SaaS or Software as a Service is an innovative cloud service-based model that offers access to the product’s offering through the internet on a subscription basis. Now that COVID-19 has led to a remote-first movement, usage of the SaaS business model is gaining traction as they ensure business continuity.
With successful SaaS models like Zoom growing its user base to 300 million people, one can see how SaaS is the mainstay of the new normal. Interestingly, apart from businesses prominently working in the tech space, even unconventional industries such as automobiles are adopting the SaaS business model.
BMW is exploring software-as-a-service such as pay for the number of months a year you want your heated seats to work.
Sorry, but if this catches on, I will never buy another new car. Never.
There are plenty of classic cars without this nonsense. https://t.co/FxlgWkzxGh
— Brianna Wu (@BriannaWu) July 1, 2020
Now, who would have thought about this?
SaaS product development is like a digital transformation journey that businesses are undergoing rapidly. You can participate and lead the change by creating a product that would offer value to its users.
But, let’s understand everything about the business model before you start the SaaS application development initiative.
What is the SaaS Business Model?
SaaS business model is a model that generates its revenues from the software hosted on the cloud. This software is made available for everyone on a subscription basis, which is why it is also called a subscription-based service.
The only difference between traditional software and SaaS subscription model is that the latter is hosted on the cloud and needs access to the internet to use it.
The convenience offered by the cloud-based model is such that 43% of respondents according to the Flexera 2020 State of the cloud report are gearing up to shift their on-premise software to the cloud.
Gartner defines SaaS as a :
Software that is owned and managed remotely by a provider who delivers the software based on one set of common code and data definitions that is consumed, in a one-to-many model, by all contracted customers, at any time, on a pay-for-use or subscription basis.
Examples: Slack, Zoom, ClickUp, Trello, etc. You can have a look at the different SaaS-based remote work stack here.
What are the Most Successful SaaS Pricing Models?
The pricing model for a SaaS product should be an informed decision for software companies. Moreover, it is good to analyze your existing competitors for their pricing models so that you can plan accordingly to gain a competitive advantage. The pricing and the plans should depend on your target audience and their capacity to pay.
Here are some most successful SaaS business model pricing plans that work.
1. Flat Rate
This is the most straightforward price plan that is based on a monthly fee or annual fee basis. You offer a flat price for your service without any customization that includes a comprehensive plan with a common set of services. The price plan can be changed later to accommodate different packages once traffic starts to pour in, and you iterate through the product to include better and newer services.
2. Per-User Pricing
This is a popular type of price plan that is doing rounds in SaaS companies. Here, the pricing scales up as the number of product users increases. This type of plan suits small-sized organizations over large-scale enterprises that, in turn, prefer to venture into product development initiatives that involve one-time costs.
3. Tiered Pricing
This is the most commonly used SaaS pricing model where pricing is divided into different plans based on features that each of them offers. The more the features the plan offers, the more is the price paid. When creating different plans, ensure that each plan suits the particular needs of your different buyer personas. For instance, offering a free-tier or low-cost plan that suits the needs of small-scale business, and then scaling up features and pricing for large-scale enterprises.
4. Pay-as-you-go Basis
This type of pricing plan is popular among cloud-based providers such as AWS, Azure, and Google Cloud Platform. Here, the subscriber pays only for what they use, i.e., they rent the service, use it till it is needed, and again repays it for the service when they need it again. It is like paying your electricity bill, where you only pay for what you use.
How do You Implement a successful SaaS business model?
Creating a SaaS solution that proves to be a product-market fit should be your priority and objective.
Here is the sequence of steps that you need to navigate through to ensure the successful implementation of a SaaS business plan.
(Knowing the difference between a PoC, MVP, and prototype will help you better understand the product development process.)
- Come up with a break-through idea
- Create a proof of concept if needed. This will help validate the product idea
- Create a prototype. This will help attract seed-funding for the product
- Create and launch an MVP (Minimum Viable Product) that is based on the freemium model. This will help launch a basic version of the product that will help record initial user reactions and feedback
- Learn from the feedback and venture into developing a full-fledged product
- Strategize around the pricing model that suits your SaaS offering
- Market. Iterate. Grow. Repeat
What are the Advantages of the SaaS Business Model?
There are several benefits of the SaaS business model. The most prominent ones are as follows.
1. Speed of Innovation Gives Competitive Edge
Cloud computing allows a greater innovation scope, which in turn leads to an unconventional product that can potentially disrupt the market. When your new product is built on SaaS, and you launch it quicker in the market, you can expect to upscale the SaaS product adoption rates.
Where others might be still brainstorming to launch a traditional in-house software, you’ll offer value way through the cloud, thus helping you stay one step ahead of the competition just like SampleBoard.
Rosslyn Tebbutt, an interior designer at SampleBoard, wanted to create a SaaS application that could help draft visual design concepts. Using the agile software development method, Net Solutions created a custom product that stood relevant to the designer industry. Here is the case study for in-depth insight.
2. Product-Market Fit = Minimum Marketing Efforts
With your SaaS product, you can reach your target audience in a timely manner by enabling cloud access. If you manage to achieve the product-market fit, you are able to solve the problems of your customers.
This further leads to word of mouth marketing where one user recommends the product to other potential users, thus reducing your efforts to marketing and paving the way to increased SaaS sales.
3. The Anywhere, Anytime Value is your USP
When you offer software as a service, you ensure 24/7 availability of your services from anywhere and at any time. This remote, all-time access is an asset for businesses affected by COVID-19. Businesses have been operating on the cloud and using cloud-based applications for collaboration, communication, and continuing with the daily tasks.
If you step-in the market now with the idea that addresses the needs of the target audience, you’ll successfully be able to achieve a Customer Lifetime Value (CLV).
4. Faster Time to Market Means Quick Iteration Through the MVP
It can take years to build a product for an organization, and even build an MVP, which, in turn, take time to validate. This can be solved by a SaaS-based product, which does not require installation; rather, it only needs access to the World Wide Web.
This way, MVP can be launched faster, access to the product becomes easier, feedback can be received more quickly, and that further aids in quicker iterations and better value offering.
5. Income Predictability Helps Reduce Churn Rates
With subscription-based services, you can expect a recurring revenue stream over the one-time cost associated with traditional licensing software. You can easily monitor the data on your deployed CRM dashboards that give an insight into how your product is performing in the market.
If the growth rate drops, you can lay plans to reduce the churn rate based on both self and competitor analysis.
A SaaS business model is an innovative way to launch products in the market through the cloud. Organizations around the world are more likely to experiment with SaaS products as they offer value on the go. If you are looking for a business idea to step your foot in the market, relying on the SaaS business model is a profitable choice to make.
However, with competition so high, you need to — invest in a unique idea, solve user problems, offer fair pricing, and market the product well. Only then can you scale your business and market position.