Selling tangible products is not hard to imagine. You get to experience it every day, and people around the world do it. Marketplaces, stores, and establishments offer you something you need, and in turn, you pay for the physical item. It’s easier to see the exchange of value and transaction. The scenario can become confusing when you are dealing with software.
Much like tangible products in the market, the software has various business models. One of these business models is called SaaS. If you don’t know what SaaS means, it stands for “Software as a Service,” and thousands of companies offer these products for businesses and consumers alike.
The rise of any SaaS product development company is evident as many businesses make activities more digital. Let this guide help you in learning how the SaaS Business Model works. More than offering any software as a paid regular subscription, there are other aspects to SaaS.
Customer Side: Paying for the Software as a Service
Let’s start with the consumer side first. Customers pay a subscription or a pay-per-use rate for a given software. As such, consumers pay to use software developed and serviced by a provider. The software is available in the web interface, desktop, and mobile applications.
Buyers Pay for the Service Along with the Software
More than paying for the software, customers also get the services to keep the software running. Remember that making software involves hosting the software on the internet, maintaining the servers that keep the software running, and continuously providing customer support.
Buyers need to only connect to the internet and use the paid software. The SaaS company handles all the other aspects in creating, developing, and managing the software.
Customer Retention vs. Customer Acquisition
The best indicator of a good SaaS product is high customer retention. More than acquiring new customers who pay for the software, it’s more important to note recurring customers who find high satisfaction with the software and the service.
The SaaS company offers beyond the essential software in the form of excellent services that accompany the software. Whether it’s reliable cloud service or efficient customer service, the company offers something beyond the software.
Predictable Revenue Sources for the SaaS Company
Since SaaS companies rely on customer retention, the revenue becomes more predictable. When a group of loyal buyers keeps paying the subscription to use the software, the consumer base provides a steady or reliable income source.
SaaS industries forecast growth of 12.5% in 2025, amounting to 436.9B USD from 2021’s expected revenue of 272.49B USD. These numbers come from the steady support and demand of the consumer base.
Examples of SaaS software:
SaaS Company Side: Developing and Providing Software with Necessary Services
These are the steps on how SaaS companies prepare to offer potential software and expected services to consumers on the provider’s side.
Prepare and Assess for Potential SaaS Startup
Market research is necessary to figure which software is the most in-demand or profitable for business. Teams tend to create a software prototype, develop business plans on how and when to market the product, and tackle competition.
Teams and companies start from scratch to figure out the best software to offer to an existing market. Conception and planning become the focus of the preparation stage.
Startup with a Working Software as Initial Product
Launching the early stages of the software and other necessary services happen at the early phases. Initial feedback on the software interface and offered service often occurs as the team introduces the software to the early buyers of the SaaS.
First customer engagements happen at the startup, and companies note the feedback and reaction from people who subscribed to the software.
Hypergrowth and Support Increasing Customer Base
As the ball keeps rolling and the SaaS company gets more retaining customers, expanding the service capacities may be necessary. Necessary steps can include expanding the customer service team, improving the software interface, and growing the company and the software capabilities. Scaling the business becomes the focal point of the stage.
Stabilize and Continuously Improve the Software and Services
As the business irons out, the company has solid data to forecast for growth and revenue. At this stage, companies may consider developing software or selling the SaaS to another tech giant in the industry.
Customers will pay and retain while others will find better software to adapt to. The vital part is knowing that the software and services match the needs of existing people who pay.
The rise of SaaS has eliminated companies and corporations from the need for a traditional IT department. Ultimately, paying for a SaaS is like outsourcing work to another company that provides the pertinent software to manage your system. From POS systems up to cloud storage solutions, there is less risk for paying customers to keep using proven software.
The success of SaaS startups is notable in the tech industry. With billions in annual revenue, the demand for “leased-out” software will never go away. Venturing into a SaaS business model can be tricky and exciting as innovators tread the unknowns of software technology.