SaaS (Software as a Service) is a business model in which companies develop online software tools, apps, or products and then sell access to them as a way to make money. There are thousands of SaaS companies that target people from all walks of life, many of which you use each day. If you have ever checked your email on Gmail or attended a Zoom meeting, then you have interacted with a SaaS product. Keep reading to learn more about the SaaS business model and how you can develop a company of your own through software sales.
How is a SaaS company profitable?
One common question that people ask about SaaS brands is how they make money, especially considering that many software providers like Google, Slack, and Skype offer free services.
SaaS brands make money through subscriptions. Customers pay monthly fees in order to access basic services and sometimes pay more for bonus features. For example, Netflix offers streaming as a service to consumers. The subscription model differs from a traditional product model where customers only buy specific items they want. Regardless of whether the customer watches Netflix daily or only once per month, every subscriber pays the same amount.
Many software providers offer free levels to invite customers to use their products and then make money by selling executive access. Consider the popularity of Zoom during the COVID-19 pandemic. Anyone can use Zoom and set up calls with friends and family for free. However, if you want to have multiple lines or more than 1,000 attendees, you need to subscribe to an advanced level.
Additionally, some SaaS companies profit from advertising sales. They can offer free products in exchange for marketing to customers and reaching niche audiences.
Which industries use software solutions?
You can find Saas platforms across all industries, business types, audiences sizes, and groups of people. One key factor of SaaS is that it is used on both a business-to-business (B2B) or business-to-consumer (B2C) level.
For example, a tool like Slack is used mostly by organizations to improve communication and project management. This is a B2B product because one business sells to another. On the other hand, a budgeting app like Mint is a B2C service because the business markets to individual users.
Software apps can be incredibly niche and help very specific audiences. These are Saas brands that serve hospitals, airlines, farmers, and land management professionals. Just because a software serves a small market doesn’t mean it isn’t profitable. The service can become the standard option for that industry or set a high enough price where the company makes money even with a small number of customers.
How does SaaS marketing differ from traditional product sales?
If you are going to sell a SaaS platform to customers, you may need to develop a specialized digital marketing plan to reach your target audience. Your Saas marketing strategy needs to focus on the long-run or getting customers to sign up for a long-term subscription.
Using Netflix as an example, one $13/month subscription might not seem like much, but the company is actually making $156 dollars annually from each subscriber. If that person uses Netflix for a decade, the customer lifetime value on that one subscription is $1,560. These numbers add up when you have millions of subscribers.
If you want to launch a SaaS business, consider working with a specialized SaaS marketing agency. They can help you design a comprehensive content marketing, SEO, and PPC platform that converts long-term customers to your software subscription.
If you want to develop a SaaS brand, consider the needs of your customers. If you can find a software tool that fills a void or helps a company in a meaningful way, then you can grow your business and make money selling software solutions across the country and the world.