Detailed Explanation of SaaS Business Model

Written By
Ravi K Nair
Technical Content Strategist
Last updated at May 12, 2022
Detailed Explanation of SaaS Business Model

The SaaS industry has been one of the most fast-paced and innovative in the world. Throughout the last decades, more and more software companies have gradually but unavoidably shifted to the SaaS model.


SaaS stands for software as a service. In simple words, SaaS delivers software over the internet. It allows users to connect and utilise cloud-based solutions as a service without installation via desktops, mobile apps, and the web. 


However, the most important reason for SaaS's popularity is that it enables customers to avoid making large initial investments in other on-premise services.


Instead of that, they can use a SaaS product for a long time at a much more affordable cost and end the contract whenever they feel like it.


If you are looking to make your software project successful, firstly, you need to find the right SaaS business model that fits best with your business. Hence, we are going to help you with this.


In this article, we will explain what a SaaS model is? How does it work? What are the types of it? And much more.  


What do we mean by SaaS Business Model?


The SaaS model provides authorisation of centrally hosted software to customers via a subscription method. Since SaaS embraces cloud computing technology, there is no requirement to install software on devices. 


Users can use the software on the web by just subscribing to them. We can understand this with the example of Netflix, which is a B2C SaaS platform and follows a subscription model. 


Further, any business which employs its software through a central, cloud-based system can be called a SaaS company. The SaaS development company is responsible for the maintenance of servers, databases and other software that lets their product be accessed and operated. 


The subscription plans offered to customers can be different for each company. Some companies offer numerous applications within their products, with distinct subscription plans and providing access to multiple services.


Various Types of SaaS Models - 


There are many different kinds of SaaS software available. Basically, the most crucial thing about the division of SaaS software is the fact that in the future, new groups of SaaS products will also appear.


It seems that cloud-based software services will be applied closely to every human activity. Increasingly people are looking for ways to work from home. So the popularity of SaaS services is rising because you can use them anywhere in the world.


Thus, while we are waiting for the latest upcoming kinds of SaaS software, the existing ones are explained as follows: 


1. Customer Relationship Management Software (CRM) -  


Customer data is valuable information for any organisation, which is used to promote the product and improve sales. CRM software is a tool for useful data management. It keeps all customer data and benefits improve customer relationships.


Some CRM systems assist users in forecasting sales, but the majority of them just automate repetitive sales tasks such as sending emails.


2. Enterprise Resource Planning Software (ERP) - 


These SaaS are used by big companies to handle multiple business processes like accounting, compliance, risk management, and budgeting. This software permits the combining and tracking of all these processes in one location since it has a great number of services.


3. Accounting Software -


Accounting software streamlines managing your financial procedures and costs by automating them. This comes convenient when you are doing lots of financial operations regularly. 


All SaaS that includes this type varies wildly in features. So you must select the ones that will fit best your requirements and expectations when it comes to managing your finance. 


4. Project Management Software -


Project management SaaS solutions enhance collaboration and growth tracking in teams. They are much quicker and hassle-free to use compared to shared spreadsheets, as synchronization happens in real-time. 


5. E-commerce and Content Management System Platforms - 


E-commerce SaaS solutions are an effective option for new businesses. They allow you to start selling your products instantly.  


Also, if you are planning to make a website, this software assists you in saving money on website development and UX/UI design services. 


Additionally, the CMS platform lets you publish and edit content, like articles and blog posts. The well-known CMS platform is WordPress. 


It was created as a tool for blogging but finally became a CMS and website-building tool. WordPress is free of cost, and you can use templates for your website.


6. Communication Platforms - 


These are commonly used SaaS software. The main advantage of communication platforms is instant messaging and file sharing from any region of the world. Companies usually use these apps for communication between their employees. 


Furthermore, these transmission platforms also have mobile applications available that allow users to contact the network of their friends or colleagues. 


7. HR Solutions -


HR SaaS software is invented to manage human resources. They come with handy features such as recruiting, performance tracking, interview scheduling, and employee reviews. 


This software is beneficial for organizations that are continuously growing and hiring new people since they permit storing all information of candidates in one spot. 


8. Payment Gateways and Billing Software - 


Payment gateways help those businesses who are handling hundreds of transactions each day to receive payments fast and effortlessly. 


For any company, this is a suitable way to obtain amounts by sharing protected customer details between banks and vendors and eliminating the chances of data leakage.


