When it comes to subscription business models, a couple of SaaS companies come to mind. The subscription model works well for SaaS businesses because it enables founders to develop and scale quickly without incurring huge upfront costs. Today’s series on subscription business models focuses on SaaS businesses.
The traditional software industry has been overtaken by SaaS as the preferred method of delivering applications to users. SaaS has become the cornerstone of improving efficiency without increasing costs at most businesses. With SaaS, different users can access an application and use it based on their needs and tailored to their preferences without interfering with the user experience of other people using the same application.
Your company may be using SaaS in its daily operations without you knowing. Perhaps the simplest form of SaaS model is Gmail, where many users have different email accounts that they have tailored to their own preferences and that they can access from anywhere around the world. Now when it comes to a business model, this is where paid SaaS service providers come in.
Business owners are opting for SaaS business model for various reasons including:
- Low upfront costs are required for infrastructure.
- It is easy to scale operations.
- Low customer acquisition costs with high lifetime value.
- Easy to predict revenues during the billing cycle.
The SaaS model can apply to virtually any type of market. However, the fundamentals of running a successful online business apply even in the SaaS market. Founders have to identify a problem that people will be willing to pay for a solution for.
Case Studies of SaaS Subscription Business Models
Let’s look at two SaaS businesses;
Box.com is a secure online file storage service that enables users to transfer, share and access large files between them. Users can access the company’s services from anywhere from around the world by logging into their accounts and modify their content as they wish.
Box offers users 3 subscription plans; Personal, Business and Enterprise that come with different
features and pricing. Having different price plans gives users the freedom to upgrade or downgrade their service consumption as their needs change.
PressTrends offers users detailed information about how their WordPress themes and plugins are being used by providing details about their versions, sites where they are installed and more. The company also offers an intuitive API through which developers can add their own themes and plugins to monitor.
Pricing for the service is $9 per month for monitoring more than 1000 sites. Users wishing to monitor less than 1000 sites can use the service for free.
While you may know the large SaaS businesses like Salesforce, Oracle, Marketo, Intuit and others, there are hundreds, perhaps thousands, of other small SaaS businesses. The SaaS business model can apply in nearly all markets. For example, Restaurant Engine by Brian Casel is a web design and SEO subscription service geared towards restaurant owners.
Challenges of SaaS Business
While SaaS subscription business has low upfront costs and many benefits, founders face numerous challenges. These include:
- Identifying a market with sufficient amount of users that will generate the anticipated revenues.
- Determining the price at which to sell their services.
- Keeping churn low while expanding customer base.
- Online marketing, content production and lead generation.
- Adding new features as requested by users.
- Integrating different modules for improved functionalities.
SaaS subscription business is a billion dollar industry and its attractions, viability and sustainability are clear. Founders however need to determine whether there is need for their services before investing time and money in R&D.