13 Common SaaS Business Terms You Should Know
SaaS, or software as a service, is a model for delivering software over the internet. In this model, the software is hosted by a provider and accessed through a web browser. The major benefits of using saas are that it’s easy to use and accessible from anywhere, which makes it popular with small businesses. Nonetheless, Saas business terms can be confusing for those new to the concept. In this article, we’ll define some of the most common Saas business terms and explain how they work.
1. SaaS business model
The cloud has made it possible for businesses to outsource their software needs and access applications remotely. This model, often referred to as SaaS, has revolutionized the way companies buy and use software. With SaaS service, businesses can pay for only the software they need, when they need it, and avoid the cost and hassle of installing and maintaining software on site.
2. SaaS agreement or SaaS contract
When entering into a SaaS agreement, it is important for both parties to protect their confidential information and intellectual property. This can be done by including specific provisions in the agreement that prohibit either party from disclosing or using the other’s confidential information without prior written consent.
The parties can also include provisions that require the return or destruction of all confidential information upon termination of the agreement. In order to ensure that the parties’ intellectual property is protected, they should also consider including an assignment clause which assigns all intellectual property rights in any inventions or works created by either party during the term of the agreement to the other party.
3. Customer success
Customer success is a critical part of any SaaS company. It’s the process of ensuring that customers are getting the most out of your product and are happy with their purchase.
There are a few key things to keep in mind when you’re trying to achieve customer success:
First, make sure you’re actually solving a problem for your customer. They need to see value in using your product in order to be successful.
Second, provide plenty of support and education. This will help them get up and running quickly, and ensure they’re using the product in the best way possible.
Finally, make sure you’re constantly listening to feedback and making changes based on what your customers want.
4. Subscription pricing model
In recent years, there has been a shift in how many products and services are purchased. With the growth of the internet, more and more people are choosing to pay for what they use, as opposed to paying a flat fee for a service or product. This is often referred to as the “subscription pricing model.”
Under this pricing model, customers pay a monthly or yearly subscription term fee in exchange for access to a certain service or set of products. This can be seen in everything from music streaming services like Spotify and Apple Music, to video streaming services like Netflix and Hulu.
The subscription SaaS business model has become popular because it allows customers to only pay for the features or products they use, which can save them money in the long run.
5. Recurring revenue model
Starting and running a SaaS business can be expensive, and it can be difficult to turn a profit in the early stages. This is where the recurring revenue model comes in. With this business model, a SaaS business can get paid over and over again for the same services, making it easier to break even and eventually turn a profit.
There are several benefits to using an annual or monthly recurring revenue model for a SaaS company.
First, it helps to build customer loyalty since customers know that they can count on the company to continue providing them with the service they need.
Second, it helps to generate predictable revenue, which can be helpful for budgeting and forecasting purposes.
Third, it can help to reduce churn since customers are more likely to stay with a company if they know that they will continue to receive the service they need.
Finally, it can help to increase profitability since margins on recurring revenue tend to be higher than margins on one-time sales.
There are several ways to create a recurring revenue stream for your SaaS business. One way to create a recurring revenue stream for your SaaS business is to offer additional features or services to your existing customers. You could also offer discounts to customers who sign up for a longer subscription plan.
Another way to create a recurring revenue stream is to attract new customers with a discount on their first month’s subscription. You could also offer a free trial period so that potential customers can try out your product before signing up.
You could also create a subscription model where customers pay monthly, quarterly, or yearly fees. This will help you generate predictable revenue and keep your customers locked in long-term contracts.
6. Deferred revenue
When a company sells a subscription service, they often recognize the revenue from the subscription upfront. However, they may not have received the cash from the customer yet. This is called deferred revenue.
For example, imagine you are SaaS company. You sell a one-year subscription for $100. You recognize the $100 as revenue in your books when you make the sale. However, you may not have collected the money from the customer yet. In this case, you would have $100 of deferred revenue on your books.
Companies will often report their deferred revenue on their balance sheet. This gives investors and analysts a snapshot of how much money the company has “earned” but has not yet received.
7. Customer experience
The customer experience is a critical part of any business, but it’s especially important for SaaS companies. SaaS customers are typically locked in to their contracts for a longer period of time than traditional software customers, so it’s essential to make sure they have a good experience from the start.
