Software-as-a-Service (SaaS) business models are all about meeting the customers’ needs. Whether it’s a B2B offering business phone systems to companies who struggle with communication or a B2C service helping customers by providing more storage space on the cloud, a SaaS business aims to make the lives of its subscribers easier.
Either way, operating with a SaaS business model can be lucrative if you choose the correct product and target a willing audience. Read on if you want to learn more about the SaaS business model and how you can make the most out of it.
What is SaaS?
SaaS stands for Software as a Service. It’s a cloud-based software delivery model whereby centrally hosted software is licensed to customers via a subscription plan.
The SaaS business is then responsible for developing and maintaining the software, making it available to its customers via the internet on a subscription basis, and providing software updates where necessary. SaaS companies usually use a hosting provider to make this software available without having to invest in on-premises systems.
SaaS appeals to many businesses because it can lower costs and easily scale. It can also be easier to license the software rather than install it on their client’s premises.
SaaS business stages
SaaS businesses can be invaluable to other companies wishing to find a better solution to some of their everyday processes. A system like Paylocity, for example, can be great as workforce management software for managing workloads and maximizing productivity. So, how do you reach the final and most successful stage of the SaaS business model? Let’s take a look at the three main stages.
1. Starting up
In the early stages of a SaaS business, you’re likely still working toward developing your software to be the best it can be. You might not have many customers, and you may be trying to pitch your software system to small to medium businesses that want to save costs. You’ll need strong pitch decks and enthusiasm to win them over.
In the early stage, you’ll have fewer employees and focus your time and efforts on one solid product you believe can go the distance.
This is the stage where you need to start tracking metrics and creating Key Performance Indicators (KPIs). What can you be doing to bring in new users? You may need to begin offering a complete product demo to entice new users to engage with your software.
2. Growth stage
The second stage of a SaaS business is growth. This is where you may begin to take on more clients, grow your user base, and expand the number of services you can offer. For example, Paylocity can offer several different products depending on the industry and needs, such as workforce management and human resources.
You’ll need to be proactive about building your user base for growth. You can look for scalable Grasshopper alternatives like Dialpad to connect with clients on a more personal level. Even if your subscribers are halfway across the world, you can use video calls and messages to stay in contact 24/7. This will also mean you can follow up on leads more easily as you build your contact list.
It’s at this stage that you should be asking these questions:
- Have I established key performance indicators (KPIs) to ensure I’m ready for further scaling when the time comes?
- Do I have a strong strategy to keep subscribers interested in the product?
- How can I perfect my outreach to cold contacts to build the customer base?
3. Established stage
When you’re a SaaS company that has reached a more established stage, you have proven yourself within the industry. A company at this stage will have a specific target audience that it is supplying services to. It will also have a reliable set of products that it’s constantly updating to ensure they’re always up to standard.
Companies at a more mature stage might still seek and receive investment for new ventures, such as breaking into new markets or buying out competitors.
A SaaS company at this level should be thinking about checking its pricing strategies and ensuring they are competitive within the market—especially if competitors are offering a very similar product. Some mature-stage SaaS businesses may not be taking full advantage of potential revenue. In fact, they may be missing out because of poorly chosen price points.
Benefits of the SaaS business model
There are many benefits of adopting the SaaS business model. The key advantages are as follows:
One of the most significant benefits of the SaaS business model is that you can offer customers greater flexibility. As they begin to scale, they can continue using your services as you grow with them.
Suppose you base your pricing on a usage metric like other SaaS businesses such as Paylocity. In that case, your subscribers will only pay more if they’re using the plan with more employee accounts. For example, if your users require more creator management licenses, they can scale up and move to the next price plan.
In some traditional software businesses, a plan would need to be in place to increase server capacity. With the SaaS business model, the only process that needs to be sorted is upgrading the hosting service.
Not only does this allow customers to use your software continuously as their business grows, but there’s also little legwork for you involved.
Furthermore, with SaaS, businesses can also take advantage of conversion optimization strategies to continually improve their software and increase revenue.
The SaaS business model can be highly cost-efficient for clients. It means they no longer need to deal with software infrastructure in the office—and the upkeep that comes with it. Instead, they can rely on you to provide this service. As a result, this can encourage customers to bring their business to you instead of investing in in-house software.
IT infrastructure can be expensive, and the chance to avoid those initial fees is appealing to many customers. This brings more business to your door and creates long-term clients.
While all companies have a specific market they are trying to target, the SaaS business model can expand that market drastically. Thanks to modern technology, using SaaS tools from anywhere in the world couldn’t be easier. Practically anyone that can access the internet can use the software. This also means many companies who offer remote work options choose SaaS solutions for their operations.
Because of this, this business model has a wider market. As remote work grows and companies look to reduce costs, SaaS models will see a higher adoption rate worldwide.
Easy to upgrade
Upgrading with a SaaS business model couldn’t be easier. There’s no need to manually upgrade infrastructure. All businesses need to do is get in touch and discuss moving their subscription plan to one that better suits their requirements. For instance, if a client is looking for upgrade options that can offer the best power dialer, they can check the included features in the next price plan up. The hosting service provider is the one that will have to deal with all upgrades regarding the hardware and software.
One of the benefits of the SaaS business model is recurring payments. Rather than a once-off initial payment, you can have regular income through subscriptions.
Of course, users aren’t tied into sticking with your product if they decide it’s not for them. But if they are happy with the service you’re offering, you can enjoy recurring payments from a number of clients per month, or sometimes per year, depending on the option they choose.
The SaaS model can help you budget and predict income down the line. Of course, users may cancel subscriptions if they’re not happy with the service, but overall it makes long-term strategies easier to plan.
Drawbacks of the SaaS business model
There are some drawbacks of the SaaS business model to be aware of:
If you are outsourcing server space and other infrastructural needs, you are also outsourcing security. So it’s important to be aware that you are responsible for a large amount of client data and must abide by all data laws to ensure you are taking care of this.
If there is a security breach with a cloud service, the onus will still fall directly on the SaaS company. Some companies can improve cybersecurity for cloud-native infrastructure, so it’s definitely worth looking into if you go down the SaaS route.
However inconvenient it may be, power outages can happen with any server infrastructure. When it comes to a SaaS product and an outsourced cloud infrastructure, such outages are completely out of the company’s control. This can be frustrating for both you and your subscribers.
It happens to many businesses and usually is nothing to worry about as the tech team can have you back up and running in no time. If the outage is ongoing, extra resources will have to be deployed toward damage control.
For many SaaS companies, compliance with GDPR and financial laws is the utmost priority. As we’ve seen, as a SaaS provider, you are holding a lot of important customer data. Using a third-party vendor for this can be forbidden in some industries. Still, if it is permitted, you need to be able to assure customers that you are complying with all regulations to keep their information safe.
Make the most of SaaS
The SaaS has many benefits and few drawbacks, making it an increasingly popular business model for companies across the globe. It provides endless business opportunities, and the best part is you can grow as your client base grows and vice versa.
The SaaS business model is adopted across many industries, so it can be highly competitive. Ensure you are offering customers something unique to bring value to their business.