SaaS Business Model Explained - How Does It Work?

Back in 2005, since the moment John Koenig coined the term 'SaaS', Software as a Service this industry has been growing by leaps and bound.

As per Research and Markets, the global SaaS market will grow up to $272.49 billion by the end of 2021, reaching $436.9 billion by 2025. Similarly, Gartner's estimates that the global SaaS market will touch $278.3 billion by end of 2021.

The numbers pointing to the knockout growth of SaaS revenue are overwhelming. With more ROI expected out of the SaaS segment of the cloud, it is the best time to plan on a SaaS business model.

Being surprisingly unique among cloud computing models, SaaS has proved itself beneficial for companies of all sizes to plan and execute their growth.

A study by Virayo reports, over 80% of businesses indulge in some type of SaaS application to make their business process seamless.

However, for a novice, understanding the SaaS business model seems a little bit daunting.

So, what is the SaaS model?

Is it a sure thing for companies or a pipe dream?

Let's peel every layer off regarding what is SaaS, its business model, and its effectiveness on companies these days.

What Is SaaS Business Model?

Companies are searching and trying to untangle and find answers to what is SaaS model.

First, it is crucial to know what is SaaS to get a deep understanding of the SaaS business model.

SaaS or Software as a Service hosts software products that buyers can get access through subscriptions.

SaaS models are similar to this. Businesses need to pay monthly fees to use the software stored in the cloud. It takes adequate coding knowledge, combined with fluent user interface design skills, to create a SaaS product worthwhile. 

Software as a service companies lease their software through cloud-based, centralized systems. It is a Software as a service company that takes the responsibility to maintain the servers, database, and software products.

SaaS businesses are the most effective yet the most complex cloud computing models.

What Are The Three Stages Of the SaaS Business Model?

Only the definition of the SaaS model may not lead you to a clear understanding of the SaaS business model. The phases are crucial too.

The Start-up phase is easy to grasp. But the golden goose is the stable phase. After you gain excellence in how the SaaS model works, you can see the golden goose.

Let's dive into the three phases to clear your head.

1. Start-up

This phase is all about getting everything under control. One needs to take care of everything from programming the software, marketing campaign to balancing customer relationships. To sum up, it is the seed funding stage of a Software as a service company start-up.

2. High-Growing Phase

There is only one goal of every company planning to put the effort into the SaaS business model, get showered with customers, and profit. Once you unlock how the SaaS model works, people will prefer your software products. You will experience massive growth in companies adopting your software.

Sounds great right?

It also means you need to invest more in your data storage, bandwidth, and other kinds of technical supports to ensure robust customer support.

3. The Golden Goose

In this stage, you will become a seasoned player in the cloud computing models. Your SaaS business turnover will seem healthy and delightful. You will experience easy and fast conversions than ever before.

Pros of the SaaS business model

Why do businesses across the globe cry out to adopt SaaS business model?

Because SaaS works!

The pros of the SaaS business model have engulfed the digital business realm.

1. Recurring Payments Via Subscription

The SaaS revenue model is the most brilliant part of how the SaaS model works 

The user does not need to buy the hardware. Since the Software as a service company allows users to enjoy software applications via subscriptions, the payment procedure becomes as easy as pie.

SaaS subscription model allows the clients to take advantage of the recurring payments through contact and subscriptions.

2. Improved Customer Retention

Whether a hotel business or a software company, everyone cares about customer retention.

A SaaS company values customer retention ten times that of other businesses. Customer retention is such a thing that enables the SaaS company to levitate on the competition flow.

Since the revenue will not get generated until the end of the services, cherishing customer relationships is the only thing that helps the SaaS companies to survive in the market.

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3. Multiple Marketing Strategies

The SaaS business model enables the companies to implement and practice multiple marketing strategies to drive customers to their software products. You can rely on comparatively low-cost yet effective strategies, give priority to affiliate marketing, side project marketing, etc. to drive traffic to your business.

From Salesforce, Microsoft, Google to Wistia, and Cisco, these are some of the significant players in the SaaS business.

So, are you ready to become the next game-changer?

Do you want to master how the SaaS model works?

EDIIIE, one of the leading Software as a service companies, is all ears to your queries and business requirements. EDIIIE offers high-tech SaaS solutions based on top-notch and trending immersive technologies.

Whether you want SaaS grooming for your business or are willing to learn about SaaS software development, contact EDIIIE today!