8. Customer retention
Customer retention is key to the success of any SaaS company. By keeping your customers happy and engaged, you reduce the likelihood that they will leave for a competitor. There are a number of ways to retain your customers, but the most important is to provide them with a valuable product or service. You also need to make sure that you are responsive to their needs and feedback, and that you are constantly innovating and improving your product.
Another important factor is customer support; make sure that you have a team of knowledgeable and friendly support staff who can help your customers with any issues they may have.
Finally, make sure that you are continually engaging with your customers through marketing efforts such as email campaigns, social media posts, and blog articles.
9. Net Promoter Score (NPS)
The NPS is a metric often used in the business world to measure customer loyalty. It’s based on the question, “How likely are you to recommend our company/product/service to a friend or colleague?” Those who respond with a 9 or 10 are considered promoters, 7 and 8 are passives, and 6 or below are detractors.
NPS can be helpful for businesses in a few ways. First, it can give you an idea of how satisfied your customers are with your product or service. Second, it can help you track customer loyalty over time. And third, it can provide insights into what’s driving customer loyalty (or lack thereof).
According to a study by Hubspot, a NPS of 50 or higher indicates that a company is providing “excellent” customer service. However, the average NPS score for all companies is just 31.
10. Customer lifetime value
The lifetime value of a customer is the total revenue a company expects to generate from that customer over the entire period of their relationship with the company. The calculation takes into account not only the initial purchase, but also all subsequent purchases and interactions with the company.
A high lifetime value is important for companies that sell subscription-based or recurring services, as it helps to justify the investment in acquiring and retaining customers. In addition, a high lifetime value can help a company to grow more profitably by increasing its average revenue per user (ARPU).
There are a number of factors that contribute to a customer’s lifetime value, including the average order size, the frequency of orders, and the length of time a customer remains active. It’s important for companies to track these metrics and adjust their marketing and sales strategies accordingly.
11. Product engagements
In order to ensure a successful Saas product launch, it’s important to have a clear plan for engaging customers and users. This includes developing a strategy for acquiring users early on, as well as creating mechanisms for continual user engagement.
One way to achieve this is by building out an effective marketing and communications plan. This should include targeted messaging and outreach to key audiences, as well as activations and events that can generate excitement around the product.
It’s also important to have a plan for customer support and training. This can involve creating helpful resources such as user manuals, video tutorials, and FAQs, as well as providing personalized support through email or chat.
Finally, it’s essential to have a strategy for continued user engagement. This can involve regularly releasing new features and updates, conducting surveys and feedback sessions, and hosting events or webinars.
12. Customer churn
Churn is a common challenge for subscription businesses and can have a significant impact on the company’s bottom line. Churn occurs when customers cancel their subscriptions or downgrade their plans.
There are several factors that can contribute to churn, including pricing, the quality of the product, customer service, and competition. The most effective way to reduce churn is to understand what causes it and address those issues.
Churn can have a major impact on a company’s revenue. Reducing churn by just 5% can increase revenue by up to 125%. In order to reduce churn, it’s important to track it and understand what’s causing customers to leave.
13. Customer Acquisition Cost (CAC)
CAC is a SaaS metric that measures how much a company spends to acquire a new customer. It is calculated by dividing the total amount of marketing and sales expenses by the number of new customers in a given period. This metric can be expressed in terms of either gross margin or net profit margin.
CAC is an important metric for SaaS companies because it affects gross margin. Gross margin is the percent of revenue that a company retains after deducting the cost of goods sold. It is calculated by dividing revenue by the cost of goods sold.
SaaS companies need high gross margins to be profitable, so it is important to keep CAC as low as possible. Reducing CAC can be difficult, but there are several things you can do to lower it:
- Improve your conversion rate: This will reduce the amount of money you have to spend on marketing and sales expenses. You can do this by improving your marketing material and the way you communicate with customers. Increase price per user. When increasing price per user, you must increase revenue while reducing costs to keep gross margin high.
- Account-based marketing strategies: This is a method of marketing where your sales team is given quotas and each salesperson is given a set of rules to follow.
- Marketing automation tools: These tools allow you to send email campaigns, run social media ads, create landing pages and more.
Saas businesses use a variety of terms that may be confusing to those new to the concept. However, by defining some of the most common terms and explaining how they work, we hope to have provided a better understanding of this type of business. If you are interested in learning more, don’t hesitate to contact us. Don’t also forget to read our blog to learn more about different tips on growing a SaaS business.