SaaS Business Model – The Best Way To Generate Regular Revenue For Digital Projects?

What is SaaS?

Let’s begin with knowing SaaS a little more.

SaaS stands for Software as a Service. It’s a type of service delivery where pre-developed software is provided to the end-users as per the need of the moment.

Offered solutions are deployed on the cloud and are accessible via a simple login or sign-up. These Cloud Computing enabled software are optimized for web interfaces, mobile phones, desktops, and various other data-driven devices. To enjoy these services, customers need to pay a monthly or yearly fee.

SaaS companies maintain databases, servers, and networks to make sure that software is available via the internet.

Popular Types of SaaS solutions

There is a wide range of categories under which a SaaS company can proffer a SaaS solution.

• Customer Resource Management (CRM) solution is built for easy customer management. Facilities like client profiles and sales tracking are offered.
• Enterprise Resource Planning (ERP) is a tool aimed at enterprises as they make a wide range of resources to work beneficially.
• Accounting and Invoicing SaaS solutions are useful for businesses when it comes to managing invoices and billing.
• Project Management SaaS solutions are in huge demand because of their ability to manage wide and huge projects from a single platform. Everything about project progress and team communication is provided.
• Human Resources SaaS solutions are useful for the HR department of an organization as it’s useful to track applicants, conduct interviews, manage payrolls, and manage the entire hiring process.
• Data Management SaaS products help manage data and make it useful for organizations.

SaaS solutions today cover practically all areas of a company’s operations. Almost every business process can be supported with SaaS.

Pricing Models for SaaS Business

Pricing is a crucial aspect to consider if you wish to have a successful SaaS business. The offered options are:

• Free service
• One cost for every subscriber
• Different prices as per the user type
• Different prices as per the subscription type
• Pay as go

More than 60% of businesses deliver SaaS services as a freemium product.

The Freemium model is a marketing strategy that works great to expand the customer base, improve customer churn rate, a guaranteed recurring model, and lure new customers.

If recent market research is kept into consideration then the Freemium price model will help a SaaS business to make the new customer at the rate of 4%, which is good.

The prime reason to offer a freemium price model is to provide software exposure to more and more new customers so that you’ve more possibilities.

There is one more thing to learn about the SaaS sales approach. There are two major ways that a SaaS solution makes sales. The first one is the low-touch sale and the other one is high-touch sales.

The approaches depend on B2C or B2B model. When a SaaS product could make sales on its own via websites and emails, it falls under low-touch SaaS sales.

High-touch SaaS sales demand human efforts to sell a SaaS product.

Main Advantages of the SaaS Business Model

The SaaS market is growing at a steady CAGR rate of 18% for the past many years. SaaS solutions are preferred by over 78% of small businesses and start-ups.

In the healthcare industry, the SaaS adoption rate is 20%, which is very much decent.

All these statistics are impressive and also made us wonder why the SaaS business model is loved so much. Well, we can solve the mystery.

The SaaS business model is the best way to reduce customer acquisition costs and increase the possibilities of recurring revenue. But, that’s not the end of it. Many advantages will be available to bag with the implementation of a SaaS strategy. For instance:

SaaS Business Model is a Highly Scalable

Every business loves to grow and needs to have an IT infrastructure that supports growth without much-added investments. Gladly, the SaaS business model works in that manner only. SaaS companies offer a wide range of subscription models with varied features/facilities.

One can choose as per the present need. Features addition and deletion are very much easy and stress-free. This is why businesses at a growing stage prefer SaaS solutions.

Reduced Operational Cost

When there is software that should be maintained at every stage, the operational cost has to be controlled and limited. SaaS company will look into the product development, maintenance, and update. As an end-user, you only have to worry about the subscription fee which is affordable in most cases.

Recurring Revenue

If you’re not a SaaS solution user but a SaaS service provider or vendor then get ready to experience recurring revenue. With the monthly subscription model, vendors will have ongoing sales that build up security.

