Experts anticipate that by 2025, over 85% of commercial apps will be SaaS-based due to the rising demand for SaaS products. SaaS companies must continually upgrade their products to deliver a better client experience if they hope to capitalize on this trend and outperform their rivals.
As a result, businesses began considering the SaaS revenue model for their operations. Instead of buying the program altogether, the saas revenue model allows customers to use centrally hosted software and support by paying a regular subscription charge.
Additionally, this SaaS revenue model offers a quick and straightforward way to calculate the income a SaaS subscription model generates.
So, it's time to examine how SaaS companies generate money using the revenue model. And also some suggestions on growing your business as more businesses invest in cloud-based solutions. Read the entire article, then.
What is the SaaS Revenue Model?
The SaaS revenue model is a software delivery procedure where individuals pay recurring payments at regular gaps to access cloud-based applications.
In the SaaS model, the software provider hosts the application and all its information in the cloud. The SaaS model developed out of the truth that once the software was in need, it could be updated constantly, and companies were no longer required to supply physical goods.
So, software corporations needed to launch a scalable model that authorized them to profit from the applications they generated for as long as they stayed valuable to other businesses or individuals.
How does the SaaS Revenue Model Works Best for Your Business?
Today, numerous software businesses are shifting toward a SaaS-based revenue model. For those that haven't swapped to SaaS, it's usually a matter of time, more than anything else. The following benefits of a SaaS revenue model explain how this model works best for your business.
Constant and Loyal Revenue Stream
It is possibly the most crucial advantage. By embracing the SaaS model, software dealers can receive an amount throughout the product's lifetime instead of a one-time cost of a physical product. Thus, it’s comfortable for you to forecast revenue and concentrate on growing your product.
Scalability and Comfort of Distribution
The conventional model of printing CDs or installing software physically needed a whole operational element, including buying CDs, printing, and handling physical dispersal networks, the complete works.
With a SaaS model, retailers no longer have to stress these complicated components. Instead, they can conduct all efforts into inventing and enhancing the existing tool.
Users require their login credentials and an internet association to use the software.
Additionally, retailers no longer have to produce for different operating systems and gadgets since the product can be accessed via any web browser, irrespective of device sort. It makes it even more straightforward to scale and broadcast applications to end-users.
Individuals can always access the latest version of a SaaS service since the software is regularly updated and sustained. Unlike other applications, they usually don’t require installing updates and can access live via a web browser.
Multiple tools also have publicly available roadmaps or community forums where people can upvote their most preferred features and report errors, so the general development goals are always in line with users’ demands.
With on-premise solutions, people had to spend a lump sum for the tool upfront and strengthen servers to support the application. But with SaaS, they do not have to bother about retaining any underlying infrastructure, which can usually be less costly in the prolonged run.
Testing Before Service
One of the most significant selling attributes of the SaaS model is that it permits users to try a tool before they completely commit to it from a price perspective. Some tools even function on a freemium model where people have free access to primary qualities of the product as long as they retain an account.
As we explained above, users don't need to install complicated software; they only need a username and password to use an always up-to-date SaaS application.
Also, they don’t require installing each new update or reading through pages of technical manuals to discover how to install the software.
The onboarding approach is also slicker compared to conventional methods. Since the software is entirely web-based and independent of the user’s operating system, onboarding guides are more precise and effortless to pursue.
Most tools also hold committed customer service squads available to instruct users in real-time if they operate into any crisis.
Phases of SaaS Revenue Model
1. The Initial Sale
It’s an important phase of the SaaS revenue model. Locking an initial sale contains everything from an easy self-serve upgrade to an annual agreement shepherded by an inside agent.
You'll get somewhere with your SaaS interchange if you work well in this phase and show an initial solid sales increase. You’ll likely be capable of boosting some money, maybe even having a mini-brand.
2. Retention Revenue
Not all, though. Some SaaS organizations quickly learned the importance of the retention phase. Indeed, they noticed that an initial sale didn’t count much if a new account was rescinded three, six, or even 12 months subsequently.
They realized they couldn’t perhaps maintain growth if they churned the consumers they brought in. These individuals learn how to play the game of SaaS.
Thus, the revenue option from retention is exponentially more prominent than the initial sale. So you should manage well in this second stage, and you will create a reliable, sustainable SaaS business.
Frequently forgotten, always necessary is the expansion phase, where the real secret to SaaS growth lies. Smart SaaS teams quickly learned that they could cause revenue expansion by raising existing accounts.
Upsells, cross-sells, and any other sales that might provoke extra revenue from existing consumers became SaaS staples. And it performed primarily because the possibility for second-order revenue was massive.
Tips to Choose a SaaS Revenue Model for Your Business
Be Clear About Your Bottom Line
You should do some self-discovery to discover your business's value to your consumers and the price of delivering that value. And then, work backward from there and pick a model that aligns with your product.
The purpose is to confirm that your selected model scales with your prices and the value you produce. So, the more it will cost to deliver a respective feature, the more the consumer pays. And the additional value your customers bring, the higher fee they pay.
Be Cautious not to Deter the Behavior you want to Create
For instance, charging per user might demoralize organization-wide adoption since the cost of the tool could expand exponentially as the client’s user base boosts. So, if you plan to have as numerous users as possible, you might consider a feature or usage-based measure since usage patterns may differ per user.
Comprehend your Unit Costs
It could be your price per feature, consumer, or other critical metrics. It will assist you in selecting a pricing model that scales your prices. For example, comprehending your cost per transaction is crucial to secure profitability if you're a payment platform.
After reading this guide, we hope you learn about the SaaS revenue model. So start executing it in your business quickly. Also, in the comments section below, let us know your opinions about this article.
Moreover, Noetic IT Services can assist you in making better decisions about everything from pricing and packaging to increasing renewals by providing you good visibility into your prices per attribute or consumer. So contact us today!