What is the SaaS model?
The basis of software as a service or SaaS model is that a piece of software is hosted on the cloud infrastructure (i.e., runs through a web browser), and businesses pay a monthly fee to access this software. To make the SaaS product worthwhile with a good amount of user interface design skills it often takes a good amount of coding knowledge. Probably the most complex business models in our series are the SaaS businesses.
The main difference between SaaS businesses and software companies is that SaaS hosts in the cloud. It eliminates the need for an end-user license and any infrastructure for hosting software to activate the software. Instead, the SaaS Company hosts its membership. All the customer has to do is login to their account and get full access.
Before we do that, it’s important to note that valuing a SaaS business may differ slightly from the other business models we’ve covered. Growing a SaaS business often requires huge investments that can eat through all the profits, which is why many people rely on SaaS businesses based on their confidence in continuous, steady growth.
Three periods of SaaS business:
There are three main steps in every SaaS business that they are going to experience. Then everyone dreams of a stable Golden Goose phase when money is just coming. Most of the people understand this startup phase. They make or break it, and it’s called hyper-growth.
Let’s discuss the three steps:
1. Startup- It includes running everything, programming a working product, and “going to market” with it to get your first few customers.
2. Hyper-Growth – If the market likes your product, you will grow very fast as businesses adapt your software. While this sounds great, it usually costs you money, as you need to expand your data, store bandwidth rapidly, and all kinds of technical capabilities to help new customers.
3. Stable Golden Goose – This is the stage when your SaaS business is over. You’re starting to make a pretty healthy profit, and gaining new customers at a rapid rate isn’t testing the limits of your infrastructure, as it does in the hyper-growth phase.
Many SaaS products are quite good, but the inability to handle hyper-growth affects many businesses, leading to many failures. We’ll talk a little bit about reducing this to some extent in the Growth Strategies section of this explanatory article.
Benefits of SaaS Business Model:
If your customers can be extremely loyal to your product it’s considered the beauty of the SaaS Business Model. It is especially true if your SaaS product represents something essential to their business. After all, it’s easy to becoming a “members” of your secret society.
This loyalty can sustain a customer that lasts for years and years, increasing the recurring revenue that makes SaaS products profitable.
It is the next big supporter of the SaaS model. Each customer technically only rents out your software every month rather than owning it once purchased. It means each month you are going to make another small profit from this customer. Recurring income is often a dream for those involved in online business, and SaaS’s business model has the same idea of recurring income.
Disadvantages of the SaaS model:
While recurring income is great, a large sum of money is not enough to run your SaaS business.
In the beginning, you have to make all kinds of investments, such as hiring good developers and programmers and UI designers who combine their skills to make your product user-friendly and as efficient as possible. You will need to increase your data capabilities, security, and storage, keep your team around to handle maintenance, and handle unforeseen issues that may arise during this hyper-growth phase.
The other downside of SaaS, beyond the capitalist business model, is that it is often not a simple product. Although the model is easy to understand, it cannot be easy to maintain the product effectively, even for those who understand all the coding.
What buyers need to know?
If you understand programming or software coding it’s only worthwhile when it comes to buying a small SaaS business. Of course, this is not the case if it is SaaS’s big business – where the development team comes up with the acquisition and the seller has outlined all their processes and systems so that if the team ever leaves, you will find another developer.
The SaaS business seller owns all the coding, the intellectual property, and all the branding. Make sure you’re buying the whole deal, not just one part of the SaaS business.
Unless you are skilled enough to grow and enhance different marketing funnels, in this case, a SaaS business can be a very low-cost purchase for you if you know that the product works well. You know which parts of the marketing funnel or user interface need to be fixed to fix the situation.
Lastly, it is best to buy one that has reached a steady level of customer growth growing exponentially when looking for a SaaS business to buy. As mentioned earlier, explosive growth can cause many problems when it comes to growing everything properly.
SaaS development strategy:
There are several tips you can follow when it comes to growing a SaaS business.
The development strategy you choose depends on your core competencies and what has moved the needle for you most in the past. Regardless, here are some ideas you can use to take your SaaS business to the next level of revenue.
Increase organic traffic:
The best traffic that converts the most is usually organic search traffic from places like Google and Bing. You can increase your organic search by simply looking at the rankings you’re currently using tools like SEMRush.
Introduce new marketing channels:
When it comes to testing new strategies, set some traction goals, and make sure you will invest heavily in a new marketing channel to reach a statistically significant number. Otherwise, there is no real benefit to investing in it.
A new marketing channel can be as easy as getting your best organic rankings or most popular content and converting that content into a YouTube video. After all, it’s the second-largest search engine in the world, so it’s worth a look.
Include product upsells:
It is a great option to serve existing customers, as it serves them better and will earn you more. These upsells can be advanced packages where the customer pays extra monthly to receive additional features, benefits, data storage, or all of the above. It can also be an offset – perhaps an information product, such as a high-impact webinar, on using the software to its best advantage. The idea of the “premium” pricing model is to attract customers for free with limited functionality. They become accustomed to your product and then become paying customers.
Whatever you sell, be sure always to consider the cost of offering this service so that you can include it in the final price that your customers will have to pay for this sold service.
Faster stronger Cleaner:
To improve customer satisfaction and loyalty (and reduce some infrastructure costs), one thing you can do is run your software faster by minimizing code. To increasing your customers’ overall happiness with the product through this code can make a big difference in speeding up your software.
Add an affiliate program:
Adding an affiliate program can be a huge benefit to your business. Especially, if you offer a profitable program that can attract skilled affiliates to promote your offer.
You can go many ways, but if you want the best way to attract affiliates, you want to offer a residual income opportunity. It is often more attractive than paying in SaaS business models.
On the other hand, if you have your CAC and LTV numbers, you can offer the affiliate only a large, advance, one-time payment knowing that the average customer will stay long enough ۔ that money.
Some affiliates prefer this, as their marketing campaigns often run on a thin margin.
Either way, an affiliate program can be an amazing way to increase your marketing power while also removing a lot of real work.
The SaaS business model gives you endless business opportunities. It is widely accepted, and its adoption will continue to grow. Combined with market demand and competition, you need to focus on the dynamics of the SaaS industry and work to provide unique solutions and value to your customers.