The (software-as-a-service) SaaS business model is a popular way for companies to deliver software to their customers. In this model, a SaaS development company creates a software application and then makes it available to customers over the internet, typically on a subscription basis. To truly make a SaaS product worthwhile, it takes a good amount of coding expertise from top SaaS developers and a good amount of UI design expertise.
The fact that SaaS is hosted in the cloud is the primary distinction between a SaaS business model and other software firms. This eliminates the requirement for any hosting infrastructure and an end-user license to activate the software. The SaaS provider hosts their membership instead. The customer only needs to log into their account to access everything.
The Demand for SaaS
As you might expect, this service is very alluring. Sales teams using SalesForce or customer service departments using Zendesk are two examples of how business owners who do not want to invest significant sums of money in building an IT infrastructure frequently use SaaS solutions. The SaaS business eliminates this risk for the client using the service for their business and typically only pays a small monthly membership fee.
A company using the SaaS business model can make money in various ways, but typically its recurring membership revenue will be its main source of income. Most frequently, recurring revenue is set up as annual and monthly payments (known as ARR or MRR). Thanks to this membership fee, the customer base has access to the products and features of the software.
Before we proceed, it’s crucial to note that valuing a SaaS business can differ slightly from valuing other business models. This is because a SaaS business’s enormous reinvestment requirements frequently consume its profits, leading many buyers to base their decision to invest in a SaaS company on the expectation of steady, ongoing growth.
The Phases of a SaaS Business
There are three major phases that every SaaS business will go through. Most people know the startup phase, but everyone dreams of the stable, money-making Golden Goose phase. Hypergrowth is one of the phases that, despite being one of the most stressful times for a SaaS company when they either succeed or fail, is frequently not discussed.
Let’s examine each of the three primary stages:
Startup
This involves setting up a shop, developing a usable product, and “going to market” to attract your first few clients. This phase includes SaaS development & SaaS optimization.
Hypergrowth
As businesses take up your software, you will likely experience enormous growth if the market likes your product. While this may sound great, it will usually cost you more money because you will need to rapidly expand your data storage, bandwidth, and other technical resources to accommodate the extra customers. Recall how SaaS users frequently adore the product because it eliminates the need to build an IT infrastructure for their company. Their lack of need to create one is because your SaaS product provides that backend for them through their membership.
Stable Income
This stage occurs when your SaaS business has stabilized. Your business is beginning to make a respectable profit, and adding customers quickly won’t strain your infrastructure the way it would during the hypergrowth stage. You will also learn about “churn,” which we will discuss shortly.
Although many SaaS products are quite good, many businesses struggle with managing hypergrowth, which can lead to many of them failing. In the Growth Strategies section of this explainer article, we will discuss some strategies for somewhat mitigating this.
Advantages of a SaaS Business Model
It is advantageous for the product vendor and the customer to use a SaaS Business model rather than traditional software installations. Let’s dive deeper into some of the various categories of
Lower Costs
Subscription-based platforms are made available to users. This does away with the licensing fees associated with installing conventional software. Additionally, it enables your clients to modify their costs in accordance with usage. SaaS solutions also save customers money on infrastructure costs because they are cloud-based.
Scalability and Flexibility:
The SaaS business model gives your customers more freedom to choose. Your customers will only pay more if they use the product more frequently if you base your pricing on a usage metric.
This gives your clients a chance to expand their businesses using your software. It also removes the possibility of paying a large sum of money upfront for a product that might not meet their needs.
Immediate benefits:
Clients experience immediate benefits as SaaS tools are cloud-based. Installing product features is typically as simple as signing up with a name and email address.
Higher Adoption:
SaaS platform development is now more popular due to its global usability. Users are much more likely to stick with the product if they see immediate results from the software.
No Sales Friction:
The majority of SaaS solutions have a per-user or per-month pricing structure. The end users can easily calculate software costs thanks to this price. It removes the potential friction between sales and budget approval for IT.
Recurring Revenue:
One of the most significant advantages of the SaaS business model is that it permits a stream of recurring income, which aids in churn management.
Simpler to Update & Support:
If you own a SaaS business, you must understand how to value it, which includes having control over the system and environment in which the product is being developed.
For instance, if you create a product that must be installed on numerous devices, it must support edge cases, various OSs, etc. You have control over the infrastructure on which a browser-related SaaS is being used, so you must consider the various technicalities. A SaaS application development company will make these considerations easier to manage.
Conclusion
You have countless business opportunities thanks to the SaaS business model. It is widely regarded, and more people will adopt it. You must be aware of the dynamics of the SaaS industry in addition to market demand and competition and work to offer distinctive solutions and value to your clients. The SaaS product and whether any apps are offered for accessing/using the software on desktop, mobile, and in a web interface will determine this. If you’re looking for SaaS application development from seasoned experts, then SaaS Cofounders has got your back! Get in touch to learn more about our facilities!