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SaaS revenue model - how does it work? Explanation with examples

What is the SaaS Revenue Model?

The Software-as-a-Service (SaaS) revenue model is a form of software delivery in which customers pay recurring fees regularly to access cloud-based software applications.

In the SaaS model, the provider will often store the program and all of its data in the cloud. The software as a service model originated as a result of the fact that once software was available on demand and could be updated regularly, businesses were freed from the need to deliver a physical good.

Therefore, SaaS companies needed to devise a model that was both scalable and enabled them to benefit from the applications they produced for as long as those apps continued to be helpful to other businesses or individuals.

Examples of the SaaS revenue model

The SaaS revenue model has been around for longer than we initially believed. Many of the oldest SaaS companies still operating today are perfect examples of a successful SaaS business model in action. However, they came into existence before the advent of cloud computing.

Many of the free and freemium SaaS solutions currently available on the market have achieved success by becoming nearly essential to how businesses work in the modern day.

Consider platforms such as Zoom, Trello, Slack, or Monday as illustrative instances. You are probably already aware that some of these examples involve businesses that use a freemium model and a monthly subscription plan. HootSuite is yet another SaaS company that successfully implements this strategy.

You may also like: SaaS licensing: most important facts you need to know

End customers can adjust the level of their monthly subscription based on their company's marketing and social media requirements, or they may utilize the ratable revenue SaaS without paying anything.

Although it may be tempting to remain with the relative simplicity of a subscription model with competitive pricing, you should keep a close eye on how this affects the key SaaS metrics that measure your customer relationships and the general churn levels of your customers.

Subscription weariness creeps into many parts of the entertainment industry, the media industry, and even software organizations today; therefore, experimenting with another SaaS business model could work to your advantage.

What revenue streams are available to a SaaS business?

1. Subscriptions are available on a monthly or yearly basis

It is the most consistent kind of recurring and traditional SaaS revenue model that involves customers paying a recurring price to make use of the benefits offered by the product. The amount that customers pay for their subscriptions can vary based on the plan they select and the number of services they use.

2. In-app purchases

In-app purchases refer to any additional components or features that a user can acquire after subscribing to a given product. For instance, the users of the online editor Canva have access to various free designs, but they also can purchase paid templates directly from the platform.

3. Personalized solutions

Typically, corporations are the ones who develop bespoke requirements to address their specific use cases. Therefore B2B SaaS providers build on-demand solutions for their customers at an additional cost.

SaaS cost of revenue may only occur once, or it may recur at regular intervals, depending on the resources you devote to supporting them.

4. Dedicated support

Without a competent service staff, a SaaS solution is insufficient. Customers recognize the significance of having access to assistance around the clock in order to get the most out of the product and are willing to pay more for it.

SaaS companies can increase their revenue by introducing specialized multi-channel support for their customers if they take advantage of this opportunity. Make sure that even your most fundamental package provides some level of assistance to customers. In that case, it can work to your disadvantage.

Worth checking: What is SaaS management? A definitive guide for beginners

5. Reporting and statistical analysis

Data have become the new form of currency. That way, you may capitalize on your data processing capabilities to charge the consumers for more comprehensive analyses and reports.

Why is the SaaS revenue model so popular?

The majority of SaaS companies are currently transitioning toward a revenue model that is based on SaaS. When it comes to individuals who have yet to transition to SaaS, it is frequently more of an issue of time than anything else.

The following is a list of some of the advantages of using the SaaS revenue model:

Continual and consistent flow of customer purchases

This is quite perhaps the most significant advantage. Instead of receiving a one-time payment from a physical product, software sellers can get recurring payments throughout the product's lifetime if they choose the software as a service model. Because of this, it is much simpler to forecast revenue and concentrate on developing your product.

Ability to scale, as well as simplicity of distribution

In the traditional paradigm, printing CDs or physically installing Software needed a fundamental operational component. This component included the purchasing of CDs, printing, and the management of physical distribution networks.

Because of the SaaS model, providers no longer need to be concerned about these intricate system parts. Instead, they may put all of their efforts into developing and improving the already available tool. To use the software, users need only their credentials for logging in and a connection to the internet.

Since the product may be viewed through any web browser, regardless of the type of device being used, sellers are exempt from the requirement that they produce Software for various operating systems and devices. Scaling apps and distributing them to end users is made considerably more straightforward.

Might be interesting: How to build a SaaS application? Step-by-step guide

Regular revisions to the quality of the user experience

Because consumers anticipate constant value in exchange for their subscription payment, software manufacturers are obligated to deliver continuously high-quality user experiences. Companies have the funds necessary to consistently invest in innovations and always produce a relevant product when they have a regular income stream from revenue generated through SaaS.

