What is SaaS: A Guide

SaaS (software as a service) is a cloud service that can be used online without first being installed on your computer or mobile device.

Features of the SaaS model

The main difference between SaaS as a business model is that the owner of the service is fully responsible for its upgrade, maintenance and management. Users do not need to download software, install it and update it in order to use its functionality. For business owners, the SaaS model has become a real escape from the headache associated with unlicensed software that customers may encounter.

The principle of SaaS services is often compared to rental housing. Furniture, equipment, and all the amenities are provided by the owner, and the tenant pays for the use. However, this comparison can not be called correct, because it is rather superficial. To better understand what makes a SaaS service different from others, read about the peculiarities of its operation:

  • is designed to be used remotely;
  • the service can be used by several people at once, which helps unite the work of the team;
  • payment for the use of functionality is taken in the form of a subscription fee for a specified period or for the number of selected services;
  • there is technical support;
  • the owner is responsible for the modernization and smooth operation of the service.

To familiarize customers with their functionality, SaaS platforms provide demos, free packages with limited functionality, or full access to the tools for a limited period of time. After the user has tried the features of the service, he can “rent” the necessary services, which is much cheaper than the purchase of licensed software. Thanks to the relatively low cost and ease of use, the popularity of SaaS platforms is growing rapidly.

In the next section, you will learn more about the pros and cons of SaaS services.

Advantages and disadvantages of SaaS platforms

Using SaaS platforms has a number of advantages for both owners and users. First, let’s look at the benefits that remote services provide to their customers:

  • no need to install software;
  • low cost of services and the possibility of free use;
  • ease of setup and the ability to use the team;
  • high speed of deployment.

Now let’s look at the benefits of creating a SaaS service for owners:

  • no problems with the distribution of unlicensed software;
  • regular profit, because the work is built on the principle of constant cooperation with the users;
  • high demand in the market, as for the target audience in today’s world, the speed of implementation is of great importance,
  • ease of use and relatively low cost;
  • labor resources savings, which is associated with a centralized opportunity of service improvement, i.e. there is no need to repeatedly
  • perform the same action over and over again.

Despite the apparent number of advantages of SaaS-platforms for both owners and users, such services have certain disadvantages. Below we take a closer look at the main ones.

  • The income from each user is stretched over time. This is due to the fact that the cost of attracting a new client often exceeds the income from the amount of his first purchase. Therefore, in order to make a profit SaaS owners need to regularly work on user retention. Maintaining competitiveness, business development and scaling plays a big role in this issue.
  • Constant work with developers and programmers. Qualified specialists are needed to upgrade the service, scale it up and support it, as the SaaS platform is a complex product. All this costs money, time and requires certain resources.

Another disadvantage that cannot be neglected is the dependence of the service on the speed of the Internet. However, this disadvantage is becoming less significant daily as the stability of the Internet regularly increases.

To develop a quality product that is in demand on the market, it is imperative to consider the interests of the target audience and find good developers. In the next section, you will learn the process of developing SaaS platforms.

Stages of SaaS development

SaaS services are used in both B2B and B2C segments. Such platforms have greatly simplified the lives of individual users and businesses. They make it easier to manage sales, work with clients, store files, create sites, manage social networks, and perform many other tasks.

The process of service development and its duration depend largely on the purpose and functionality. Below you will learn the basic steps that make up the entire journey of creating a SaaS platform, from an idea to a working program.

  • Target audience and market research. Often the creators of a SaaS service have an idea first. However, they should not start implementing it at once, as the ready product might not be in demand. Therefore, it is important to first analyze the target audience, identify their pains and interests, study competitors and their offers. This information will confirm the hypothesis, refute it or create a new one.
  • Setting goals for the SaaS service and thinking through the functionality. At this stage they analyze all the data on potential customers and competitors, set goals and objectives of the future SaaS service. The main thing is to focus on the main functions it should have to solve the pains of the target audience.
  • Creation of a prototype of the SaaS platform. In order to prepare the basis for developers, a schematic representation of the service is created. In a prototype, think through the logic and structure of a SaaS service.
  • Development of service architecture. At this stage developers and programmers are involved in the process to bring the prototype of the SaaS platform to life.
  • Creation of a design. SaaS service must be original and user-friendly. Therefore, the drawing of the design is paid no less attention than the development of the platform architecture.
  • Conducting testing. At this stage the viability of the SaaS platform is checked. Through testing, they examine the usability and quality of the service to make sure it solves the problem.
  • The launch of the SaaS service and SaaS promotion. After the service is tested and the necessary modifications are made, the SaaS platform is released to the market. Then it is important to regularly attract new target audience, scale and strengthen the position in the market.

Launching a SaaS service is only half the battle. The next step is continuous development and improvement of competitiveness. In the next section, you will learn what metrics are used to track the growth and success of a SaaS business.

Key metrics for SaaS platforms

Get familiar with the key metrics you should rely on to analyze revenue, customer retention, and the success of your marketing strategy.

  • LTV (lifetime value). The average revenue a business earns from one customer over the entire time it interacts with them. The ratio of LTV and CAC (customer acquisition cost) metrics shows if and how much customer acquisition cost pays off.
  • CAC. This metric reflects the cost of attracting one customer. Based on CAC, companies distribute marketing budget and select communication channels.
  • Churn rate. This metric shows the percentage of customers that stopped using the company’s product for a certain period of time.
  • ARPPU (average revenue per paying user). Average revenue per paying customer. Together with ARPPU also calculated as ARPU – average revenue per paying user. The closer ARPU is to ARPU, the more potential clients are willing to pay for company’s services.
  • MRR (monthly recurring revenue). The average monthly revenue of the company from active clients. To calculate this index total ARPU of all users is multiplied by their quantity. MRR allows to calculate the future revenue of the company and distribute the budget.
  • CRR (customer retention rate). A metric that shows the customer retention rate. The higher CRR, the more successful your company is in developing long-term relationships with your target audience.
  • CR (conversion rate). The conversion rate shows how many new users have become clients of the company.

We have considered the main, but not all the metrics which are tracked to analyze the development of SaaS services. They also calculate engagement, the number of new users for a period, the average cost per order (CPO) and other indicators. Below you will find examples of SaaS platforms and get a better understanding of what they are.

Examples of SaaS services

Dropbox cloud storage is used by both individuals and organizations. The service allows you to send files and synchronize data with local folders on your mobile device or computer. Up to 2GB of storage is available from Dropbox for free. To store more data, the service offers to buy one of the paid tariffs. Packages start at $9.99 per month.

Another popular SaaS service is Canva. The platform is a visual editor in which to create promotional products, posts for social networks, covers, business cards and more. The service can be used absolutely free, but with limited cloud storage and functionality.

To get access to all the features of the platform, you must pay for a monthly or annual package. The cost depends on the number of people in the team who will have access to the account.