Software as a service (SaaS) has long been around us. Both the market and ourselves use SaaS more often than we think. What do Netflix, Google Apps and Slack have in common? Note: the question is with an asterisk. Their business models end with -aaS suffix.
Convenience, simplicity, economy and other advantages of cloud based SaaS technology win the hearts of consumers without explaining its complexities and philosophical model to them. It also wins the minds of IT entrepreneurs, as SaaS gives predictable revenue and is easy to scale.
To succeed in building a SaaS product that people will love, you need to better understand the SaaS business model, be able to get a perspective on how the product should be sold, and - if you are already working in the SaaS business - be able to assess the state of the company and improve its work.
The market shift
The market of cloud-based SaaS services is growing. According to Synergy Research, it reached over $23 billion of revenue and will continue to grow at almost 30% per year. This wasn’t the case five or ten years ago where the business models of IT products were focused on eCommerce and entertainment.
With the market shift from the classical software licensing scheme towards SaaS based technology we entered a different product era. There is no need to purchase software and a hardware platform for its deployment, and then maintain its performance. This, in turn, determines the pricing of SaaS solutions: a monthly subscription fee is charged for using the software, which includes the software license, maintenance of its functionality, updating and supporting the infrastructure on which the application is running.
Where to start with SaaS products
At the heart of business is a transaction. You can't get what you want without giving something instead. You want signups every day and there's no way to achieve that except by giving customers something that will fill their unmet need. You want your SaaS product to grow and you have to figure out what SaaS metrics mean for your business. Achieving breakthrough is real if you subdivide it into components. Your SaaS journey starts with the following necessary steps.
How to validate the SaaS idea
You definitely don't want to find out after six months of hard work and tons of dollars invested that nobody else was excited with your SaaS product. There's a few steps we follow to build a SaaS product or not build it at all. One of the important things is to find out what in your SaaS will make a user take off his credit card and fill in the form online and buy your service.
Get started with the problem and what solution are you bringing to the world. Is your solution a must have, or just a nice to have? Our suggestion on how to build software as a service is always start by finding pain points of your potential audience, by solving a problem you have, or someone in your industry has. If you really do isolate an acute problem in the market, you can grow extraordinarily fast. That's where we started all our projects whether it is a real estate service that helps to sell homes without a broker - ListingDoor or a platform for building daily-deal and ecommerce websites - Getsocio.
In order to understand the pain points of the audience, you should talk to them, i.e. establish contact with a potential customer, then tell a bit about what do you do, tell that you communicate a lot with people like this person, list several options of problems and ask whether he faces the same challenges. It works really well. What doesn't work is when you say: "Hi! I have a product. Go and buy it!"
Only when you get the idea what problem your SaaS can crack, move on to the MVP development.
How to choose developers for my SaaS
First things first. The case is not about whether you should build it yourself or not. The case is how to find the right SaaS developers. It's not like you have a business and you want to build a website or an app in order to grow your business. Your SaaS is your business.
Hiring developers for building your SaaS will save you time. You will launch faster, you will get feedback faster, and you will be able to improve your SaaS faster, you will start generating revenue faster.
Google shows 36 800 000 results on the request of "best saas development companies". This is exciting. The choice is ocean wide. There are just so many to choose from and so as not to drown in this diversity let's develop clear criteria. Decide in favour of the SaaS developers if they:
- Can make SaaS development process transparent for you. They stay in contact with you and can speak in a language that you understand. They send you daily reports and discuss issues and solutions.
- Understand the SaaS architecture. SaaS is a specific IT product. The logic can be the same for all users, but the data - different, or the logic can be different for each user.
- Are experienced in data management systems. SaaS separately serves users from different organizations within a single version of the application with a single configuration for all users. It requires a team that knows how to observe the isolation of subscribers from each other.
- Are skilled at online payment processes and systems. SaaS involves a number of users, different pricing plans, tracking resources spent on each client. You need a team that has experience in that.
- Can deliver frequent updates. Once you launch your cloud based SaaS application and get the first feedback from users, it's critical to provide changes based on the feedback to the SaaS product without any impact to the continuity of the service. SaaS developers must know how to plan and deliver these frequent updates.
Know your figures
Once you've found a perfect market fit, and had your MVP developed, SaaS success metrics become important. Don't think that metrics are for huge SaaS only. Start using tools showing data like conversion rate, annual revenue per customer. Let’s speed through the main metrics.
- Monthly recurring revenue (MRR). This is the metric you want to be improving all over. It changes from month to month based on churn, your existing and new customers.
- Churn. It’s lost customers.
- Average revenue per customer (ARPU). How much a customer brings you revenue over his life span using your saas based software solution.
- Customer acquisition cost. How much do you spend on sales and marketing to acquire a new customer.
Firstly, using the combination of the SaaS metrics, you can find out whether the time has come to scale your business in its current state or not. It's when the customer during the time that he is with you has brought you more money than you spent on attracting him.
Secondly, understanding your metrics will help your team to realize the importance of those numbers and start to improve them. Metrics is a powerful way to align your team around a direction you want to head in.
Don't forget about the business side.
Just building your product won’t make your customers use it. You have to realize that your SaaS is a business. Just because you can code does not automatically mean you can do business part well. You can build the best SaaS ever, it can have features every customer has always dreamed about, it can have an award winning design and perform exactly how you want it, but if you don't know budgeting, marketing, sales, analytics, it won't work.
Every SaaS is a business that needs to be logical and predictable. You need to know how your SaaS revenue streams work, and how these revenues can grow and change over time. You need to learn how to market your SaaS, where the user's journey starts and who is your ideal customer. All this requires your attention, time for planning and analysis.
When you work alone, it's easy to focus on your point of view of how the product should be developed, which may be unsuccessful. Instead of evaluating the further development from the point of view of customers, ask them yourself. In the name of Steve Jobs I urge you to listen to your customers. Let them send you feedback. Then collect it, sort it and make sense of it.
It doesn't mean that you should have a free beta version of your product to get the first feedback. The best feedback you will get from your paid customers.
Think SaaS pricing strategy ahead
The impact of SaaS pricing is so huge. New customers are sensitive about pricing. Make it easy to up and downgrade. There is nothing worse than a customer who doesn’t have the right plan for him because he is going want to churn. It is always great to have a customer who downgrades than a churning customer.
There is also your customer base, your existing customers. You can obviously launch new products, but there is a way to increase your revenue. Don’t be afraid to change your pricing. When Netflix increased their prices by $1 what did it change for customers? For customers not much, for Netflix - 3% increase of value.
SaaS business model gains popularity quickly because of advantages it offers for both users and developers. We know that there is a lot to think about if you are building your SaaS startup and hope this article has shed some light on the essence of SaaS.
- Make sure to have the best product for a given need.
- Find seasoned SaaS developers.
- Use SaaS metrics.
- Treat your SaaS as business.
- Make use of customers feedback.
- Think pricing ahead.
We would be happy to use our experience in building your SaaS product.