Regular Updates

With an on-premise solution, updating the technology or version is a very tedious and cost-extensive task. But, technology update is required to make sure that only relevant techniques are used in the workplace.

With the SaaS business model, it’s easy for end-users to enjoy the one-click update. Whenever an update is available, the SaaS company will notify the end-user and customers only have to allow that update to start. That’s it.

More Control

The SaaS business model grants more control to both the customers and the vendors. As customers, you can decide what features to use and what to ditch, which subscription to buy, what app to download, and so on. This extensive control allows end-users to have an utterly customized solution that adds up the utility of the organization and make it more productive.

There is no compromise on the control even when you’re a SaaS vendor. SaaS company owners have the freedom to decide the development environment, features, pricing model, and other aspects.

Milestones in SaaS Startup Development

Setting up SaaS businesses will bring success only when it follows a strategic approach and goes through pre-defined stages.

The three stages of SaaS start-ups are:

Startup

At this stage, the focus remains on fabricating the idea, procuring the resources that are required to bring an idea into reality, and finding ways to market this new product. The cloud-based software is launched in the market and is promoted as much as possible.

Hypergrowth

If your SaaS start-up has managed to firm its feet in the industry and is experiencing wide adoption then congrats as your business has reached in hypergrowth stage. SaaS start-ups reaching this stage demands high data expansion, more bandwidth, and extra technicalities to support more user accounts.

Stability

SaaS start-ups that reach this stage will have leveled business model. Those who manage to reach this stage will experience healthy profit, have a high customer retention rate, build new users, and reduce the churn rate.

The U.S. today is unrivaled when it comes to the number of SaaS being created and operating successfully.

Metrics To Measure In SaaS To Drive Growth

If you’ve already made up your mind to offer your service as SaaS, the first thing you should do is to learn about the metrics that indicate business growth. The key performance indicators or metrics to track with a SaaS solution are as mentioned below.

Churn Rate

Use churn rate to determine how many customers have ditched the existing annual or monthly subscription. Tracking churn rate is crucial in a SaaS business model as it helps a SaaS business to measure the customer satisfaction rate. The acceptable churn rate in a SaaS business model is 5-7%.

• Formula – The # of Churned Customers (for a given period) / Total # of Customers

Customer Acquisition Cost (CAC)

CAC is the amount one has to spend to take a new customer on board. It’s crucial to find out whether or not a SaaS business is going well.

• Formula – Total Investment in Sales & Marketing / # of Acquired Clients

Monthly Recurring Revenue (MRR)

MRR is an approximation of per month revenue that a SaaS business is expecting.

• Formula – MMR= # of Customers X Average Revenue

Annual Recurring Revenue (ARR)

The expected recurring revenue that SaaS businesses or service providers expect annually.

• Formula – ARR = # of Paying Customers X Subscription cost per year

Average Revenue Per Account (ARPA)

This metric is useful to track the revenue a software company or SaaS business model-based organization is getting per paying customer.

• Formula – Total MRR / Total # of Customers

Customer Lifetime Value (CLV)

CLV is the average revenue that a SaaS industry venture is getting from a customer during the active subscription.

• Formula – CLV = (ARPA x Gross Margin %) / Churn Rate

Customer Retention Rate (CRR)

This metric is useful to find out the percentage of customers that remains committed and continue paying for a subscription.

• Formula – (# of Customers that Continue to use the Software / Total # of Customers at the Start of the Period) x 100

Summary

The SaaS model is one of the most popular ways of distributing software and digital services today. Additionally, the subscription model of such services is becoming a common method of providing stable profits to businesses. However, in order to effectively develop SaaS, it is necessary to remember that first of all the quality of provided services is important and how we respond to the real needs of users and customers.

Are you ready to create your SaaS? As specialists in digital services development, we will support you from research to implementation. Schedule an initial call and let’s get to know your needs.

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