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February 9, 2017 | Authored by: Vindicia Team

How to succeed with a SaaS business model

Starting any business venture comes with a large amount of uncertainty. This is especially true of those in the software-as-a-service industry. These companies face a lot of competition during a time of rapid innovation, and new start-ups are taking advantage of emerging technological advances every day. Still, if these organizations manage to sell their product successfully, they stand to reap countless rewards. According to Transparency Market Research, the SaaS market will expand at a compound annual growth rate of nearly 28 percent between 2015 and 2022 to hit $164.3 billion.

This money isn't just available for a few large-scale companies, either. Research from BCSG, a digital solutions provider, found the average small business currently uses three different cloud-based services. What's more, 78 percent of such companies plan to add to their collection of SaaS applications, bring the average number used from three to seven over the next few years.

o succeed with a SaaS business model, companies have to put their customers first. This means making a product designed for their success and pricing it in a manner customers can agree with.

Funding SaaS software in a way that works for customers
Many customers agree that a monthly fee for cloud-based software is preferable to paying a large lump sum to license the same service. Regardless of the total money spent over time, it's easier for an emerging business to commit to a $10 monthly subscription than a $500 purchase. 

This is why so many software providers added cloud services on a subscription business model over the past decade. Companies ranging from Adobe to IBM have offered cloud options to great success. In particular, Adobe's decision to switch to only cloud services as of 2013 was, contrary to many consumer expectations, a positive move. The company grew from less than one million Creative Cloud subscribers during the second quarter of 2013 to approximately 3.5 million by the end of 2014, Market Realist reported. 

This shows it's possible for a business to thrive even if it only offers SaaS products. The key is to attract enough customers to maintain the revenue necessary to continue supporting your product.

Adapting to the customer's needs and preferences
Meeting the customer's needs doesn't just apply to billing - every aspect of your business must be appealing, especially the product itself. For instance, you might think your software's user interface is exemplary in terms of design, but you'll have to change it if you receive constant feedback from customers who find it hard to navigate.

"It's important to understand how customers use your product."

Even if you don't receive any complaints on the matter, it's important to understand how customers use your product. Arash Asli, CEO of Yocale.comwitnessed this situation first hand. In an article for Forbes, Asli discussed how much his perception of his company's product changed when he worked at one of the businesses that used it. He spent a day as a receptionist at a hair salon and realized the business used his booking software in a way he'd never expected. Asli returned to his position with newfound insight as to what his customers needed.

Your business should operate the same way. Not everyone can spend a day working with their customers, but you can poll them for feedback on how they use your product. You should also keep track of the questions your customer support team answers on a consistent basis. When many different customers have similar concerns, this indicates an area of your software that could stand to be improved.

Focus on the customer's success
The most successful SaaS providers don't stop at supplying customers with what they want - they help their subscribers go beyond the status quo, providing them the tools to grow and triumph. This encourages subscribers to upgrade or buy more services and recommend the software to their friends and colleagues.

"The bulk of your revenue comes from 20 percent of your customers."

To adopt an approach that prioritizes customer success, Silicon Republic suggested shifting focus to acquiring the right customers as opposed to trying to catch anyone who crosses your path. The latter method wastes time and money on subscribers who ultimately won't be valuable to your operations. Remember, the bulk of your revenue comes from 20 percent of your customers. Focusing your efforts on acquiring and upselling subscribers who fall into this 20 percent means more successful sales and, in all likelihood, less churn.

To thrive in the world of software as a service, you need more than just the best programming talent. You need a product and business strategy that truly puts customers first and focuses on their needs. Surveying your customers' needs, focusing on the most lucrative ones and providing the right billing solution will all help your business prosper in this promising market.

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Vindicia Team

Vindicia Team

We value our subject matter experts and the insights each of them brings to the table. We want to encourage more thought leaders to come together and share their industry knowledge through our blog. Think you have something interesting to contribute as a guest blogger? Contact us at info@vindicia.com