Software as a Service Financial Model Tips

I’ve talked a little about the software as a service financial model problem in the past, but I’ve focused almost entirely on marketing and customer relations, when doing so. There’s a grander view of this problem, the models available have a lot of factors to consider that extend beyond the topic I was discussing when making the allusion.

So, I’m going to actually focus on the things to consider when choosing a software as a service financial model, so this is less of a gamble and less of a stressful decision to make.

The first thing to consider is what kind of demographic you have. What kind of money do they make and how much are they going to be willing to spend of it? This not only determines what to charge, however you choose to do billing, but it also determines what kind of model is going to likely be right for you.

If your demographic is not going to buy your software as a traditional model, then they probably won’t as a paid service either, unless it’s very cheap and takes PayPal.

That last thing is something that you really need to take to heart by the way. Some people do not use credit cards or debit cards and prefer the safety and privacy of things like PayPal. Fail to mention it’s convenient.

You may want to supplement your service with ads, which can be a financial model themselves if your overhead is low and your user base is large enough. But, if you’re going freemium, this is also a good way to reduce the overhead incurred by the free model.

Freemium relies on conversion from the free to the paid. The free still costs you overhead, and this will drum up the price of the subscription. It can spiral rapidly, if that overhead isn’t abated by an outside force. This is where ads, in the free version, can help.

A standard subscription model is the sage play, but at the same time, it means you have to follow some unspoken rules. Some of those include a reasonable price, customer loyalty incentives, and a very strong counter-churn strategy in place.

There is another option, that being a time-burst model, where customers pay for a certain amount of use time, and can pay for varying time amounts. Use credits can be bought and used at leisure, and bought in different amounts. This microtransaction system should stay out of games, but would work well for SaaS.

However, for those starting out, ads, or a base subscription plan is the best kind of software as a service model to go with. In the future, it is highly likely that the credit system will be used more often, but there are cases where it’s impractical, for businesses or long term customers. Perhaps a hybrid of these concepts will come along, which completely changes how we see SaaS financial models in the times to come.

Innovation is brought about by those who refuse to see things the same was as everyone else. This is how SaaS became a possibility, and it is how it will become a stable financial plan as well.

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.
Omri Erel on sabtwitterOmri Erel on sablinkedinOmri Erel on sabgoogleOmri Erel on sabfacebook