How to make money with your Software as a Service (SaaS) idea
The Software as a Service (SaaS) model for business software is now common. Software isn’t hosted on a server at the client’s site, instead it’s run from the vendor’s own servers. And most modern systems are multi-tenancy - that means there’s only one actual instance of the software running. Each client uses the same instance, seeing only their own data. The benefits of SaaS and cloud hosting should be clear - client’s don’t need to worry about hardware or local software installations and the software vendor can roll out fixes and updates more easily.
Do you have a SaaS business idea? Perhaps you’re just beginning to think about an idea but would like to know a bit more about the different SaaS models. Which model is the best fit with your idea? Here are three basic models.
- Self-Service In some ways this is the simplest model. Users sign-up for a free trial and then at some point start paying for the service. There’s no support from anyone on the phone - it’s a low cost for solution for the user. The low cost does mean you have to sign-up a lot of users and that means that you’re going to spend a lot of money on marketing. There are lots of low cost self-service SaaS solutions out there in the web in all sorts of consumer and business sectors. Many will be priced as low as £3 a month per user (or lower). You’ve really got to think about how you will sign-up large numbers of users. It’s important that the sign-up process is fool proof. You want to make it as easy as possible for users to sign up for a free trial and then upgrade to a paid version.
- Transactional Transactional SaaS solutions sell for a higher price. Customers still sign-up but at some point there’s usually contact with a real (remote) salesperson who tries to convert free trial users into paying accounts. Transactional SaaS solutions tend to automate well understood business processes - processes that are common to many organisations. They don’t usually require a lot of complex configuration or setup. Customers will pay more but they’ll also expect some kind of premium support from a person on a phone.
- Enterprise The enterprise model is closer to traditional software sales. You’re selling access to a cloud based service but you’re still using sales people out on the road. The enterprise model works where you’re trying to sell high value, complex software to organisations that expect some kind of contact with the vendor before they make a purchase. The enterprise model hits your cashflow because you’ve got that big upfront cost of acquiring a new customer but that new customer doesn’t pay a big upfront licence fee, instead they pay that monthly SaaS subscription.
The web has totally changed the way software is developed and sold. Businesses now expect to be able to buy even core enterprise software as a cloud based service. The low hanging SaaS fruit may have gone but there are still opportunities for new players. There is a still a lot of traditional pre-SaaS software out there in established niches that is dated and expensive to rewrite. The trick is to find the niche, pick the right SaaS model and start with a good minimum viable product.