Adopting a Software-as-a-Service or SaaS Business model provides many benefits over traditional on-premise software installations. These benefits exist for both the software vendor, and customer, and will be the focus of this article.
First, the definition of SaaS according to Gartner is:
“Software that is owned, delivered, and managed remotely by one or more providers”.
Furthermore, the SaaS vendor:
“delivers software based on one set of common code and data definitions that is consumed in a one-to-many model by all contracted customers at any time on a pay-for-use basis or as a subscription.”
This contrasts to traditional, on-premise software, where the client is typically charged an upfront licensing fee. The customer can also face extra consulting fees for installation and configuration.
Benefits of The SaaS Business Model For The Customer
A SaaS business model is often in the best interest of your customer. We adopted a SaaS model at Task Pigeon because it minimises cost, and maximises flexibility for our customers.
Other key benefits of SaaS for the customer include:
Benefits of SaaS – Lower Cost
SaaS based software, like Task Pigeon, is sold on a subscription basis. This removes the large upfront licence fees associated with on-premise solutions. It also allows the client to scale up and down their expenditure based on usage.
Typically SaaS based software will be licensed on a user based metric such as:
- Number of users
- Number of actions / interactions (i.e. emails sent)
- Records stored (i.e. contacts in a CRM)
In addition to this because the SaaS solution is cloud based there are no infrastructure costs for the customer.
Benefits of SaaS – Flexibility & Scalability
Licensing software using a SaaS based model also provides greater flexibility to the customer. With the pricing based on a usage metric the customer only pays more for the product when they are receiving extra benefit from it.
This also allows the customer to scale into the product over time. This removes the “fear” of paying a large upfront fee for a product that may or may not suits their needs forever.
Scalability is further supported as the customer doesn’t need to upgrade their own hardware at regular intervals. This is all handled by the SaaS provider.
Benefits of SaaS – Reduced Time To Benefit
Having a customer buy software and them actually using it are often two different things. With on-premise solutions, it can be months, if not years, between the time a company licenses the software to when it is ready to use.
As SaaS tools are cloud-based the customer can get an immediate benefit. Often it is only a matter of signing up with your name and email address before you have instant access.
Benefits of SaaS – Higher Adoption
This reduced time to benefit, as well as the ability to use SaaS tools anywhere in the world can also increase adoption.
If a user sees immediate benefits from the tool they are more likely to stay engaged. A viral effect can also take hold in an office environment where one user can become 2, then 3, then 10.
Benefits of SaaS – Worry Free Upgrades
Finally, on-premise software is often updated on a 6 to 12-month basis. This occurs for two reasons:
- On-premise software is often the domain of the incumbent player.
- Potential for significant downtime and interruption.
For many businesses they just can’t afford any downtime with their systems. As a result, they put off upgrading to the latest version for as long as possible.
Licensing SaaS software removes this barrier. Upgrades can happen constantly. In fact, some software startups may push changes to the product multiple times a day.
Benefits of The SaaS Business Model For The Software Vendor
Benefits of using a SaaS business model also exist for the software vendor. These include:
Benefits of SaaS – Less Friction In The Sales Cycle
It is common for on-premise solutions to run in the ten’s if not hundreds of thousands of dollars. While you can find SaaS based solutions pitched at this price point as well, most tend to be under $100 per user, per month.
What this does is allow the Manager or End User to buy and expense the cost of your software. This removes friction in the sales cycle that can come from waiting for budget or IT approval.
Benefits of SaaS – Recurring Revenue
One of the most important benefits of using a SaaS business model, if not the most important benefit of SaaS, is the fact that it provides a recurring stream of revenue.
If you charge on a recurring basis, and can keep churn in check, you have a regular stream of income that is easy to predict. This can also compound over time as you add an ever increasing number of paying users to your platform.
This provides certainty to your business and can also be attractive for investors. In fact many Venture Capitalists actively seek out startups with SaaS business models.
Benefits of SaaS – Ability To Pivot & Improve
If you were selling on-premise software every time you improved the product you would need to convince your existing customer base to upgrade. This might not be too big an issue if they loved your product. But what if they didn’t?
With SaaS software, you can push updates to your product constantly. This allows you to refine your product so that you can chase opportunity in the market and turn detractors into advocates.
Benefits of SaaS – Reduced Development & Hosting Costs
With platforms such as Amazon Web Services, you can spin up a server in a matter of minutes. This has reduced the cost of getting started and allowed much more people to create new and interesting SaaS based companies.
This makes it more realistic to release a product as an MVP (minimal viable product). This is a strategy where you get the core features of your product to market as quickly as possible. It is a “minimal” approach that allows you to test the market and gauge user feedback. The SaaS business model is ideally suited to this approach.
Benefits of SaaS – Easier to Support Free Trials
Yes, some on-premise solutions can support this concept as well. But it is still more tedious and time-consuming. With a SaaS based application, you can deliver the full experience to your customer in a matter of minutes and provide a free 7, 14 or 30-day trial.
After that, the customer may continue on your free tier or upgrade to the lowest paid tier you have available. This is a beneficial for startups going up against the incumbent. Having the ability to try before you buy removes a large element of risk in the mind of the buyer. And in doing so, you can significantly increase your chances of securing a sale.