SaaS Business Model | How does the business model of any SaaS work? (2024)

Have you ever heard of the SaaS business model? If you work in the digital world, you've probably heard this term before.

The SaaS business model has been a true evolution of the systems used by companies to manage their activities.

Being a provider of this form of business allows you to develop a flexible monetization strategy with incredible but true returns!

Although its booming application is new (about two decades ago), it's a model that has gone beyond centuries. 

So in this material you will learn all about SaaS as a business model. It's an interesting material that will surely encourage you to apply it or develop it. 

If you are ready, let's start!

How does the SaaS business model work?

The SaaS business model needs to be understood starting with what it means. SaaS stands for Software as a Service. 

As part of Cloud Computing, SaaS as a business model is defined as a way of providing or distributing software for various purposes over the Internet.

In other words, the service provider keeps programs or apps hosted in the cloud, and makes them available to all its customers either on the Internet or through a service on the web. 

To do this, customers must pay a weekly, monthly, semi-annual or annual fee to subscribe to their services, without the need for difficult installations. 

1. A bit of history

SaaS, although its use has massively increased in recent times, is not something new or from the 21st century.

On the contrary, in the 60's this concept was already being used offline by a well-known company in the computer world, because the internet did not exist yet. 

Have you ever heard of International Business Machines? Yes, IBM. Well, they were the pioneers in the use of the SaaS business model through their computer, the 67 model. 

Of course, SaaS was not known as Software as a Service but rather as Time-Sharing. In other words, the computer 67 was shared in companies, specifically in common areas, and the time of use was measured. 

However, in the early days of connectivity (1980s), SaaS began to be applied through CRMs or information managers. In the 1990s, it began to be applied through servers, where programmes had to be stored due to their accelerated development.

2. Numbers of the SaaS business model

Five years ago, it was already expected that the SaaS model would have significant future growth.

And that future is just around the corner. The company Finances Online described it in its estimated projection, with 86% incorporation in 2023 of SaaS in companies, in any part of their structure.

In 2020 alone, according to Statista data, the SaaS business modality was forecast to be worth more than 150 billion dollars, which is more than double what it produced 6 years earlier, making it the most important Cloud Computing structure.

3. Its stages

A SaaS business has three stages or periods in its maturation. 

An anecdotal aspect of these phases is that the SaaS business model starts in the start-up phase, but its visionaries want to jump from this to the stable phase without going through the growth phase... it's like learning to walk at a very young age. 

And it doesn't really work that way, which is why so many start-ups fail. So here is a summary of the three stages of this business model:

• Startup: this is the initial programming for everything to work and for the entry into the market, where the first customers are received.

• Hyper growth: this is the stage no developer wants to go through. It's the stage where the audience tries, likes and hires the service. However, the provider must have enough service infrastructure to handle all its customers. It's the most important trial to test the capacity of the service. The future life of the business model will depend on the management capacity of this stage.

• Golden Goose: this is the stable stage, in which the SaaS model has already stabilised. In this case, healthy profits are already beginning to be seen and the service infrastructure will no longer be a problem. 

Advantages of SaaS as a business model

Of course! You won't be tied down or forced to make a large investment to get the digital tools or service you need.

This investment translates into maintenance, technical support or infrastructure costs, which are carried out by the service provider. You, as a consumer, only have to worry about using their functionalities. 

So, discover with us the most interesting advantages that SaaS offers to your company.

1. Low and more affordable prices

This is the first advantage, as it contrasts sharply with the old system of paying for a programme or application, even its infrastructure, through a licence. 

The latter gives the customer the right to use the software and receive ongoing technical support, which in some cases may be optional.

By not having to buy the whole software package, consisting of licensing, technical support, among others, you will pay the price per use, i.e. for its functionalities, which is what is required.

In addition, each SaaS business model has a varied combination of functionalities, which are adapted to the user's needs, so prices vary according to the possibilities and users.

2. Simple installation

Migrating from one software to another can be complicated because of the number of hours involved, not only in installation, but also in staff training. 

By not requiring a complicated platform, installation, investment or verification of compatibility with the current infrastructure, Software as a Service allows almost instant access to its functionalities. 

This means you can use it or get it up and running for your operations quickly and easily.

3. Flexibility and mobility

Two concepts that describe SaaS very well.

Flexibility means that the software grows as the business grows. It also has the flexibility of scalability and compatibility with a wide range of software options and existing infrastructure.

Flexibility translates into full customisation of applications to the processes or activities developed.

In the case of mobility, you don't need to employ a person within your company to use its functionalities.

And the advantage of mobility for the SaaS model was 100% demonstrated by the pandemic. So this tool only needs a mobile device or computer and a good internet connection. 

With those requirements, an employee can perform his work from anywhere: at home, on the road, wherever he is. 

Dos conceptos que describen muy bien el SaaS.

4. Faster updates

Thanks to the internet and a professional team behind the provision of the service, this business model allows for more consistent updates. 

Thus, these update packages, where errors that may occur are studied and modified, allow them to be resolved almost instantaneously, without requiring the download and configuration of complicated batches of information.

Thus, users need only worry about using their functionality, leaving error resolution in expert hands. This saves time and money on costly software interventions.

5. Full data backup

With the SaaS business model, you have data backup from specialised servers. 

If the company suffers damage of any kind, natural or man-made, the information will be safe with the provider.

Employees will maintain access to all data and the various SaaS applications from anywhere in the world.

And what about the disadvantages of the SaaS Business Model?

Now, we are obliged to show you the dark, well, not dark, but rather greyish side of the SaaS Business Model.  

Why obliged? Because in our introduction we said EVERYTHING; and that includes the good things and the not-so-good things that the SaaS business model presents to anyone considering it, whether you're a person looking for quick features or you want to provide an idea.

