
support along with monthly IHMS features and fixes. This predictable revenue stream funds MARK SYSTEMS' research and
development, help desk, and the 30- to 45-minute monthly maintenance updates. The monthy software maintenance:
BBx Licensing Widens the Stream
- Brings significant revenue to MARK SYSTEMS with full payback on each
- Keeps customers at the same and most current revision of IHMS.
- Helps to maintain customer satisfaction through monthly contact and
monthly value- added updates.
MARK SYSTEMS also widens the revenue stream with BBx licensing. They build the cost of one year of software maintenance into
each new Visual PRO/5 license, which they market as the "BASIS DBMS" license. This is not only a sizable addition to the
revenue stream, but is significant in enabling them to develop with and deploy the most current BASIS language. Using the most
current version of BBx enables MARK SYSTEMS to pass on these benefits to their customers:
- Enables ongoing development in the current BBx language.
- Delivers the latest technology to the customers.
- Positions MARK SYSTEMS on the cutting edge of technology and potentially
ahead of the competition.
Today, the revenue stream surges forward through MARK SYSTEMS, Inc. New sales continue to increase. Last year's goal was to
close two new accounts a month; the final score was 22 new accounts for the year. They added a new rep in the Midwest to reach
the 2005 goal of three new accounts a month. Don has no doubt that they will easily meet that goal, with a 50% close rate each
time they demonstrate IHMS to prospects. Builders, with their first IHMS installation as far back as 1983, become customers
for life. The home building industry is strong and growing, so volumes are constantly increasing. Lastly, the threat of the
behemoth died when the conglomerate went bankrupt within the first few years.
In one sentence, what did this new pricing model and revenue stream do for MARK SYSTEMS? Without a moment's hesitation, Don
answered simply. "It saved us." The company's future looks bright.