Starting a SaaS Business: 4 Key Questions to Answer
To ensure your SaaS application development company is successful, you need to have a well-defined business model that takes into account how you will structure, price, and sell your product. This involves thinking through how you will acquire customers, how you will generate revenue, and what the right pricing model is for your business.
If you are ready to start a SaaS business, this guide will help you in the process. We will cover how to acquire customers, structure your business, set a price and sell your SaaS app.
But before that, let’s discuss a few reasons why SaaS startups fail.
Top Reasons Why a SaaS Business Fails to Kick-Off?
There are a number of reasons why SaaS startups may fail, including:
1. Lack of a viable business model.
A successful business model is key to the success of any startup, and this is particularly true for SaaS businesses. In order to build a sustainable and profitable SaaS product, you need to have a well-defined model that takes into account the different aspects of your business, including product pricing and customer acquisition.
2. Lack of market demand.
SaaS startups also require a viable market to address in order to be successful. If you are targeting a niche market or an unproven industry, it can be difficult to convince customers to adopt your product.
3. Poor pricing and packaging strategies.
A common reason why SaaS businesses fail is that they are unable to price their products effectively or offer attractive packages to customers. This can be due to a failure to understand how customers buy and what value they place on different aspects of the customer service, such as flexibility, usability, and customer support.
Other SaaS startups have also failed to price their SaaS platform that covers all the costs incurred from product development, marketing, and customer support. As a result, they run out of funding and are unable to sustain growth once they begin acquiring customers.
If you want to be successful with your SaaS startup, it is important to have a well-defined business model that takes into account all of these aspects. In addition, you should also focus on building a strong marketing strategy and understanding how customers buy and what they value in your product. With these strategies in place, you will be in a better position to succeed with your SaaS startup.
Creating a SaaS Business Model
Your business model should answer the following four questions:
- How will you acquire customers?
- How will you structure your SaaS product?
- What is the right pricing model for your business?
- How to sell your SaaS product?
Let’s take a closer look at each of these questions.
How will you acquire customers?
Customer acquisition is a key component of any SaaS business. There are a few ways to acquire customers for your SaaS business.
The most common are:
Inbound marketing
Inbound marketing is a method of attracting customers to your product or service through content marketing, search engine optimization, and social media. This is a great way to attract customers who are already interested in what you have to offer.
The only downside of inbound marketing is that it can take a long time to see results.
Paid advertising
Paid advertising is a way to reach customers through paid channels such as Google AdWords, Facebook Ads, or LinkedIn Ads. Paid advertising can be a great way to quickly acquire customers, but it can also be expensive.
The key is to choose the advertising channel that best aligns with your target customer, and then run effective paid campaigns.
Outbound marketing
Outbound marketing is a method of reaching out to potential customers through cold-calling, emailing, advertising, or in-person meetings. This is a great way to reach customers who might not be familiar with your product or service. It is often used in conjunction with inbound marketing strategies, as it can be used to reach customers who are already interested in what you have to offer.
Referral marketing
Referral marketing is a method of acquiring customers through word-of-mouth recommendations from existing customers. This SaaS marketing method is great way to build trust with potential customers, as it shows that others have had positive experiences with your product or service.
To make referral marketing work for your SaaS business, you need to have a great product or service that customers are happy to recommend to others. You also need to have a system in place for collecting and managing referrals.
Check our guide on The Best Way to Use Referral Marketing to Grow Your SaaS Business to help you get started.
Partnerships
Partnerships can be a great way to acquire new customers for your SaaS business, especially if you are targeting a particular niche audience.
In order to form successful partnerships, you will need to identify potential partners who have access to your target customers, and then create mutually beneficial deals that align with their business objectives.
The key to acquiring customers for your SaaS business is to choose the marketing strategy that best aligns with your target customer, and then execute it effectively.
How to Structure Your SaaS Solution
When it comes to structuring your SaaS company, it is important to decide what type of subscription you will offer. There are three common subscription types as follows: time-based, feature-based, and usage-based.
Time-based
Time-based subscriptions are based on a certain number of months or years. For example, a subscription might be for one year with three months free. This is popular with SaaS products that have a long-term value proposition such as enterprise software.
Pros:
- Renewal rates are usually higher since customers have already invested in your product
- Customers feel like they’re getting a deal if they sign up for a longer subscription
Cons:
- If you don’t continue to offer new features, customers may cancel their subscription
- It can be difficult to predict revenue and cash flow since you don’t know how many subscriptions will be renewed.
Feature-based
Feature-based subscriptions are based on the features of the product. For example, a subscription might be for unlimited access to certain features, or a certain number of users. This model is common among B2B SaaS products as it allows customers to choose the features they need.
Pros:
- Customers know what they’re getting and can easily compare prices
- It’s easy to add and remove features, which can help you keep your product up-to-date
Cons:
- It can be difficult to predict revenue and cash flow since you don’t know how many subscriptions will be renewed.
Usage-based
Usage-based subscriptions are based on how much the customer uses the product. For example, a subscription might be for a certain number of gigabytes or minutes. This is best used for intermittently used products, such as a CRM.