Stages of SaaS Business Model - 


1. Pre Startup - 

In this stage, you have a business idea, and you are planning how to set up the business structure from scratch. Your product may be in just the developmental phase, and you may not have any consumers yet. So in this step, you can - 


  • Research and analyse the industry in which you are thinking of entering.
  • Learn more about what is already existing in the market and how you can make your product differ from the rest.
  • Construct strategies about the business model and get help from the experts.
  • Protect budgets to get started, either through friends or root investors.


2. Start-Up - 


Once you have prepared your business plan, you can start implementing your strategies. Here you can - 


  • Set up a soul team to handle the product and generate leads.
  • Develop proposals to approach the consumers.
  • Get customer feedback to improve your services.
  • Keep yourself updated with the running industry news.


3. Growth - 


This is the phase when you know that your product is working fine and now the work has to be done to make the system bearable. Your key responsibilities at this stage are - 


  • Optimizing customer acquisition
  • Maintain and engage clients
  • Execute essential changes to the product
  • Motivating your team
  • Promotion of your products


4. Maturity - 


Eventually, if you have accomplished the previous three stages, it is now time to raise the ongoing operations to go large.


In this step, you have a stable product with an immense number of customers. So, next whether you can stop here or try to expand your business more. Thus, here you can -


  • Extend your products to other countries globally
  • Strategize for IPO listing
  • Add more new products or services constantly


Distinct Pricing Models for SaaS Business - 


Nothing has a greater impact on your business than the price plan you choose to sell your products. The decision must be made to establish a balance between revenue and growth. 


Here we are mentioning some of the most famous and successful pricing models adopted by SaaS businesses all over the world. 


1. Flat Pricing - 


This is the easiest model in which the whole product comes with a single price for all the customers. The payment term can be done on an annual or monthly basis. 


2. Tier Based Pricing - 


It allows the flexibility for the customers to pay only for those features they are using. This model benefits businesses in gaining loyal customers since they are associating the price with the usage benefits. 


3. User-Based Pricing - 


This pricing model is somewhat similar to a flat pricing model, but the varying aspect here is the number of users. 


The customer chooses the number of users they want and then scales up with time. This is the most common SaaS price plan, which secures your evolution when users buy your product.


Advantages of the SaaS Model - 


  • SaaS software is installed in the cloud. So the updates require to be moved from the provider’s end and end-users do not need to stress about that. 
  • The SaaS suppliers take care of the hardware and software updates. 
  • People just need a good internet connection and a browser to access SaaS.  
  • SaaS allows the use of various marketing methods that are affordable and effective, including affiliate marketing and social media advertisements.
  • This business model decreases customer fiction because whatever end-users will pay is what they get. There is excellent clarity.
  • SaaS platforms can be created scalable to manage high-volume data dealings and grew swells of activity such as month-end closures and payroll procedures.
  • The SaaS subscription model is more helpful to the customer’s necessities and presents adaptability that traditional software platforms cannot deliver. The flexibility encourages customer loyalty and stickiness.


Disadvantages of SaaS Model - 


  • SaaS is a hosted solution in which the control lies down in the third party's hands. In contrast, in-house software enables users to manage and control their work independently. 
  • A significant concern in hosted services is data management and the privacy of sensitive information. 
  • Since the SaaS model depends on web delivery, you may lose access to your data if the internet service fails. 
  • SaaS shortfall in performance and the speed is relatively slower than on-premise customer or server applications. 


Future of SaaS Business Model - 


Right now, SaaS is the latest craze, but what about the next upcoming years?


What is the future of SaaS?


We have seen that technology has advanced significantly over the last decade, from cellphones to virtual reality. People have adapted to new, changed situations in their life, and businesses have found answers to many of their problems.


This has become possible because of the cloud system's flexibility and cost-effectiveness. As a result, people are demanding more innovation in their lives. Fortunately, it does not seem that they will be disappointed.


With the popularity of the SaaS model, various businesses like machine learning, data automation etc., are looking forward to using it to make their data more manageable, accurate, and insightful.


Therefore, it is safe to say, with a data-driven strategy, SaaS is going to flourish in the upcoming times and will be here to stay.


Bottom Line - 


Nowadays, more businesses can enhance their operations and increase profit, all thanks to powerful SaaS software available. 


Whether companies require to maintain their software, secure infrastructure, or efficiently operate their teams, cloud computing solutions remove all obstacles to meeting business goals.


So this is it. Hope the detailed explanation we have shared here about the SaaS model will help you to understand how it can grow your business. In case of further queries you can comment and we will surely help you with your questions.

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