Customers' advantages of using a SaaS model:

Constant updating

If you utilize a SaaS product, you'll always have the most recent version available, as the service provider updates and maintains the program regularly. Since they're using a web browser to view it in real time, they usually don't have to update it like they would with other applications.

The development goals must always be in sync with what users want, so many products publish roadmaps or host community forums where users can vote on the items they want most and discuss any issues they encounter.

Expenses and pricing are reduced

On-premises programs necessitate a one-time license fee and ongoing server upkeep costs for their customers. SaaS users save money in the long term since they don't have to worry about the cost or upkeep of the underlying infrastructure.

A preliminary test is conducted

The SaaS model's ability to test a tool before making a financial commitment is a significant selling factor. Some software programs use a "freemium" business model in which customers can get started with the program at no cost as long as they are willing to sign up and log in regularly.

Also read: Top 10 SaaS KPIs you need to know and track

Convenience

The user is not required to install any complex programs. With just a login and password, they can access the most recent version of the program. They are spared the trouble of keeping up with frequent updates and reading extensive documentation to learn how to set up the program.

The new way of onboarding is also more efficient than the old one. Since the program is web-based and independent of the user's operating system, onboarding directions are more straightforward.

Additionally, if a user ever gets stuck, most products have a support staff standing by to help them right away.

The SaaS revenue model. Bottom line

Without a shadow of a doubt, "SaaS" has become the new buzzword. Both commercial and residential clients love the service's affordability and accessibility.

In addition, the market will find someone who can meet its demands regardless of whether you can. The ability to think quickly on your feet and make adjustments on the fly is, therefore, essential.

Incorporating the appropriate people and resources into your project is the quickest route to success. Recruit brilliant people who can help you promote your product without breaking the bank. Hiring top guns for your team may take time to be financially feasible; you can always get the best through outsourced personnel.

In this case, working with a SaaS marketing agency is advisable, as they will already know the most up-to-date industry trends and have access to the tools necessary to help a startup succeed. In addition, make sure you're tracking the right indicators to evaluate your progress in an unbiased manner.

Read more

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Łukasz Warchoł
Łukasz Warchoł
Content Manager
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SaaS revenue model - how does it work? Explanation with examples

December 16, 2022
11
minutes read
audio description available
TL;DR

14 billion users are optimizing their business processes with at least one SaaS tool. Even individuals utilize SaaS products (for example, Spotify or Netflix) for their day-to-day activities or pleasure. It can appear that if you have developed software as a service offering, success is guaranteed for you. However, that only scratches the surface of reality. There are better marketing strategies than simply waiting for potential clients to show up.

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SaaS revenue model - how does it work? Explanation with examples
SaaS revenue model - how does it work? Explanation with examples

What is the SaaS Revenue Model?

The Software-as-a-Service (SaaS) revenue model is a form of software delivery in which customers pay recurring fees regularly to access cloud-based software applications.

In the SaaS model, the provider will often store the program and all of its data in the cloud. The software as a service model originated as a result of the fact that once software was available on demand and could be updated regularly, businesses were freed from the need to deliver a physical good.

Therefore, SaaS companies needed to devise a model that was both scalable and enabled them to benefit from the applications they produced for as long as those apps continued to be helpful to other businesses or individuals.

Examples of the SaaS revenue model

The SaaS revenue model has been around for longer than we initially believed. Many of the oldest SaaS companies still operating today are perfect examples of a successful SaaS business model in action. However, they came into existence before the advent of cloud computing.

Many of the free and freemium SaaS solutions currently available on the market have achieved success by becoming nearly essential to how businesses work in the modern day.

Consider platforms such as Zoom, Trello, Slack, or Monday as illustrative instances. You are probably already aware that some of these examples involve businesses that use a freemium model and a monthly subscription plan. HootSuite is yet another SaaS company that successfully implements this strategy.

You may also like: SaaS licensing: most important facts you need to know

End customers can adjust the level of their monthly subscription based on their company's marketing and social media requirements, or they may utilize the ratable revenue SaaS without paying anything.

Although it may be tempting to remain with the relative simplicity of a subscription model with competitive pricing, you should keep a close eye on how this affects the key SaaS metrics that measure your customer relationships and the general churn levels of your customers.

Subscription weariness creeps into many parts of the entertainment industry, the media industry, and even software organizations today; therefore, experimenting with another SaaS business model could work to your advantage.

What revenue streams are available to a SaaS business?

1. Subscriptions are available on a monthly or yearly basis

It is the most consistent kind of recurring and traditional SaaS revenue model that involves customers paying a recurring price to make use of the benefits offered by the product. The amount that customers pay for their subscriptions can vary based on the plan they select and the number of services they use.