Pros:
- It’s easy to predict revenue and cash flow since you know how much each customer will use
- You can charge more for high-usage customers
Cons:
- It can be difficult to manage and track usage
- Customers may cancel if they exceed their limit
Which is the best structural model for your SaaS product?
There is no one-size-fits-all answer to this question. You will need to decide what type of subscription best meets the needs of your customers. Here are some pointers to remember:
- Time-based subscriptions are good for products that are updated regularly with new features. It may not work for products that are mature and don’t have a lot of new features to offer.
- Feature-based subscriptions are good for products that are not updated regularly, or for products that have a lot of features. It’s not advisable for products with a lot of add-on features, as it can be difficult to manage and track usage.
- Usage-based subscriptions are good for products where customers can easily exceed their limits. It is not recommended for products that have low usage rates.
How to Price Your SaaS Product
Once you have decided on the type of subscription, you need to decide on the pricing model. There are three common pricing models as follows: flat rate, usage-based, and feature-based.
Flat Rate
A flat rate is when you charge a set price for a subscription. For example, you might charge $50/month for a subscription. This is commonly used in SaaS products that have a low-end and high-end price point.
Pros:
- It’s easy to understand and compare prices
- It’s easy to manage and track payments
- You can charge more for high-usage customers
Cons:
- You may not make as much money from low-usage customers
Usage-based
Usage-based pricing is when you charge a customer based on how much they use the product. For example, you might charge $.50/minute for a subscription. This is a common model among telecommunications companies.
Pros:
- You can charge more for high-usage customers
- It’s easy to predict revenue and cash flow
Cons:
- It can be difficult to manage and track usage
Feature-based
Feature-based pricing is when you charge a customer based on the features of the product. For example, you might charge $100/month for unlimited access to certain features. This is popular among B2B SaaS products.
Pros:
- Customers know what they’re getting and can easily compare prices
- It’s easy to add and remove features, which can help you keep your product up-to-date
Cons:
- It can be difficult to predict revenue and cash flow since you don’t know how many subscriptions will be renewed.
For more information on different pricing models for SaaS product, you may want to read our guide on Top 6 SaaS Pricing Models and 3 Best SaaS Pricing Strategies.
Which is the best pricing model for your SaaS product?
Again, there is no one-size-fits-all answer to this question. The answer depends on your product and your customers. However, here are some general guidelines:
- If your product is easy to use and doesn’t have a lot of features, a flat rate may be the best pricing model.
- If your product is complex or has a lot of features, a feature-based pricing model may be the best option.
- If you don’t know how much your customers will use the product, a usage-based pricing model may be the best option.
How to Sell Your SaaS Product
Once you have created a pricing model, it’s time to start selling your product. There are three common ways to sell your SaaS product as follows: direct sales, indirect sales, and self-service.
Direct Sales
Direct sales is when you sell your product to customers through your own sales force. For example, you might have a team of salespeople who call on customers and try to sell them your product. This model is advisable for products that are complex or have a high price point.
Pros:
- You have more control over the sales process
- You can build a relationship with the customer
- You can upsell additional products and services
Cons:
- It’s expensive to hire and train a sales force
- It can be difficult to scale up your sales force
Indirect Sales
Indirect sales is when you sell your product to customers through a partner or an intermediary. For example, you might sell your product through a partner who is a reseller or an integrator. This model is advisable for products that are easy to use or have a low price point.
Pros:
- You don’t have to hire and train a sales force
- You don’t have to invest in sales and marketing infrastructure
- You can reach more customers
Cons:
- It’s difficult to control the sales process
- You may not make as much money as you would if you sold the product directly to customers
Self-Service
Self-service is when you sell your product through a website or an app. For example, you might create a website where customers can buy your product. This model is advisable for products that are easy to use or have a low price point.
Pros:
- It’s easy to reach more customers
- It’s easy to scale up your sales
Cons:
- You don’t have a relationship with the customer
- Customers may be reluctant to buy a product through a website or an app
Which is the way to sell your SaaS product?
Similarly, there is no one-size-fits-all answer to this question. Your product, your customers, and your sales strategy are all influencing factors. However, here are some general guidelines:
If you have a strong sales force and you want to build a relationship with your customers, direct sales may be the best option. It may not be the best option if you are looking to scale up your sales quickly.
If you want to reach more customers, indirect sales may be the best option. It is not advisable if you want more control over the sales process.
If you want to make it easy for your customers to buy your product, self-service may be the best option. Don’t choose this option if you want to build a relationship with your customers.
Final Thoughts
Choosing the right pricing model and the right way to sell your product is critical to the success of your SaaS product. Do your research, consult with your team, and make a decision that will be best for your product and your customers.
Now that you know how to price your SaaS product and how to sell it, you’re ready to take your product to market. Remember to stay flexible, and be prepared to change your pricing and sales strategy as needed. The most important thing is to always put your customers first.
Don’t forget to read our blog for additional insights and advice on growing your SaaS business.
