Understanding the SaaS Business Model Made Simple

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The SaaS Business Model or better understandable as the Software-as-a-Service Business Model is a relatively new business model which lets the service provider host his software on a cloud infrastructure. The users pay for this service for some period of time and once their membership is over the service is revoked unless renewed.  In order to make a good SaaS product, one must have good coding knowledge as well as good interface designing skills.

What is the difference between SaaS and the usual software companies then, you might ask? SaaS is operated by storing the software on a cloud which can be accessed by any browser using a login account and password.

WHY SaaS?

Often people who are not willing to invest in the IT infrastructure of the company end up spending most on SaaS and creating a business through this. SaaS requires just one prerequisite: the Internet.

Also, it is easily accessible to all users around the world. The company can host it and then a person from any country or region can access it as the only thing they need is the Internet.

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The 3 Phases of SaaS

  • Startup: This is the part where you launch your product. It includes programming your product, putting it up on the market and then acquiring your first customers.
  • Hypergrowth: If your product is well-liked, you experience an immense amount of growth at the beginning itself. This is, however, going to cost you more money as you will have to expand your product to meet the increasing demand. You will have to improve upon your data storage, bandwidth and all sorts of technicalities to accommodate all your new customers.
  • Stable Golden Goose: This is the stage where you are leveled out and earning a healthy profit. Rapid growth won’t affect your infrastructure as you know how to deal with such a situation now. This leads to the economics of SaaS which we explain next.

Economics of SaaS Business Model: Where you need to spend and where you will gain

When coupled with a good revenue plan SaaS can become highly profitable.

Some examples of such revenue models are-

  • Subscriptions– By charging a monthly fee from the user, the SaaS business model can help churn great profits. Although, subscriptions shouldn’t completely be relied on to generate revenues for the business, yet it is a very good starting point.
  • Upsell– Upsell is what you do to retain your existing customer. Studies show that it is easier to resell your product to an existing customer by six to seven times that of finding a new customer. This upselling can be provided by increasing the efficiency of the product i.e. improving the speed, the data, the bandwidth.
  • Affiliate Sales– A small investment on your part on the marketing of your product can, in turn, churn great revenues and help make your service popular among the people.
  • APIs– APIs or Application Program Interface is important to ensure that your SaaS can be integrated with other software products. Some companies are ready to pay a lot to include customizations according to their own needs and hence APIs should definitely be offered.
  • Set-up Fees– You can charge your customers a fee for setting up your software in their systems and servers. Although, some customers may not appreciate it, at the starting of your business it
  • Customer Service– In order to build a strong customer community, you need to provide the best service hence you need to spend on customer service. This expenditure will mainly be on hiring people and making online platforms for lodging complaints and feedback.

Pros and Cons of SaaS

People who are willing to eliminate the costs of IT and related infrastructure go with the SaaS option. Also, it is more accessible to people as hardware and software related problems can be solved in different places rather than at the premises of your company.

There are some difficulties as well such as integrating your software with other software that is already existing on the servers you are operating on. Security is also a key issue as often companies deal with sensitive data and any leakage of such data on your part might lead to serious legal troubles.

Some SaaS examples

  • Salesforce.com- The pioneer of SaaS product development, it allows the user to access all the data that has been collected from various customers on a secured platform.
  • Microsoft Office 365- This service branches out from its predecessors such as Word, Excel, and PowerPoint by allowing users to edit and create files on different devices such as Windows, Mac, smartphones and then save it
  • Amazon Web Services- Based on the subscription model, you can pay for every service that you take. Amazon’s reliability is one of the key reasons why people prefer using its services. Its security in all the broad branches it has delved into has created strong customer support for it.

So this was our guide on the whole SaaS industry that you need to understand. Feel free to share your thoughts in the comment box. To survive and thrive in this industry, the developers, product managers and everyone included in the team must be leaving no stone unturned.

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