What You Need to Know about SaaS Business Model (+Tips for Marketing Strategy)

Software as a Service (SaaS) is a unique type of product. A SaaS company maintains servers and databases available to consumers all over the world through the Internet.

As to the SaaS business model, customers usually pay a subscription fee to access the application. Some subscriptions are based on how much data needs to be stored, the number of users who have app access, or the level of technical support received.

Developing an effective SaaS marketing strategy isn’t easy. While most companies can follow traditional methods, SaaS companies need to develop a marketing strategy differently.  

If you haven’t found approaches to develop a marketing strategy that works for your SaaS company yet, there’s no need to reinvent the wheel. Just keep reading on to learn what makes SaaS marketing uniquely challenging and what you can do about it. 

SaaS business model

The main reason we distinguish the SaaS business model from other models is that the SaaS model includes a number of factors that makes it uniquely different, such as:

1. Recurring payments

In SaaS businesses, customers do not buy the software. It provides a service, so you’ll have to worry about making recurring payments every month/year while using the service. 

Since SaaS companies provide a service, not a product, accounting for annual revenue can be a bit complex. When a customer subscribes to a service, you may get cash up front, but it can’t be counted as revenue until you’ve earned it. Until then, a customer can ask for a refund at any point if you don’t deliver your service in the promised way. 

As a result, revenue recognition is a crucial part of the SaaS business model.

2. Increased customer retention

In SaaS business models, retention is highly important because it is the thing that keeps you afloat. As it was said above, you can’t count on clients’ money until you’ve provided a complete term of service. For instance, if you’re signing clients up for 12 months but they leave after 2 months, you’ll lose 10 months of recurring revenue.

As a result, the SaaS business model requires tremendous effort to build customer relationships. 

3. Consistent updates

Unlike other products, SaaS products consistently provide small and frequent updates to their services to keep retention metrics high. 

One part of this comes from the specifics of the software business: software vulnerabilities can put user information at risk of being hacked. Hosting their own products also means that SaaS products can release updates whenever they need to. All this makes SaaS companies highly responsive to the customer needs and feedback.

The stages of SaaS businesses

A SaaS business’s life cycle can be broken down into three stages.

Early stage

In the early stage of a SaaS business, you’re unlikely to have many customers, and your product will still be in development. You may be seeking pre-seed funding or bootstrapping.

In the early stage, the team will still be small, and you may not start earning real profit yet.

At this stage, ask these main questions: Am I tracking necessary metrics? Have I chosen a business model that enables me to seek the right kind of funding?

Growth stage

The growth stage is where the product gains subscribers, and you begin to bring in MRR (Monthly Recurring Revenue). To kick off your growth stage, you’ll need to raise more funds to invest in product development, iteration, and scaling. 

This is the time to ask yourself these questions: Have I established KPIs to track further scaling? Do I have a strong monetization strategy to seek investment?

Mature stage

If a SaaS company has reached the mature stage, it can be considered rooted. A company at the mature stage has a clearly defined target audience and a reliable product that serves people’s needs. Mature-stage companies can still seek and receive investment, but it’ll primarily aim to expand, scale, and outperform competitors.

The main question a SaaS company should ask at this stage is: Have we chosen the best possible pricing strategy? 

Marketing strategy for SaaS business model

Know the difference

SaaS businesses sell fast due to an incredibly fast sales cycle. When a user needs a SaaS solution, they often buy it on the spot. This means SaaS marketing needs to have an immediate draw to be effective. There will be people who don’t want to commit to a subscription, and that’s fine. If potential buyers don’t want to pay for a subscription, provide a free trial. You can also make a part of your service free to attract more users. Freebies encourage consumers to purchase. In SaaS marketing, giving away a trial version of the service can prove the brand’s credibility and lead to more sales.

Measure with the right metrics

To find out how many new customers you are bringing to the company, measure the success of your marketing strategy with metrics. Here’s the list of metrics you need to keep an eye on to understand how your marketing activities are performing.

— Monthly Recurring Revenue (MRR)

— Lifetime Value (LTV) 

— Retention

— Cost Per Acquisition (CPA) 

— Free to Paying Customer Conversion Rate 

— Average Revenue per Customer

— Monthly Active Users

Create valuable content

There’s a reason why the best SaaS companies work hard on creating great blogs. Quality content enables businesses to promote their expertise and help prospects get to know the company. Providing cutting-edge insights and solutions to customers’ problems makes it easier to persuade customers to subscribe to the service.  

Provide a service 

In Software-as-a-Service, ‘service’ is the key word. While it’s important to provide top-notch services that cater to the customer’ needs, the word ‘service’ also means adding a personal touch. For SaaS products, providing first-class customer support is crucial. Make it effortless for customers to get in touch with you. Provide several channels so that customers can easily reach you. These channels might include live chat, social media channels, email, community chats, etc. To eliminate the number of questions received, provide exhaustive FAQs, knowledge bases, and guides to help customers navigate your service and understand its value as early on as possible. 

Author’s bio: Anna Grechko is a marketing enthusiast and knows the field inside out. She is the marketing specialist at Smart IT. Sharing knowledge is a big part of her career, so Anna actively seeks to spread good vibes, and collaborates with the great tech and marketing minds of the world.

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My name is Gary, a 31 year old Tech Loving marketer passionate about home tech and coffee.

I'm a Programmer for hire working with small to medium businesses.

I network in Warrington, Liverpool and Manchester in the North West, England.

This website is my online notebook dedicated to tech, marketing and finance.

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