Over the past few years, there have been a variety of business models that have become quite popular. Much of this has been driven by the fact that various models have proven to be quite effective for various industries, especially when compared to more traditional companies.
One of the more notable of these recently has been software as a service, or SaaS. Despite this being something that has become more common in various industries, many entrepreneurs may not know what this is, as well as how their company may benefit from it.
Much of this is because the business model can seem overwhelming for many people who are starting a company. While having experience running a more traditional firm may help owners understand it, many people may still be confused as to how to run a SaaS company effective.
There are quite a significant number of things that every entrepreneur will need to know to do so.
What Is SaaS?
Software as a service (SaaS) is a term that’s been used increasingly more often in the past few years, although many firms may not know what it refers to. Generally speaking, this is a software distribution model that allows customers to take advantage of third-party apps, with this typically being done over the internet.
The model is one of the three main types of cloud computing, with platform as a service (PaaS) and infrastructure as a service (IaaS) being the other categories. It’s also somewhat similar to both on-demand software delivery models and application service providers (ASP).
These comparisons are seen in a few different ways, such as the hosted application management model, which is similar in both an ASP and SaaS.
In this business model, a provider will give a customer access to a single copy of an app, with the provider keeping the source code of the application so that they can continue to sell the app. Since the source code will be the same for each customer, new features and updates can be developed and released relatively easily.
By utilizing this, SaaS companies can continue to keep customers paying for access to or use of the app or software.
What Is A SaaS Company?
With all of the above in mind, many people may wonder what a SaaS company is and how the business model operates. As you may have guessed, a SaaS company is one that hosts an app or piece of software and sells access to customers over the internet.
There are a variety of factors that are involved in this, with the business model having quite a significant number of things that will need to be done for the business to be successful. For example, a SaaS company will need to host the app’s source code on their servers.
Alongside this is the fact that they’ll also have to maintain their database, as well as a few other aspects so that they can continue offering their service. In return for access to the application, customers will typically pay a monthly fee, although how often this is charged can vary from company to company.
Like many more traditional businesses, there will be a considerable number of things that a company will need to plan for. One of the most notable of these is how much they can scale, which will be driven by how many customers they can serve simultaneously.
This is one of the larger areas where SaaS companies can differ from many others. While a more traditional business can sell products one at a time, SaaS firms will have to juggle selling their service with maintaining a certain level of service for their existing customer base.
As a result, there may be quite a considerable number of operational aspects that entrepreneurs will have to look at when establishing the company.
Types Of SaaS Products
Many people who are interested in establishing a SaaS company may wonder what kind of products they’ll be able to sell with this business model. While this might be much more limited than the variety of physical products that can be sold, there are still quite a significant number of SaaS products that can be sold.
There are a few notable things that have proven to be popular in this regard for the past few years. The majority of these are focused on delivering software in a few particular niches, including:
- Customer Resource Management: Applications here allow clients to efficiently track and manage their sales pipeline.
- Accounting & Invoicing: Financial tracking is an area that many companies may have difficulty with and want to change. In contrast to full-time accountants, SaaS companies provide a wide range of services at an affordable cost.
- Project Management: This is one of the more notable services that has been growing in popularity as a SaaS service and involves managing the vast majority of a client’s project, such as communication and more.
- Enterprise Resource Management: Though this is primarily used by sizable companies, it’s a market that has been growing quite significantly over the past few years.
- Web Hosting & e-Commerce: This is perhaps the most common SaaS service and could be one of the oldest.
- Data Management: Data management and security is something that quite a significant number of SaaS companies have been focusing on, which has led to a range of services in this area.
- Human Resource: There is quite a variety of human resources SaaS services that are available, such as time tracking, payrolling, and much more.
The possibilities for SaaS companies are seemingly endless, especially if you’re able to innovative with software. However, each of the above has apparently been the more common services and products that have been focused on with the business model over the past few years.
SaaS Pricing Models
Every company will need to generate revenue. While traditional companies will make this by selling a large number of their products regularly, SaaS companies will need a different approach to their pricing models because of the inherent nature of the business.
However, many entrepreneurs mightn’t know how they can generate revenue through a SaaS model. There are a few notable ways that they’ll be able to do so, with some being much more effective than others. These include:
- Per User Pricing: This is perhaps the most common way of pricing SaaS services, as its one of the easiest to implement. With this model, companies will only have to pay for the number of their employees that are using the service.
- Tiered User Pricing: Tiered user pricing is similar to the above model, although this allows clients to pay for up to a certain number of users. For example, a provider may allow five users for the service for a certain price with the number and price increasing in tiers.
- Per Storage Pricing: This is a pricing model that’s predominantly used by SaaS companies that offer storage as their service. Typically, this will be similar to tiered user pricing, although users will be paying incrementally for various levels of storage.
- Feature Based Pricing: This is a model that’s become increasingly more popular over the past few years, with there being a variety of ways to take advantage of. For example, many companies have begun offering a free option that provides basic features while also offering various paid versions. By doing so, the company will be able to highlight the value of certain features while developing more leads.
