When I first started my software company, I had no idea what a SaaS business model was. I just knew that I wanted to sell my software online and make money doing it. After doing some research, I realized that the SaaS business model was the best way to go about it. Since then, I’ve learned a lot about the ins and outs of running a successful SaaS business.
If you’re thinking about starting your own software company or selling your software online, this guide will teach you all you need to know about the SaaS business model including its pros and cons:
SaaS Business Model
What is the SaaS Model?
The Software as a Service (SaaS) business model allows companies to pay a monthly subscription fee to use software that is located on a cloud computing platform. This can be a more affordable option for businesses that don’t want to purchase their software or hardware.
It can be difficult to create a successful SaaS product without both coding knowledge and user interface design skills. Having both sets of skills can help make your product more appealing to users and more likely to be successful.
SaaS businesses are some of the most complex business models around. They are difficult to understand and even more difficult to create.
SaaS businesses are hosted in the cloud, which eliminates the need for an end-user license or any infrastructure to host the software. This makes it a more convenient and affordable option for businesses.
The Software as a Service (SaaS) model is a great way for companies to get their memberships without having to host anything. All they have to do is log in and they can get full access to everything.
The Pros of the SaaS Business Model
The SaaS model has the potential to create extremely loyal customers. This is especially true when the SaaS product is something that is essential to their business. In many cases, customers feel like they are part of an exclusive club when they use a SaaS product.
After all, they are probably joining your “secret” club.
For instance, the company, “Zendesk”, provides software solutions that help companies provide excellent customer service.
Although there may be a new ticketing software that is better than Zendesk, the business is unlikely to switch to the new software because Zendesk is vital to its success.
SaaS products have the potential to create a loyal customer base that sticks around for years, thanks to the recurring income model. This can make SaaS products extremely profitable in the long run.
The benefit of a Software as a Service (SaaS) model is that every user pays a monthly fee to use the service, rather than purchasing it.
The Software as a Service (SaaS) model has many benefits, including the potential to earn a recurring income from customers.
The Cons of the SaaS Model
The con of the Software as a Service model is that you need a lot of money to get started. The benefit, however, is that you receive a recurring income from your customers.
When first starting out, you will have to invest heavily in developers, designers, and marketers.
While getting a product to market may cost some money, once you have a few paying customers, you should see a return on investment.
As your business continues to grow, you’ll likely need to increase your data storage, security, and backup solutions, as well as your IT team’s ability to troubleshoot any issues.
The other downside to the Software as a Service model, aside from the high startup costs, is that it’s not always simple.
While the underlying concept is simple, actually coding the functionality can be complex.
This can make it more difficult to sell a SaaS product, as the pool of potential business buyers is narrower than for something like an Amazon FBA or lead gen business.
Who Best Fits a SaaS Business Model?
The types of people looking to buy a Software as a Service (SaaS) company will be narrower than other types of buyers, because of the specific skills it takes to run this type of business model.
However, there are buyers who fit into multiple categories and are still very eager to buy small businesses like yours.
Strategic Sally
A Software as a Service (SaaS) business is a good fit for someone like strategic sally, who’s trying to reach a specific target market.
If, for instance, Sally also had an information product business, she might be on the lookout for a SaaS company that could be used as a CRM to upsell her existing customer base.
DIY Dave
If you’re the kind of person who likes to take matters into your own hands, then a Software as a Service (SaaS) business might be the perfect model for you. These businesses are perfectly suited for a do-it-yourselfer like yourself.
They can learn how to program and code the product, as well as how to cut down their Customer Acquisition Costs (CAC), while also increasing sales through better marketing strategies.
Investor Ivan
An Investor Ivan may want to consider investing in a SaaS business, as this type of company is a perfect place to put their money.
SaaS businesses are a great opportunity for investors like Ivan to get involved with. The potential for high recurring revenue and the need for initial investment make this an attractive option for those looking to partner with a business.
SaaS Growth Strategies
There are a lot of different ways you can build your SaaS business. Here are some ideas to help you grow your SaaS business:
Increase Organic Traffic
The best converting type of website traffic is organic. It’s free and it comes from search engines like Google and Yahoo.
If you want to increase the number of visitors you get from search engines, one way to do so is by improving your ranking on sites like Google. You can do this by using a site such as SEMrush to see how you currently rank.
Improving your SEO is a great way to bring in more qualified traffic to your website which should in turn lead to more sales.
Introduce New Marketing Channels
When trying out new marketing strategies, make sure you have some measurable metrics in mind. Make sure you’re investing enough time in your new marketing strategy that you reach a statistically significant number of customers.
If it’s not going to help you, then there’s no point spending the money on it.
If you’re looking to introduce more new marketing strategies, why not start on Youtube? After all, it’s the second biggest search engine in the world and you could convert some of your best SEO-ranked content to a video. This could help you reach a wider audience and bring in more new customers.
Add Product Upsells
This is a great opportunity to offer your customers additional features, benefits, and data storage for a higher monthly price. By doing this, you’ll be able to serve them better while also increasing your earnings.
It could be a one-time offer, such as a free live training seminar, to show you how to best use the software.
Offering a limited version of your software is a great way to entice potential customers into purchasing the full version. By giving them a taste of what’s to come, they are more likely to be willing to pay for the full product. Make sure to include the cost of any upgrades in the final price.
When considering an upsell for your product, always be sure to take into account the costs of offering that service. This way, you can factor the price of the upsell into your final pricing model for customers. By doing so, you can ensure that everyone benefits from a fair and affordable price.
Faster. Stronger. Cleaner.
Removing unnecessary or redundant lines of code from your program can greatly increase the speed at which it runs, thus making customers happier.
If you want your software to run faster, get rid of any bad or wasteful code. This will make a huge difference and your customers will be much happier with the product.
Make your business leaner, more lucrative, and more efficient.
Add an Affiliate Program
Offering an affiliate marketing program is an effective way to promote your offers to a larger audience. By attracting talented affiliate marketers, you can potentially increase your sales.
If you want more affiliates, consider offering them a reoccurring commission. This often works better in a software as a service (SaaS) model than a once-off fee. This is because it offers continued revenue streams for the affiliate, which can be more enticing than a once-off amount.
Alternatively, if you know your CAC and your LTV, you can simply pay affiliates up-front. This guarantees that your average customers stay long enough to cover your costs.
Some affiliates prefer this type of program since their marketing campaigns are often operating on very slim margins.
Affiliate marketing programs can be great ways to boost your sales while offloading some of the work to your affiliate partners.
What Sellers Need to Know
The #1 thing you can do as a Software as a Service (SaaS) business is increase your customer lifetime value (LTV).
As a seller, it is important to know that a high LTV number makes your SaaS business more attractive to buyers. This is because a SaaS business is all about recurring income, and a high LTV indicates that your customers are sticking around for the long haul. If you can show that your LTV is high and increasing, this will be a major selling point for your business.
As a seller, you will want to decrease your CAC and churn rate. This can be done by tweaking marketing funnels or changing subscription pricing. By doing so, you will make your business more attractive to potential buyers.
As a seller, it’s important to have a good development team in place that can be handed off to the new owner. If you don’t have a team, make sure you have plenty of documentation and resources available for the buyer so they can easily find new developers.
The software should be 100% yours, including the design, code, and anything else related to your business.
As a seller, it’s important to make sure your buyers are properly trained on your software.
Conclusion
The SaaS business model is a great way to sell software online. It’s simple and efficient, and it allows you to make money without having to worry about the hassles of traditional software sales. If you’re thinking about starting your own software company or selling your software online, be sure to check out these resources to learn more about this business model.
