Choosing a SaaS Business Model

In the last couple of years, the SaaS business model has rapidly grown as advances in cloud computing has greatly enabled the availability of real-time resource provisioning. Meeting your firm’s software needs with acquisition and software delivery lowers initial cost and the expenses that accompany enterprise software licensing.

The early movers into the SaaS market created a new compelling marketing strategy that business customers can use to help them migrate from their traditional IT systems to the modern cloud software. They intended to make their software free for use but in a limited capacity, with reserved features that would only be available for a premium. The idea behind such a strategy was that as long as a given percentage of free use customers upgraded to a premium package then their SaaS business model would function as planned and be profitable as well.

Easy and Speed of Deployment

Cloud technology enables you to get your business up and running in no time without having to spend much and without having to outsource specialist IT skills. Choosing a SaaS business model is a bit challenging. Traditionally, choosing business software to use was comparatively more straightforward than these days. A basic logical calculation led to a point of interception where usefulness (today known as ‘functionality’) and price would fairly produce what is ‘optimal’.

However, now things have changed. They are a bit more complicated and companies consider additional factors such as delivery options: they are interested in weighing up how their software is delivered, how much they have to part with in terms of costs (which is not always a straightforward calculation). Lastly, there is one more crucial point to consider: integration with legacy software.

From the above-mentioned factors, can you say that buying business software has become easier, or more complicated? Or has the advent of cloud computing opened up the applications market wider so that we can now have so much choice? Do you or your company need some measuring gauge to determine how much “usefulness” or functionality you are receiving in comparison to the extent of “ease of integration” or any other element or is there no much trade off to be made?

Cloud came and shook things up a bit, even bringing mobile device application usage coupled with ubiquitous broadband web connectivity. What this means is that the last five years or so has given rise to what is known as the ‘application centric’ world. Therefore, as we turn to adopt cloud computing to enjoy these applications, it is important to rate one SaaS offering off against the other.

Benefits of the SaaS Business Model  

1.Reduced Total Cost of Ownership

What makes SaaS a better choice for companies seeking to reduce or manage costs better is that there are few upfront expenses. Furthermore, economies of scales contribute to lower costs over the entire span of ownership. Therefore, your SaaS business model should be aimed at reducing the total cost of ownership.

2. Faster Deployment 

With the SaaS business model, your software installation and configuration should be much faster or instant (in some cases).

3. Easy Installation of New Features

Release management – which is performed by the host company –should result in minimal impact on the application’s availability.

4. Lowered Costs of Human Resources

Your chosen SaaS business model should scrap out the need to hire additional IT specialists with skills in database, business intelligence, and system administration. This will save your company money in both salaries, and benefits or perquisites.

5. Increased Productivity and ROI

With faster deployments and reduced total cost of ownership, your SaaS business model will transfer the burden of deployment and management from the firm employing the services back the vendor; thus improving the productivity of the user by making the application more secure and reliable.

6. Cost Cutting and Efficiency

Today’s economic climate pushes companies to find ways to cut the costs of their various businesses and increase efficiency. Choosing the right SaaS business model is a strategy that any company can apply to gain a competitive edge over competitors. If you want help with an application you have developed and would want to deploy it to the cloud, you may want to consider what it will cost to deploy it for revenue service.

Then, of course, you have to know what it takes to successfully deploy the app for multiple users, and in turn develop a SaaS business model, considering parameters such as costing and revenue model, which will enable you to make money and present your investors with a pro forma business plan than will capture their attention. For most SaaS startup company, the main concern is cost because they are often on interim financing or founder’s life savings.

7. Revenue Model for a SaaS Company

However, over the medium and long term, the more interesting question is never about the cost per user or customer, but rather the SaaS business model for generating revenue – investors’ point of focus and interest. The cost of deployment of a SaaS application typically comprises of hosting costs, labor costs (for management of the deployed instance) and other after sale services such as administration and end customer support, sales commissions, and adding features, among others. Since most startups lack models for the other cost of sales, they tend to consider their sales revenue as an outcome of the difference between “per-seat” charges and the incremental hosting costs, which typically can be relatively huge for the first few instances.

Conclusion

With no long term SaaS business model, the focus on cost control can impact on your initial deployments. Your business model should help your enterprise enjoy the benefits that come with cloud computing. These benefits include reduced total cost of ownership, faster deployment, easy installation of new features, lower costs of HR, and increased productivity and ROI.

Choosing a business model for your company may be challenging, but if you tailor it to take advantage of the benefits that the cloud has to offer, you will never go wrong. Today’s economic climate is hard on companies, forcing them to devise creative ways and strategies to craft a SaaS business model that will reduce costs and increase efficiency.

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Omri Erel
Omri is the Head of Demand Generation, as well as the Lead Author & Editor of the SaaSAddict Blog. Omri established the SaaSAddict blog to create a source for news and discussion about some of the issues, challenges, news, and ideas relating to SaaS and cloud migration.
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