Following the explosion of cloud tech over the past few years, the SaaS (Software as a Service) niche has been growing exponentially. As this market continues to grow and develop, you may be chewing over plans to take your slice of the pie! To make sure you get the best start in this fast-paced and lucrative industry, here are a few key pieces of advice for your business plans…
Offer A Few Packages
The SaaS business model is now more or less dependent on offering clients a number of different packages. Modeling your business on past success stories, it’s a good idea to offer the entry-level package for free, unless this is financially unfeasible. From there, your clients should have the option to buy into two or three paid packages, tailored around different segments of your target market and with different degrees of usability, projected ROI, and the clients’ willingness to pay. If you fail to come up with a model like this, you’ll be at a disadvantage right out of the gate.
Measure, Analyse, Improve, Repeat
One of the great things about starting an SaaS business is that your clients, simply through using your product, will be giving you invaluable information about the way they behave. When this is combined with a dependable tool, such as JIRA for test case management, this can allow you to tailor your software to the unique preferences of your client base.
The data you’ll draw on will show you what functionalities people love and which ones aren’t being used, and will also allow better segmentation of your client base, and better definition of your separate packages. As you go about testing your software, it’s important to define tests wherever possible, and monitor the difference your tweaks and changes are making.
Get Your Professional Services Right
In the SaaS niche, professional services are often a double-edged sword. On the one hand, they can increase revenue and customer retention, reducing turnover. On the other hand, they can drag out deployment time, the cost of sales, and grind down your potential profit margins.
Professional services will usually make up around 15% of your annual contract revenue, with a gross margin of around 20% (against an 80% recurring revenue). This usually add up to a blended gross margin of over 70%, which is the threshold you should be aiming for to keep your cash flow in check.
Make Growth a Priority
For SaaS start-ups with a growth margin breaching 70%, valuation hinges largely on the rate of annual revenue growth. Most SaaS companies are growing at roughly 25% year over year and valued at about four times its forward revenues. A company with similar revenues, but a more appealing growth rate, will be much more valued. With these figures and all the competition you’ll be up against, growth needs to be a main priority for any SaaS start-up. If you’re not putting enough resources towards this, you’re going to find it extremely difficult to keep your business’s head above water.