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The SaaS business model: How a SaaS company works

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Invest in a SaaS business model is a smart way to generate profits in the IT field. Why? According to Inturact, 14 billion of customers use at least one SaaS product to optimize their businesses routines and operations. Therefore, this IT field has generated more than 120 billion USD just in 2021. 

SaaS is a software that is used as a service that is hosted on a cloud infrastructure.  Think Netflix, Spotify, or Slack. All those are examples of successful SaaS business models. Why? All of these companies deliver a truly valuable product based on the easy to manage, clean interface (UI) and quick response of the software. 

In this article, we will guide you through the SaaS business model, the considerations before starting your business, the three phases of building this type of software, as well as the pros and cons of implementing this technology in your company. 

What you should know before starting your SaaS company


While there are many ways a SaaS company can make money, a SaaS company generates profits that come from the regular revenue of it’s customers. This membership fee gives the customer base access to the software products and features. 

On the other hand, growing a SaaS business often requires large reinvestment that can reduce profits. Even though this is a challenging scenario, some companies such as Zendesk or Salesforce have found a way to have a successful SaaS company without being innovative. 

Now, we will show you the three main stages your business requires to build a SaaS business.

The three phases of a SaaS business


Every SaaS business will require you to go through three main stages. Most people understand the startup phase, and when the money starts rolling in, everyone dreams of the Golden Goose stabilization phase.

Let’s dive into three phases:

  • Launch

This includes writing a working product and using it to “go to market” and get your first customers.

  • High Growth

If the customers like your product, the growth of it will be fast as the companies will use your software. While this sounds good, it generally costs more money because you need to quickly scale data, storage, and bandwidth to support newly acquired customers.

  • Golden Goose Stable

This is the stage where your SaaS business starts to shine. Why? Your software will start to make significant profits, and the acquisition of new customers doesn’t test the limits of your infrastructure as it would be in a growth phase.

Advantages of the SaaS business model


Increase cost savings: Since most of the SaaS businesses handle a model of subscriptions and pay-as-you-go structure, licensing fees are not included in the service. Therefore, the customers will think that is an affordable cloud service that they could be able to pay for.

Offers flexibility: The pay-as-you-go structure provides flexibility because customers will pay only what they consume at a specific time. Moreover, the SaaS business model based on subscriptions provides different tiers to fit into diverse financial situations. Both insights will be found very attractive and exciting for them.

Easy to implement:  Knowing that the SaaS product will be installed and set up in the cloud, the service will be easy to use. So, the customer only needs an internet connection, login in the service, and a keyboard or control command to start using and enjoying your product.

Technical challenges of the SaaS business model


Hybrid infrastructure: Unfortunately, software and SaaS solutions are far from being integrated and offer a trustworthy experience to the customers. So, the IT department will have a titanic job to guarantee quality on the cloud service. 

Integration issues: During the implementation of the SaaS business model, challenging scenarios may appear as accounting issues and data not syncing with CRM. The experience could be far from pleasant if the customers encounter bugs or problems while using the service. 

Data security: According to SaaSholic, implementing the SaaS business model in your company is one of the biggest challenges. Why? 60% of the customers use the same password for every account on the internet. Therefore, they could be easily attacked by hackers. 

This makes it a challenge for the data security department to keep safe all the accounts within the software. Therefore, the company needs to educate the customers to make their passwords strong and avoid be hacked on their accounts. 

The implementation of the SaaS business model is the next big thing in the IT field. So, the engagement, profits, and visibility on the market will be guaranteed if you create an attractive product that is affordable and easy to use for the customers. 

On the other hand, the technical challenges can be very difficult to deal with at the beginning of the business.  However, no worries, companies such as Heinshon  USA or DOIT will provide all the help you need to become a successful SaaS company.

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