What is SAAS?

Created on 15 June, 2023Tutorials • 196 views • 5 minutes read

Everything about SAAS

Software as a Service (SaaS) is a software distribution model that gives customers access to applications over the internet, rather than requiring a physical media and custom installation.

How does SaaS work?

SaaS products are centrally hosted by a provider, who also maintains and updates the software automatically. Customers access and use them via the web and mobile browsers.

Benefits of SaaS

Without a doubt, SaaS has revolutionized the software delivery model. In the past, it was a hassle to introduce a new application to an organization. From the lengthy sales process to complex on-site installation to custom development to training, it could easily take weeks if not longer before employees could start using a new tool effectively. With SaaS, this can happen in a matter of days or less. As a result, SaaS is rapidly becoming the model for the delivery of core business applications. In fact, even traditional on-premises software vendors are building SaaS products, and often expand their offering by acquiring SaaS companies. A few examples include Microsoft Teams, Amazon Chime, or Oracle buying Opower for $532 million.

What is a SaaS company?

A SaaS company is a type of business focusing on creating, developing, hosting, and maintaining a proprietary Software as a Service product. The core benefits of running a SaaS company include instant access to an unrestricted, global market and the ability to scale without having to raise product delivery cost proportionally. Although they often share the same name, SaaS companies aren\'t synonymous with their products. A typical SaaS company develops and maintains their product. A great deal of its operations, however, also revolves around sales, marketing, and customer success.

Types of SaaS Products

SaaS applications come in different sizes, shapes, and serve various purposes. Most, however, fall under one of the below three categories.

Packaged SaaS - These are products that help manage a specific process in an organization such as improving employee engagement, strengthening customer relations, or boosting marketing effectiveness. HubSpot is an example of a packaged solution. We offer tools companies use to manage sales, marketing, and customer relationships.

Collaborative SaaS - These applications help improve how teams work together. From messaging and video conferencing to collaboration on documents, these platforms support collaborative efforts. Zoom, Paper, and Basecamp are some examples.

Technical SaaS - These applications offer tools to manage or improve development or technical processes.

Cloudsponge, for example, allows developers to include a contact importer in their products effortlessly. Algolia offers a search API that helps other apps improve the search experience
Venture investor Tomasz Tunguz categorizes SaaS products by the value they deliver, as well. For him, some apps assist in increasing a company's revenue. HubSpot helps companies to more effectively market, sell, and service prospects and customers. This, in turn, leads to higher growth and revenue. 

Other apps reduce costs. Basecamp, for example, offers multiple tools in a single package, eliminating the need for using additional products. 

The third group, productivity software, falls somewhere between the two. These products also help increase revenue or reduce cost. However, their effect is less obvious. For example, Zoom.us allows companies to run meetings over the Internet. While using the product will likely reduce costs and could provide a platform for new revenue-generating ideas, this result is not as evident as in the case of products in the other two categories.

How Do SaaS Brands Attract Users?

For a new SaaS company to take off, it needs to find, attract, and convince new people to try their product. Moreover, it needs to do so fast. According to a McKinsey report, SaaS companies must achieve annual growth rates greater than 20% if they want to survive. That speed of growth is hardly a small task when you consider how much SaaS marketing differs from other industries.

SaaS Marketing Objectives

SaaS marketing strategies are often aimed at increasing customer lifetime value by reducing churn and moving customers to higher priced plans.

SaaS Customer Service

When you work for a customer support team within a SaaS company, the types of complaints you field are going to look different than they would for another type of business, such as an e-commerce brand. For instance, with e-commerce you're primarily dealing with customers who are unhappy with their purchases and would like to make exchanges, or who need help making a purchasing decision.

With SaaS customer support, on the other hand, you're helping customers use your product to solve for their unique challenges, and assisting them in both their pre- and post-sale journeys.
Ultimately, good SaaS customer service will make or break the success of your business, since many SaaS customers will require advanced support to see results from your software. Additionally, SaaS businesses can see higher churn rates than normal in fact, the average churn rate in the SaaS industry is 5%, while a "good" churn rate is considered 3% or less. SaaS customer support can help reduce churn rate and increase customer satisfaction by communicating your brand's values and mission to your customers, demonstrating empathy, and going above and beyond for your customers.

SaaS Pricing Models

Before attracting any visitors, a new SaaS company must decide how it is going to charge for their product. This is important for two reasons: A pricing model will affect a potential user's willingness to consider their solution. And it could affect a company's rate of growth. As PwC reported, it takes two years for a typical SaaS company to break even.
So, let's review various pricing models you could use in your product.

  • Freemium - The freemium model offers a significant number of features for free, along with additional paid packages. Slack, Dropbox, or Airstory are examples of freemium-based SaaS products. Most users can use them at no cost. But when they need more than the basic feature-set, they must upgrade to a premium package.
  • Flat-Rate Pricing - In this pricing model, a company offers a single product with a standard feature set for a flat rate. Basecamp, for example, charges a flat fee of $99 per month for which a person can use all its features.
  • Tiered Pricing - By far, the most common pricing practice among SaaS brands is to offer multiple packages. Each package includes a different feature set, designed to suit various user needs.
  • Per-User Pricing - Some SaaS companies offer a different option depending on the number of users. Instead of paying a flat fee or choosing a feature-set, they can pay per user. Asana, for example, charges companies a flat rate for every person they sign up to the app.
  • Usage-Based Pricing - Finally, some products charge for usage, rather than feature sets or users. Companies using Stripe, for example, pay for every transaction processed.


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