The software as a service industry is one of the fastest-growing and creative in the business world. Understanding how SaaS works is essential when you are building a plan to grow your company. SaaS is a delivery model whereby centrally hosted software is licensed to customers through a subscription plan. Any company whose core business is leasing software through a central, cloud-based system can be rightly considered a SaaS company. The SaaS company has to maintain responsibility for the database, servers, and any other software that enables access and use of their product.
Some of the most popular SaaS services include the following:
- Enterprise Resource Planning: most suitable for large companies
- Web hosting and e-commerce: remote servers that will handle your company's online presence
- Project management: helps entities in a project communicate with each other
- Accounting and invoicing: focus on billing and invoicing services
- Customer resource management: allows you to track sales and manage client information
- Data management: offers protection to business data and facilitates data analysis
- Human resources: helps you manage payrolls, track employee engagement and control the hiring and firing process
SaaS applications usually run in the cloud and are accessible through a web interface and mobile and desktop applications when necessary. There are some factors to help you distinguish SaaS business models from the rest.
The SaaS business model involves providing a subscription service. You have to keep in mind that you will be getting payments monthly or yearly instead of a one-off payment. But the good news is that you, as the client, are not expected to buy any hardware. The recurring payments take the form of monthly recurring revenue (MRR). Accounting for income can be tricky since SaaS companies provide services and not products. The cash the company gets when a customer subscribes to its development cannot be counted as revenue. If the SaaS company cannot deliver its service, a client has the right to demand a refund. Therefore, revenue recognition is an integral part of the SaaS business model.
Every business is keen on customer retention. In SaaS business models, customer retention is the only thing that keeps your organization in business. Consider a situation whereby you sign up a client for 12 months, and the client terminates the contract after just three months. You will be without the recurring revenue for the remaining nine months. The SaaS business model greatly values the cultivation of customer relationships as well as upselling. A successful SaaS company can have a valuation of hundreds of millions of dollars. The business can serve more customers and change how entire industries view certain aspects of their business. There are three stages of SaaS business models.
You create a working product and market it to potential clients. You can either seek pre-seed funding or decide to take the bootstrapping approach to better control your operations. Make sure you are tracking metrics and looking to optimize pricing. Develop your business model, which will enable you to seek the right kind of funding. Use the budget appropriately.
SaaS will consistently provide you with smaller and more frequent updates of their products to ensure high customer retention. Continual assessment of the state of security fixes is vital in SaaS application development because software loopholes can put customer information at risk. Since SaaS companies host their products, they can release updates whenever they need to roll out new features or better versions of the old ones. Due to their excellent communication capabilities, SaaS companies are highly responsive to the wants and feedback from their clients.
Your business has grown fast, your product is gaining customers, and the company is raking in MRR. To maintain this stage, you need to begin raising funds to allow your company to grow and invest in product development. Examples of funding types for SaaS business models are venture capital and angel investors. However, some companies opt for incubators in the early stages, while more established ventures look for startup accelerators that meet their needs.
When your company is at the mature stage, it must have proved itself, and you consider it established. The company must have a well-defined target audience it caters to, and the product is reliable and regularly updated. However, the company might still need investment to break into new markets or buy out rival companies.
The most successful SaaS companies can attribute their success to sticking to the fundamentals in the SaaS business model. If you apply principles such as a reliance on good analytics and the use of the proper methods and tools, your business will undoubtedly head in the right direction.