10 Common SaaS Business Challenges
(And How To Solve Them)
SaaS businesses face a unique set of challenges. From establishing a loyal customer base to maintaining a steady revenue stream, these businesses have their work cut out for them. Recent data show that about 9 out of 10 SaaS startups fail within three years. What’s even more surprising is that only 2% of SaaS businesses are actually profitable.
To avoid becoming part of these statistics, it’s essential to be aware of the most common challenges faced by an enterprise SaaS startup and how to solve them. With a little bit of SaaS management planning and a lot of hard work, these challenges can be overcome.
Below we listed 10 common SaaS business challenges and how to solve them. But before that, if you don’t know what SaaS is, here’s a quick definition.
What is SaaS?
SaaS is a software as a service delivery model. It is software offered by the provider on the web. Users can access and use the software, typically through a web browser, while the provider manages the infrastructure and security.
The SaaS model has several advantages for businesses. It is typically more cost-effective than traditional software models since it doesn’t require businesses to purchase and maintain their own hardware and software infrastructure. Additionally, SaaS can be quickly implemented, and users can be up and running with minimal training.
Now that you know what SaaS is, let’s look at some common SaaS business challenges and how to solve them.
10 Common SaaS Business Challenges
1. Difficulty establishing a customer base
SaaS businesses need to focus on establishing a solid customer base. They need to offer a high-quality product or service that solves a real problem for their target market to attract customers.
Additionally, SaaS businesses need to have a well-designed marketing and sales strategy that will generate awareness and interest in their product or service. This can be done by offering free trials, providing valuable content, and creating an engaging brand.
Free trials give potential customers a chance to try out your product and see if it meets their needs. Providing valuable content helps to build trust and show that you are an expert in your field. And finally, creating an engaging brand will make potential customers want to be a part of your community. By focusing on these three things, you can establish a strong customer base to help your SaaS business thrive.
2. Not generating revenue
SaaS businesses need to generate enough revenue to cover their costs and turn a profit. This can be done by pricing their products correctly, finding the right mix of advertising and inbound marketing, and developing targeted marketing campaigns.
Some of the best ways to price your products are to use a subscription model or to offer a free trial with a monthly or annual subscription. You can also offer discounts for bulk purchases.
To find the right mix of advertising and inbound marketing, you need to test different strategies and see what works best for your business.
Some inbound marketing strategies you can focus on are SEO, content marketing, and social media marketing.
And finally, developing targeted marketing campaigns will help you attract the right customers and generate more revenue. To generate targeted marketing campaigns, you need to segment your customers and create custom messages that address their specific needs. By doing this, you can ensure that your marketing campaigns are relevant and effective.
3. No steady stream of revenue
SaaS businesses need to maintain a steady stream of revenue in order to keep their business afloat.
This can be done by developing a strong marketing strategy, focusing on customer retention, and upselling to existing customers.
Developing a strong marketing strategy will help you attract new customers and keep your existing customers coming back. You can do this by creating targeted marketing campaigns, offering discounts and promotions, and providing valuable content.
Focusing on customer retention is important because it costs more to acquire a new customer than it does to keep an existing one.
You can do this by:
- providing excellent customer service: customers should feel like they are your top priority
- developing a loyalty program: offer rewards to customers who stay with you like discounts or freebies
- staying in touch with customers: reach out to customers regularly to see how they are doing and if they need any help
- developing a strong brand: make sure your brand is one that customers can trust and feel positive about
And finally, upselling to existing customers can help you boost your revenue without having to find new customers. For example, you could offer a premium version of your product or add-on services.
4. High managing costs
SaaS businesses need to carefully manage their costs in order to make a profit. This can be done by reducing expenses, automating tasks, and outsourcing non-essential work.
Reducing expenses can be done by cutting unnecessary costs and renegotiating contracts. For example, you might want to renegotiate your contracts with vendors, move to cheaper office space, or cut back on marketing expenses.
Automating tasks such as billing and invoicing can help you save time and money.
And finally, outsourcing non-essential work such as customer service and social media campaigns can help you focus on your core business while still getting the work done that you need.
5. Not scaling as quickly as needed
SaaS businesses need to be able to scale quickly in order to meet the demands of their customers. This can be done by automating processes, hiring the right people, and using the right tools.
Automating processes such as lead generation, customer onboarding, and billing can help you save time and money.
Hiring the right people is important because they will be the ones who help you scale your business.
And finally, using the right tools will help you manage your business more efficiently and scale more quickly.
Some of the best tools for SaaS businesses are project management tools, customer relationship management (CRM) software, and marketing automation software.
