Digital Marketing
3 minutes

How to Build a SaaS Business Model

Today there’s more revenue pouring into Software-as-a-Service (SaaS) than ever before, and around 37% of businesses are switching to cloud-based systems to reap the rewards of SaaS. If you’re looking to start a successful SaaS company this year or in the near future, then you’ve come to the right place. Before you embark on this business venture, you’re going to need to brush up on a handful of things. In this article, we will cover the key components to consider when building a SaaS business model.

Defining features of a SaaS business model

There are a number of features within a SaaS business model that make it unique to the industry. The below categories will play a large part in your decision making:

Recurring payments

SaaS is based on the concept of eliminating hardware and providing customers with a subscription service. Your SaaS business model needs to assess the revenue potential of monthly (or annual) payments. Monthly recurring revenue (MRR) is a fundamental part of your business model, as opposed to one off payments.

Intense Customer Retention

Customer retention is key to any business, but it’s incredibly important to the SaaS business model. A high level of value is placed on developing customer relationships, making the most of up-sell opportunities, and providing a high-end service to ensure your customers remain loyal. If you lose a customer one month into a 12-month subscription, you’ll no longer receive recurring revenue.

Consistent Updates

Frequent software updates and additional service offerings are key to customer retention. A good SaaS business model budgets for the development dream team. A 5-star development team means pushing updates, releasing new features, and enhancing existing products can be done seamlessly without a glitch.

Other considerations

Recurring payments, customer retention, and consistent updates are the three core areas of a SaaS business model, but your to-consider list shouldn’t stop there. To build a successful SaaS business model, you’ll also need to:

Conduct Market Research

Before jumping feet first into the SaaS market, do your research. Seek to expand your industry knowledge first before finding a target market and undertake in-depth research into your demographic. Make sure you know as much about your competitors as possible too. Which cloud computing model are they using? What does their pricing model look like? How often do they update their software? All of this information will help guide your SaaS startup journey.

Plan Well Ahead

A traditional business plan shouldn’t be forgotten when developing your SaaS company. Take your time to map out the road ahead of you, and create a detailed plan of your finances, market analysis, and business overview. Key areas to include are target market, competition, sales channels, marketing, revenue, partners, and potential growth.

Produce a Prototype

Before you build a fully-fledged SaaS application, it might be worth building a product prototype first. While a prototype is a great way to get a feel for your product, it’s also perfect for UX (user experience) and investment opportunities.

Decide on a Pricing Model

To build a SaaS startup that generates regular monthly revenue, you’ll need to research pricing models. Built-in advertisements, flat-rate pricing, and premium features are all great ways to monetise your software. Note that combining several monetising strategies together isn’t necessarily a bad idea.

Create a Brand

The SaaS market is competitive, so you’re going to need to stand out from the crowd. You should consider creating more than a SaaS product by building a whole brand for consumers to buy into.

Seek Finance

Outsider investment is one of the most popular ways to get a SaaS startup off the ground, particularly if you don’t have the funds to do so yourself. You’ll need to explore all avenues of funding your startup, and this should be covered early on in your business model.

Source the Dream Development Team

Hiring the right team members to build a development team is absolutely crucial to your SaaS app’s success. We recommend spending a good chunk of time scouring the market to build your dream team of backend developers, QA engineers, UX/UI designers, and project managers. Having a seamlessly functioning app is one of the most essential parts of your SaaS product. Make sure you budget accordingly for this in your business plan.

Develop an MVP

Take your prototype to the next level by mapping out a SaaS MVP. Your MVP (Minimum Viable Product) should showcase your product’s features without having to develop the final interface. This is the point where you’ll quickly find out what works and what doesn’t, and your investors won’t hold back in telling you this. Remember, your MVP should be simple and to the point. Don’t waste too much time or money refining this “draft” product.

In Conclusion…

There’s a heck of a lot to consider when building a SaaS business model, but you shouldn’t feel overwhelmed. While the model can seem complex, achieving the end goal of a fully functioning SaaS product and enjoying a reliable revenue stream is achievable. Planning is key!

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