- Pay As You Go: This is a pricing option that has been relatively common for the past few years, with this being because it offers a variety of advantages to providers and their clients. The primary aspect of this model is that it allows users to only pay for the service as they need it, which could be a cost-effective approach for them.
- Flat Rate Subscription: This option is one that offers quite a significant about of simplicity, although it does offer a variety of drawbacks. With this model, those using the service pay a flat rate every month, regardless of how much they use it. As a result, users and providers know exactly how much is being paid every month and can plan accordingly.
- Ad Supported: Ad supported SaaS is something that has been gaining a certain amount of popularity over the past few years. In contrast to the majority of other pricing models, the user doesn’t need to pay anything to use the service. For the company to generate revenue with this model, they’ll need to implement ads from other companies.
Though how the majority of companies will price their products and services will vary from one to another, each of the above approaches is the most popular. This is because they can each offer quite a variety of benefits, both for the customer and the service provider.
However, it should also be noted that they all provide a certain number of drawbacks. As such, any entrepreneur looking to enter the SaaS market will need to weigh these pros and cons before establishing the company.
If needed, this may be changed over time, although this will be much more difficult than simply choosing the right one the first-time round, as it saves companies and customers time and hassle.
SaaS Marketing Best Practices
For any business to be successful, it will need to gain a certain number of customers, which means that they’ll need to put a certain amount of time and effort into marketing. While this is something that many people may know a lot about, there can be a few differences between advertising a traditional business and a SaaS one.
As such, there are a variety of things that the majority of business owners will need to follow when marketing the SaaS service. While there can be a variety of best practices that should be followed, there are a few that have become increasingly more notable than others.
Like many other companies, you’ll need to put a significant amount of time and effort into understanding your target market. By doing so, you’ll then be able to maximize your return on investment by ensuring that you’re advertising to the right people.
If you’re offering a free trial period with your service, then it’s recommended that you keep this as short as possible. While this may be surprising, there can be a variety of benefits to doing so. This is primarily seen in the fact that it speeds up a potential customer’s buying cycle, with the extra pressure helping lead to increased conversions.
The majority of experts have also noted that you shouldn’t hide any fees. While the overall cost of the service may seem as though it may be off-putting to your customers, this doesn’t mean that you should hide some of your fees until your customer is charged.
Should there be any hidden fees, then customers may drop off quite quickly. While this might mean that you’ll see some notable short-term revenue, it will work against a company in the long-term.
How To Build & Implement A Successful Demand-Generation Strategy
Many budding entrepreneurs may want to establish a SaaS business, although they may not know how to create a strategy that will result in sales. While there can be a variety of factors involved in this, there are a few things that you’ll need to look at and determine.
Setting a goal for your lead generation is the first step that any company should take, as it’s what they’ll measure the success or failure of their strategy with. When doing so, it can be vital to be realistic in setting the goal. In the initial months or years of operation, these goals may be somewhat low, although you should increase them incrementally.
Understand Your Users
No company has ever succeeded without knowing its potential users. By doing so, a business will be able to tailor its approach to generate leads by customizing advertising and sales strategies to what will be the most effective approach. This also applies to existing users and how these can be retained.
Understand Your Competitive Landscape
One thing that many firms overlook is what its potential competition is doing. There are a few ways that this can help, with the most notable being that it gives you a firm idea of what they’re not doing and how you can differentiate your company from them. This should give you an added edge in marketing a company and generating leads.
Website Design & Optimization Strategy
A SaaS company’s website can be one of the most important things they have when generating leads as it should work as a magnet for them. However, this will only be the case if the site is well designed and has been optimized to bring in leads and convert them. As such, you’ll need to develop a high-quality strategy for this.
Define Lead Generation Strategies
There is quite a significant number of lead generation strategies that are available, although these can be somewhat ill-defined. This can be quite a mistake, as not having a well-defined lead generation strategy shouldn’t provide as large of a return on investment as you may want.
Depending on your pricing model, some customers may be more valuable than others, as they’ll generate much more revenue than others. As a result, the majority of firms will need to determine which customers they’ll want to target most and which ones will provide the best return on investment.
Lead Handoff To Sales
Your marketing efforts should help you develop quite a significant amount of leads, although you’ll also need to ensure that you can convert them. To do so effectively, you should ensure that there’s a quick and smooth transition to a sales agent, which should help to maximize your overall conversion rate.
Define Customer Service’s Role
Customer service is something that can be vital to the majority of companies, although the role of someone in this position can often vary from firm to firm. With a SaaS company, you may also need to factor in technical support. As such, you’ll need to ensure that you have the customer service roles defined and maintained.
Define Key Business Metrics & Reporting
Every business will need to set key metrics to focus on while growing. However, many may not track and report on these as much as they should. With a SaaS company, this can be much more vital than many other firms, as they’ll need to look at drop-off rates and much more.
When you first start your lead generation strategy, you should ensure that these metrics are clearly defined and that you have ways to track and report on them.
Like many other business models, creating a SaaS company will take quite a significant amount of preparation and planning. While there’s no secret key to success, proper preparation will be vital to creating a foundation to build upon.
As such, knowing everything about SaaS and how it can be used to create an effective B2B business can be vital. Though it may take a certain amount of time to do so, it can reap dividends in the long-term.