1. Few software options

This is the first of the major disadvantages of SaaS. 

Despite having fabulous growth figures, the SaaS business model and what it involves has not yet expanded or transformed for all the needs that require this service.

But don't worry, in a few years, this problem may be just a distant memory in this material.

2. Dependence

If the application of this tool in your process is faulty, you will have to seek technical assistance from your supplier. 

Depending on the complexity of the bugs, updates may be delayed.

So, if you want fast results, SaaS is probably not the most suitable tool for your activities. 

3. Data sharing: insecurity or mistrust

The widespread sharing of data in the cloud has generated mistrust among many users. 

What would happen if the cloud failed? It could generate a massive loss of information never seen before.

In addition, confidential data navigating in this form of storage could touch the least desirable hands.

In other words, the cloud still generates some mistrust when it comes to migrating from traditional systems to SaaS.

But don't worry, it won't last forever! The cloud is already beginning to show its full potential, and it's learning from this mistake (we are almost certain of it).

Development of a SaaS business model

If you want to develop this business model, this is the point you need to understand: 

1. What are the models?

SaaS models? But isn't SaaS a model in itself? You are right, but within it, SaaS also has development models.

It's therefore a good idea to apply certain recommendations so that you can choose the right SaaS model for your development:

• Find out what the added value of your Software Service is.

• Maintain control over all metrics, this is essential.

• Integrating this business model with other applications is one of the key factors to maintain strength and presence in the market.

• Scalability.

• Easy adaptation to changes. 

So here are the best types of SaaS in which you can develop.

Freemium

If you want your audience to get to know you, try the Freemium SaaS model. An unrestricted and free access to a part of your functionalities, which can be for a limited time.

If your audience likes what you offer, they will be motivated to pay for a subscription plan to try out all the capabilities.

Flat rate pricing

A simple model, where people subscribe for a single price and it doesn't matter how many people use it. They will all be able to use the software's capabilities depending on their needs.

Tiered pricing or Per-feature pricing

This is one of the most commonly used. The rates change according to the specific capabilities or features required by your audience. That is, the user pays for what they need to use.

If the user requires few capabilities, they will pay one fee. On the other hand, if they require more functionality, they will pay according to their usage.

Likewise, the support response will also depend on the needs, with the most attractive package being the one with all the functions.

Per-user pricing

Finally, this plan is very much related to scalability. 

In this case, the price characteristic is not set according to the features but according to the number of users. 

2. All a part of your online positioning

The marketing process is essential for any business to work, and even more so in a digital environment.

Therefore, social networks are a fundamental positioning mechanism for SaaS as a business, not only because of the advertising, but also because you will be able to interact live with customers, as well as better formulate the after-sales processes. 

3. Make buying easy

Important: don't confuse the audience with complex buying processes, because failure would be the fate of your project.

Customers love that applications solve their problems; but beyond that, that the purchase is easy to understand, i.e. in its prices and payment methods, and simple to manage.

These days, payment gateways are the daily bread of online payments, of course, while offering secure transactions. 

4. Basic and complex in transition

Starting from the most basic aspect to the most complex is the best route to success. 

This is in regard to the providers, as the software must be modified or expanded over time.

What are you looking for over time? To solve frequent bugs and verify customer needs, with which you can add more functionalities.

Starting with a basic SaaS development is the basic premise, to which interesting utilities will be added little by little. This allows a better adaptation of customers, depending on their availability and learning curve.  

5. The best customer service

To conclude on how to develop a good SaaS model, focusing on the customer is a must in the digital world.

When the customer is serviced promptly and efficiently, it guarantees a better SaaS development with years of loyalty. And this is not only to solve problems, but also to feel supported in their learning process. 

Likewise, the development of versions facilitates the process of adapting to changes and compatibility with the way of working, which also evolves.

Examples of brands applying the SaaS business model

Finally, we would like to present you with the best examples of what SaaS means as an efficient business model that is slowly becoming the technology standard. 

1. Office 365

Microsoft's all-time classic office suite has been transformed into a SaaS business model. 

And this is an absolute advantage because you don't have to manage a complex installation, and you have access to your documents anywhere and on any device.

It has several subscription packages, both for home and business use. And before you pay, you have the option of a free trial. In addition, you have options for multiple users depending on the needs.

2. Canva

One of the design platforms in the global spotlight. With a subscription of only 10 dollars, you will have infinite solutions to design whatever you want. 

You have thousands of templates for whatever you need, as well as a great, simple interface. You don't need to study graphic design to become a designer.

3. Google Cloud

Many of Google's features are free in their entirety, even the cloud storage space. However, the latter has limitations on the amount of space. 

If you want to expand it, the best thing to do is to sign up for Google Cloud. 

It is one of the most widely used storage services worldwide, especially for hosting information on public servers. 

Its main benefits are Google's security, cost savings in infrastructure, technology, more space and ease of scaling with any organisation. 

4. Netflix

Netflix is a ground-breaking concept. Have you watched a TV show or a movie at home recently without the hustle and bustle? 

This is one of the most satisfying examples of the SaaS business model, bringing the best of the seventh art to your TV. 

You don't need to queue at the cinema, or drive to buy the latest release. 

Just pay for one of their varied plans, depending on the quality of playback, and you'll have access to thousands of movies, shows and more, with no separate content fees and no time limit. 

SaaS: an evolving business model

This business model is becoming more and more affordable, as well as indispensable for a variety of activities in our lives.

It has not happened overnight, but what we ARE sure of is that SaaS is here to stay. 

Could you imagine having thousands of movie titles available on your mobile phone, in the 90s? Or having a variety of documents shared and easily edited by several people at the same time?