What is the SaaS business model? The term SaaS refers to cloud-based software as a service provided to consumers via the internet at a monthly or annual subscription fee.
Today, in the world of B2B SaaS software, Slack, Mailchimp, and Quickbooks Online are among the most popular companies. With over 77% of businesses planning to convert all systems to SaaS, it ascertains the surging popularity of B2B SaaS software.
It is not difficult to develop a successful SaaS business and create a sustainable market in this space. SaaS businesses that touch on market pain points can reliably and quickly grow to large volumes. Discover what is behind the success of SaaS business models through an analysis of the stages.
Why do customers want to use the SaaS business model?
The SaaS business model is not limited to one-time mere product selling; it also includes services associated with the product. When someone becomes a customer, an opportunity to enhance the service by optimizing for associated offerings can co-exist.
To begin with, SaaS models are most cost-effective as customers can make recurring monthly payments rather than a one-time substantial investment in software development. Moreover, it reduces the requirement to buy and install new software.
The characteristics that define customers’ fondness of SaaS business models are listed below.
- SaaS is an asset-light business model (operating from anywhere)
- Scalable and flexible (Numerous people can use it globally)
- Revenue from recurring sources that compounds over time (higher valuation)
The essential stages of a SaaS business model
The journey of developing a SaaS business may be full of challenges that can be coped with by understanding what to expect at the various phases of the journey.
These stages are defined based on what a business needs to fulfill to keep its customer base and profit healthy.
Here’s a top-level view of the stages of the SaaS business model and what a typical life cycle may look like for SaaS companies.
The initial stage of a SaaS solution does not have everything that makes a business successful. It may or may not have developed a minimum viable product.
But, to identify product uniqueness based on the market, early-stage startups should test software features. Critical tasks to be undertaken in the early stages include:
- A software-driven solution addresses the customer pain point successfully
- Prospecting for new clients
The SaaS business will slowly scale up once it enters the growth stage from an early stage. At this point, numerous new buyers will start taking an interest in and purchasing the product.
To keep SaaS products superior, business owners must scale up the entire business, including the team, data, research, and other key parameters.
SaaS development companies can help with concept development and enhancement that support business visions and goals. Critical tasks to be undertaken in the growth stage include:
- Enhance the sales volume
- Extending the market share
- Enhancing the product based on market feedback
A SaaS business or a company that makes it to the mature stage is considered successful and has an established market with an audience that loves the product. It has a prototype that it’s updating and has defined potential customers it’s targeting.
It is important to take a moment to think about the end goal, whether it is to continue the company or to find an exit from it. In light of that, expand globally and to other countries.
When a business reaches a mature stage, adding new products or services isn’t a bad idea, since doing nothing can jeopardize its reputation.
Companies like Zoom and Dropbox offer a freemium model where people can use their SaaS products with limited features for zero cost as long as they want.
As a result of using the product and understanding its value, many customers opt to pay a fee to access advanced features. Critical tasks to be undertaken in the growth stage include:
- Developing a new product.
- Redefine some processes.
- Extend your global reach.
Pros of the SaaS business model
SaaS business models can be beneficial for customers as well as for software providers. Let’s dive deeper into the pros of the SaaS business model.
It is no longer a secret that on-premise software is very expensive while purchasing SaaS software can be a blessing in disguise.
This can be a challenge for startups and small businesses as they have less spending capital. However, a SaaS business model operates on a subscription on either a monthly or yearly basis.
Even giant companies can take advantage of SaaS business models by adopting them for a short time.
SaaS business models allow businesses to participate in free demos of their products. Usually, these free demos are for a week or two weeks, during which customers can test the program and check its credibility.
After trying a product for a certain period, there are a high chance customers will pay for a subscription. Hence, that’s how businesses can generate leads and revenue.
High security of data
Software specialists are experts in keeping software secure at every step of development. SaaS business models allow customers to store data on the internet and access data from different devices.
Expenses based on usage
SaaS models provide the comfort of paying for the product used only, rather than paying for what is not used. Moreover, save money since SaaS services help to scale up and down automatically based on consumption.
Why is SaaS the best business model?
Based on SaaS stages and metrics, it is safe to say that SaaS is the best business model anyone can adopt, especially in today’s competitive market.
Even investors are thinking of SaaS as their best bet, and that’s the reason the SaaS market size is projected to reach USD 307.3 billion by 2026.
In 2011–12, Adobe decided to replace its priority licenses with a software-as-a-service model. The reason is that customers would no longer purchase its iconic software suite, but rather pay a monthly subscription to access it. Customers opt for the SaaS model for various reasons.
SaaS is subscription-based and paid when the customers start using the product, which reduces the costs. There are many factors behind subscriptions. Let’s discuss a few of them to see how SaaS can be the best business model.
Users using the app
Startups will pay less in subscriptions than an enterprise with over a hundred employees. The cost will grow as the startup grows.
The number of tasks
There’s no limit to when free user actions are never-ending for SaaS software. For example, if someone sends 30 emails a month for $28, or 400 emails for $500, the customer has a choice of cost regulation.
How to build a successful SaaS business? The quick checklist
It may not feel easy to build a SaaS business model, but according to recent research, the global SAAS market is expected to reach a value of USD 720.44 billion by 2028. Hence, the opportunity is present.
There are no two ways that numerous businesses have made mistakes while launching their SaaS businesses which are avoidable if one learns from them. To escape this fate, keep going through these tips on how to build a SaaS business from scratch.
When developing a SaaS business, we recommend the following tips:
Create a strategic plan
It is said, “Failing to plan, is planning to fail”. To ensure good results, proper business plans should be in place. As an example, if plan A fails to work, plan B can be implemented strategically.
A study found that 22% of startups fail because of inadequate marketing strategies and planning. Hence, creating a strategy before launching a SaaS business is always a good idea.
Develop an MVP
Building an MVP is always a great idea to see the future widespread success of a SaaS business. Some people may love the product while some may not.
To ensure a successful product, developing an MVP and testing early users is a good strategy. Once MVP is tested and early feedback is received, one can move forward with the product launch and prioritize upcoming features.
Work on design
After working on ideas and developing an MVP, the SaaS design comes into the picture since user experience is vital, especially in today’s digital market.
The reason is that an appealing user experience can help define a brand while avoiding the kind of experience that causes customers to churn.
The most important tip one should keep in mind while developing a SaaS business or when in an early stage of SaaS business.
Make sure to check the feasibility of an idea because if no one wants to buy it, there is no point in spending time on it. To validate SaaS business, one should perform competitor analysis, collect user feedback, and test products.
Analyze SaaS success metrics
There are many ways to measure performance, both in terms of customer satisfaction and marketing effectiveness.
It is always a good idea to ask customers about a product, whether it’s good or bad to know how successful the product or SaaS business is. Check out SaaS metrics like cost-per-acquisition, churn rate, and other KPIs.
Get started with the SaaS business model
Undoubtedly, the SaaS business model is the best business model anyone can choose and generate constant revenue.
But first, the business owner must create a product that uniquely serves customers’ needs and maintain a loyal customer base. Tracking SaaS business metrics can help to sustain a healthy business and growth.
About the Author!
Anant Jain, is a Co-Founded Creole Studios in 2014, a software studio that specializes in Web Development, Mobile App Development, and Cloud App Development. As of 2022, Creole Studios is one of the trusted agencies in the IT services and outsourcing business. With offices in two geographies, they are proud to have served clients in over 16 countries with projects ranging from Website development, Mobile App Development to complex SAAS-based system development.