10 Things to Know about the SaaS Business Model

saas on laptop

The US Software industry is an absolute juggernaut that contributes 1 trillion dollars to the GDP yearly. As businesses become increasingly reliant on tech for their problems, we’re seeing that massive number continue to inch upwards.

If you’re a software developer in today’s market, the upside of what you’re doing is enormous. Whether or not you’ll be able to capture that upside will come down to the quality of your products and how you deliver those products to consumers.

Expanding on that second point, “delivery”, today’s consumers are increasingly getting their software via the SaaS business model. SaaS stands for Software as a Service and it has a number of advantages and disadvantages that legacy software developers/distributors should be aware of.


Here’s what you need to know.

1. Customers Expect SaaS

Today’s startups don’t know what to do with legacy software distribution. They 100% expect to be delivered their business applications via the SaaS business model.

SaaS gives users infinite access to usability, functionality and security updates. If you tried to sell software via legacy distribution to a customer and told them that they needed to pay for an upgrade in order to get a security patch, you’d lose their business forever.

2. You Don’t Sell Your Software in the SaaS Model

In case you weren’t aware, SaaS is built around the idea of no longer selling software. Before your sales team has a panic attack, let us clarify that you will still be selling something to consumers. That something is a subscription.

SaaS rents customers access to software on a monthly, quarterly, bi-annual or annual basis. When a customer ops our of their subscription, no matter how much they’ve invested over the years, they’ll lose all access your product.

3. Recurring Income Is Finally Possible

SaaS fixes one of the biggest problems that has plagued the software industry for decades. Lack of recurring income.

With legacy software distribution, you’d produce a product, sell it and then wait until you release next year’s version to get paid again. If your newest version of a piece of software didn’t sell well, you’d run out of cash and go out of business.

With SaaS, you’ll get a steady flow of income monthly per the number of subscriptions that you sell. This makes learning more about and even predicting your company’s long-term revenue simple. It also creates more liquidity in your business.

4. SaaS Is Device Agnostic

More people are managing their businesses from their phones and tablets today than ever. Since SaaS is distributed through web browsers, your customers should be able to use your software on any device.

That’s a huge advantage over the restrictive nature of desktop-only legacy software.

5. Scalability Is Infinite

SaaS programs are housed on your company’s servers. From there, customers stream your program to their device’s screens. Since customers don’t have to use their local computer hardware to run your software, they can, in theory, continuously scale their use.

For example, QuickBooks lets subscribers add thousands of inventory items to its software. If a customer tried to create a database that large on their local machine, their commuter would crash. By streaming from QuicBook’s servers, the possibilities are endless.

You can cash in on this by charging monthly premiums to customers that need to push your software (and your servers) more than an average user would.

6. Consumer Bases Are Much Larger for SaaS Programs

SaaS presents fewer barriers to consumers given that programs essentially run on any device no matter its computing power. That creates conditions where anybody with an internet connection is a prospective customer.

Talk about opportunity!

7. Server Requirements Represent a Large Burden

Legacy software development/distribution required you to create a piece of software, ship it out and let your customer take care of the rest.

As we’ve discussed already, SaaS asks you to host your software and all of its users on a local server that you own or a third party server that you lease. The expenses involved in maintaining that server/servers can be tremendous and needs to be factored into your SaaS pricing.

8. You Have to Constantly Win Your Customers Over

When you land a SaaS subscriber, you have to convince them to stick around every month rather than just selling them your product, collecting your cash and walking away. This necessary focus on retention requires greater attention to service and around the clock maintenance to avoid cancellations.

9. Data Security Is a Huge Liability

The average business loses almost 4 million dollars when a data breach occurs. Since all of your customers are going to be storing their SaaS data on your servers as opposed to their local machines, that creates a massive liability for your company.

You’ll need to opt into an excellent cybersecurity insurance policy and have a dedicated security team available to fix vulnerabilities.

10. SaaS Is Where the Future Is

Look no further than Netflix, Spotify, Uber or a number of the other successful services to understand that people don’t want to own anything anymore. They want to rent.

Per that fact, legacy distributors are going to see their market share decrease if they don’t pour their energies into porting their programs into the SaaS business model.

Our Final Thoughts on the SaaS Business Model

The SaaS business model is the only model that a developer/distributor can adopt in today’s market if they want to experience long-term success.

As you’ve just seen, there are a number of pros and cons to SaaS. In our opinion, when you consider the enormity of the pros and prepare for SaaS’s drawback’s, you’ll find that SaaS presents an opportunity to the software industry unlike anything that has ever been seen.

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