Whether you’re looking to start a SaaS company or just learning more about the business model, it’s clear that these businesses are unique from traditional companies. Unlike business-to-business (B2B) or business-to-consumer (B2C) companies, software as a service (SaaS) businesses are focused on providing helpful software that solves problems. They can operate as either B2B, B2C or sometimes even both.
In this article, we’ll discuss five things that make SaaS companies unique and that you should know both as a potential business owner and a consumer.
1.) Prices are Based on Value
The first thing you have to understand about SaaS companies is that the pricing isn’t determined by the same standards that dictate the product world. When marketing a product, you can factor in the cost of materials and labor it took to make that product, calculate your profit margin and arrive at a final price. However, with software, it’s not that simple.
Instead, companies like Plume, Salesforce and other SaaS businesses rely on the value of their products to set the price. The value people find in using their services is what determines how much they can charge. This can make initially setting prices difficult, and ties your pricing structure to your brand strategy and positioning.
2.) It’s All About Relationships
The SaaS business model is subscription-based. People will sign up to pay a monthly price for a set time period while they use your product. Some companies even use tiered systems where different levels of service cost more or less and include different features.
In this business model, repeat customers are essential to success. You need people to continually renew their contracts and keep deciding to do business with you. Finding and onboarding new customers is much more costly than simply keeping the ones you already have.
That’s why relationships are paramount to SaaS success. You need to provide quality customer service and trusting relationships with your clients so they’re happy to renew their contract each month or year.
3.) Metrics are Key
Metrics are helpful in any business. They help you track growth, manage finances and take a pulse check on your company. In the SaaS space, however, they’re crucial. You’re operating entirely online, which usually means lower overhead costs but includes unique challenges. If you’re not tracking metrics, you won’t know how well (or poorly) your business is doing.
There is a multitude of metrics your business could track, but a few, in particular, stand out for SaaS companies:
- Client churn – tells you how many customers aren’t renewing their contracts
- Revenue – tell you how much money you’re bringing in during a given time frame
- CAC – customer acquisition cost; how much does it cost you to find, nurture and convert a new customer?
4.) Needs an API Strategy
An Application Programming Interface (API) is the computer software that allows your SaaS product to integrate with other computer programs and software. Most businesses use more than one piece of tech to manage their business processes, which is why your software needs to integrate with others on the market.
To accomplish this, you need an API strategy. Design some native integrations for your software that connect with popular and complementary products. Next, make room for people to build their own custom integrations so they can use all of their tech products with yours.
5.) Don’t Forget the Security
Because all SaaS programs are based online, you can’t forget to build in certain cybersecurity measures for your business. Customers need to know their personal information and company data will be safe on your servers.
Ensure your website is encrypted with an SSL certificate, and use advanced security techniques to show that securing your client’s data is your top priority.
The SaaS industry can seem mysteriously technical, but it’s really not too far off from regular B2B or B2C companies. Use these five things to prepare yourself to open your own successful SaaS business.