If you are interested in running your business online, then you will almost certainly have heard of Software as a Service or ‘SaaS’ before. So what is this business model, and why might it be a good option for you?
Put simply, SaaS is a business model which allows customers to access software which is typically hosted in the cloud, on a subscription basis. In the past, software licencing involved you negotiating with a vendor, and then receiving a copy of the code which you loaded onto your own servers. This was expensive and time-consuming.
Nowadays, you simply go to the SaaS provider’s website, enter your credit card details, and you receive instant access to the software. You usually pay monthly or annually for access. It’s a bit like the difference between Blockbuster and Netflix. In the past you would go to a Blockbuster, select your film, and then pay some money to take it home and watch it. Nowadays, you just pay Netflix a monthly fee and watch as much as you’d like!
So what are the advantages of running a SaaS company? One of the main attractions is the recurring revenue. See the chart below to see how this compounds at a 25% annual growth rate and 1000 initial customers:
As you can see above, the potential for profit is significantly higher when you have customers paying a recurring fee for your product or service.
Secondly, it is usually very cheap to run a SaaS company. This is doubly true when you have a lot of customers thanks to the shared cost of ownership. Since everything is kept in the same place and is the same software running over and over again, there are no complex customisation or manufacturing costs.
Finally, it is very easy to measure and predict the health of a SaaS company. There exist several metrics based on customer subscription behaviour which give a strong indication on the financial future of your product and allow you to take action before seeing any negative effects. This is very different to a business which sells physical products which may be over or understocked due to unpredictable customer behaviour.
SaaS can be developed for any industry and can be targeted to any price point. With their easy scalability, compounding growth, and predictable metrics, no wonder they offer such an attractive business model.
If you are interested in starting or developing your own SaaS solution, Primitive Social’s software team is here to help. Comprised of developers with deep expertise in building SaaS businesses (and having run a few themselves), they would love to hear more about your idea.