6. Difficulty in maintaining customer loyalty
SaaS businesses need to keep their customers happy and coming back for more. This can be done by providing excellent customer service, offering discounts and loyalty programs, and regularly releasing new features and updates.
Providing excellent customer service is essential for keeping customers happy. You can do this by responding quickly to customer inquiries, offering live chat support, and resolving customer issues.
Offering discounts and loyalty programs can also help you keep customers coming back. For example, you could offer a discount for customers who refer a friend or create a loyalty program where customers can earn points for every purchase they make.
And finally, regularly releasing new features and updates will help keep your customers engaged with your product. This can be done by setting up a beta testing program, releasing new features on a regular basis, and sending out email updates to your customers.
7. Not having the right pricing model
One of the most challenging aspects of running a SaaS business is finding the right pricing model. There are a number of factors to consider, such as the value of your product, the price of your competitors’ products, and the willingness of your customers to pay.
You’ll need to experiment with different pricing models to find the one that works best for your business. Some common pricing models for SaaS businesses are subscription-based, usage-based, and feature-based.
Subscription-based pricing is the most common model for SaaS businesses. In this model, customers pay a recurring fee for access to your product.
Usage-based pricing is based on the amount of use customers get out of your product.
Feature-based pricing is based on the features customers use most.
8. Wrong way of dealing with churn
Churn is a major problem for SaaS businesses. It’s the percentage of customers who cancel their subscription or don’t renew it. According to Cobloom, the average SaaS churn rate is 5-10%. This means that for every 100 customers you have, 5-10 of them will cancel their subscription each month.
There are a number of things you can do to reduce your churn rate and keep your customers happy, such as providing excellent customer service, offering discounts and loyalty programs, and regularly releasing new features and updates.
You can also reduce churn by segmenting your customers and targeting those who are at risk of churning. For example, you could offer a discount to customers who are about to cancel their subscription.
9. Hiring the wrong people
As your SaaS business grows, you’ll need to hire new employees to help with the extra work. This can be a challenge, as you’ll need to find people with the right skills and experience. The best way to find good candidates is to post your job openings on job boards and online resources.
You can also use social media to find candidates. For example, you could post your job openings on LinkedIn or Twitter. You can also search for potential candidates on Google.
Once you’ve found a few good candidates, you’ll need to interview them to see if they’re a good fit for your business. The best way to do this is to ask them questions about their experience, skills, and qualifications.
10. Not having enough capital
As your SaaS business grows, you may need to raise capital to finance your growth. This can be done by issuing equity or debt, or by taking on investors.
If you’re looking to issue equity, you can do this by selling shares of your company to investors. This is typically done through a process called equity crowdfunding.
If you’re looking to take on debt, you can do this by taking out loans from banks or other financial institutions.
You can also raise capital by taking on investors. This can be done by issuing equity or debt, or by selling a portion of your company to investors.
There you have it! The 10 most common challenges faced by SaaS businesses. But while working hard to overcome them, SaaS businesses need to track their progress and measure their success in order to make sure they are on the right track. Here are some key metrics that SaaS businesses should track:
- Monthly recurring revenue (MRR)
- Customer churn rate
- Customer lifetime value (LTV)
- Average revenue per user (ARPU)
- Net Promoter Score (NPS)
If you’re not sure how to track these metrics, don’t worry- there are plenty of software and tools that can help you. Just do a quick search online, and you’ll find plenty of options.
Also, you may check out our guide on 7 Most Essential SaaS Marketing KPIs That You Need To Track
Finally, analyzing your finances will help you see where your money is coming from and going to. This is important to do because it can help you make better decisions about how to spend your money.
To help you track your finances, you can use software like QuickBooks or FreshBooks. They make it easy to track your income and expenses, and they offer a variety of reports that can help you understand your financial situation.
SaaS is a great way to start and grow a business. It offers many benefits, such as recurring revenue, lower costs, and a more predictable business model. No wonder, about 85% of businesses are now using at least one SaaS application!
Of course, as with any business, there are challenges that need to be faced and overcome. The 10 challenges we’ve discussed in this article are some of the most common ones faced by SaaS businesses.
However, there are also some challenges that you need to be aware of, such as customer churn and the need to raise capital.
Despite the challenges, SaaS businesses can be very successful if they are well-managed and have a solid business model. If you’re thinking of starting a SaaS business, make sure you do your research and develop a solid plan.
Don’t forget to read our blog for more tips on growing your SaaS business. We have several articles discussing topics such as marketing, sales, and product development.