What is saas model design all about

What is SaaS model design all about? This is a bit of a misnomer, so it’s understandable that people, even in the SaaS field, may find this confusing when the use of terminology doesn’t match up with what it sounds like it ought to mean. That’s a problem in many industries, where jargon makes no sense to those who aren’t a priority used to the meanings behind them. SaaS model designs and structures are just such a confusing term.

Unfortunately, they are an important part of SaaS, especially when designing a product, or designing a business model, which is primarily what they refer to. The most common mistake is assuming it’s all about the design of the software model, or something to do with interface or logistics, but in fact these are only contributors.

So, what is SaaS model all about? Let’s take a moment and discuss it. Hopefully, clarifying this just a tad will help to alleviate some confusion and difficulty experienced by many in and out of the industry. We will exemplify these concepts with examples of model types to better illustrate this definition.

An SaaS model is primarily the business model through which the customer will access the service. It includes billing cycles, levels of account types, pricing and feature disparity. It also includes to a far lesser extent the nature of interface, presentation and technology used to tie them all together.

One example of an SaaS model is the very popular freemium model. In Freemium, there is a base free version of the service, usually crippled with high feature disparity. Customers will get basic core functionality out of this model, but not nearly what they would get out of the paid account.

The difficulty with freemium models is encouraging what is known as conversion – free users switching to paid accounts. Incentivizing customers to convert in this model is a strategic science all its own, and one that is discussed heavily in SaaS circles.

Another example is the basic subscription model. This usually has a free trial period of a fully operational service, but for long term access, a monthly or yearly subscription is required. This model is the more reliable, though preventing demo fraud has led to ugly solutions or simply grinning and bearing the fraud overhead.

However, incentivizing in this model is less strenuous, so it’s most highly relied upon, especially by newly emerging SaaS designs or companies.

Finally, of the more noted, is the purely free model. This model is also a bit dicey, as it relies on ad revenue in order to be profitable. This is better reserved for casual SaaS such as gaming, social networks or media delivery platforms, rather than business-oriented SaaS. If the product is good enough to warrant the views, it can be rather profitable. However, it’s a gamble.

There are other strategies beyond these, and many ways to hybridize these primary three. However, which of these or other similar models you choose for your SaaS greatly influences the design and delivery of the SaaS itself, as well as your business philosophy for a long time to come. This is why SaaS models are so important, and why understanding the meaning of this term is so crucial.

What is SaaS model all about? Everything.

Bo Amidor
Head of Corporate and Marketing Communications at WalkMe and Contributing Author to SaaS Addict blog.