2. In-app purchases

In-app purchases refer to any additional components or features that a user can acquire after subscribing to a given product. For instance, the users of the online editor Canva have access to various free designs, but they also can purchase paid templates directly from the platform.

3. Personalized solutions

Typically, corporations are the ones who develop bespoke requirements to address their specific use cases. Therefore B2B SaaS providers build on-demand solutions for their customers at an additional cost.

SaaS cost of revenue may only occur once, or it may recur at regular intervals, depending on the resources you devote to supporting them.

4. Dedicated support

Without a competent service staff, a SaaS solution is insufficient. Customers recognize the significance of having access to assistance around the clock in order to get the most out of the product and are willing to pay more for it.

SaaS companies can increase their revenue by introducing specialized multi-channel support for their customers if they take advantage of this opportunity. Make sure that even your most fundamental package provides some level of assistance to customers. In that case, it can work to your disadvantage.

Worth checking: What is SaaS management? A definitive guide for beginners

5. Reporting and statistical analysis

Data have become the new form of currency. That way, you may capitalize on your data processing capabilities to charge the consumers for more comprehensive analyses and reports.

Why is the SaaS revenue model so popular?

The majority of SaaS companies are currently transitioning toward a revenue model that is based on SaaS. When it comes to individuals who have yet to transition to SaaS, it is frequently more of an issue of time than anything else.

The following is a list of some of the advantages of using the SaaS revenue model:

Continual and consistent flow of customer purchases

This is quite perhaps the most significant advantage. Instead of receiving a one-time payment from a physical product, software sellers can get recurring payments throughout the product's lifetime if they choose the software as a service model. Because of this, it is much simpler to forecast revenue and concentrate on developing your product.

Ability to scale, as well as simplicity of distribution

In the traditional paradigm, printing CDs or physically installing Software needed a fundamental operational component. This component included the purchasing of CDs, printing, and the management of physical distribution networks.

Because of the SaaS model, providers no longer need to be concerned about these intricate system parts. Instead, they may put all of their efforts into developing and improving the already available tool. To use the software, users need only their credentials for logging in and a connection to the internet.

Since the product may be viewed through any web browser, regardless of the type of device being used, sellers are exempt from the requirement that they produce Software for various operating systems and devices. Scaling apps and distributing them to end users is made considerably more straightforward.

Might be interesting: How to build a SaaS application? Step-by-step guide

Regular revisions to the quality of the user experience

Because consumers anticipate constant value in exchange for their subscription payment, software manufacturers are obligated to deliver continuously high-quality user experiences. Companies have the funds necessary to consistently invest in innovations and always produce a relevant product when they have a regular income stream from revenue generated through SaaS.

Customers' advantages of using a SaaS model:

Constant updating

If you utilize a SaaS product, you'll always have the most recent version available, as the service provider updates and maintains the program regularly. Since they're using a web browser to view it in real time, they usually don't have to update it like they would with other applications.

The development goals must always be in sync with what users want, so many products publish roadmaps or host community forums where users can vote on the items they want most and discuss any issues they encounter.

Expenses and pricing are reduced

On-premises programs necessitate a one-time license fee and ongoing server upkeep costs for their customers. SaaS users save money in the long term since they don't have to worry about the cost or upkeep of the underlying infrastructure.

A preliminary test is conducted

The SaaS model's ability to test a tool before making a financial commitment is a significant selling factor. Some software programs use a "freemium" business model in which customers can get started with the program at no cost as long as they are willing to sign up and log in regularly.

Also read: Top 10 SaaS KPIs you need to know and track

Convenience

The user is not required to install any complex programs. With just a login and password, they can access the most recent version of the program. They are spared the trouble of keeping up with frequent updates and reading extensive documentation to learn how to set up the program.

The new way of onboarding is also more efficient than the old one. Since the program is web-based and independent of the user's operating system, onboarding directions are more straightforward.

Additionally, if a user ever gets stuck, most products have a support staff standing by to help them right away.

The SaaS revenue model. Bottom line

Without a shadow of a doubt, "SaaS" has become the new buzzword. Both commercial and residential clients love the service's affordability and accessibility.

In addition, the market will find someone who can meet its demands regardless of whether you can. The ability to think quickly on your feet and make adjustments on the fly is, therefore, essential.

Incorporating the appropriate people and resources into your project is the quickest route to success. Recruit brilliant people who can help you promote your product without breaking the bank. Hiring top guns for your team may take time to be financially feasible; you can always get the best through outsourced personnel.

In this case, working with a SaaS marketing agency is advisable, as they will already know the most up-to-date industry trends and have access to the tools necessary to help a startup succeed. In addition, make sure you're tracking the right indicators to evaluate your progress in an unbiased manner.

Łukasz Warchoł
Łukasz Warchoł
Content Manager
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