​​SaaS Business Models How Does It Work

With the rise of innovation and technology, people now don’t only have access to tangible products. Now, businesses and consumers alike can purchase and pay for intangible products. The rise of the software industries opened opportunities for various jobs and possibilities. 

The SaaS business model, more commonly referred to as “Software as a Service,” is one of the biggest business markets present now. Imagine trillions of dollars growing exponentially as more consumers rely on applications, programs, firmware, and things beyond physical computer parts. Nowadays, any SaaS development company keeps up with software service demand.  

What is SaaS? 

Software as a Service is a software product that companies deliver through the internet. The premise of SaaS is simple. If you’re a consumer who needs a program, application, or any software product, you only need to connect to the internet and use a web browser.  

There’s no need to download, install and run the product on your PC, laptop, or any device. It’s the company that does everything for you, and you only need to pay for the intangible product. Companies are responsible for running servers and maintaining software operations. The most common method of accessing any SaaS product is paying a subscription regularly and connecting to the internet to use the software.

The thing that sets apart SaaS products is that it usually markets to both consumers and businesses. Businesses rely on SaaS products as much as individual consumers.

Examples of SaaS companies 

SaaS companies in the US have trillions of dollars in market capitalization. There are many big names that you’ll encounter in the software industry. Software giants often give some of the most relevant products available now. These are some of the top-performing SaaS products in the United States:

  • Adobe’s Creative Cloud Apps (InDesign, Photoshop, Illustrator, etc.) for creative function and pursuits
  • Salesforce’s Slack App for workspace channels and communication
  • Shopify, Inc.’s Shopify App for e-commerce needs of businesses of all sizes
  • Microsoft’s Microsoft Azure for application management
  • Zoom Video Communication’s Zoom Meetings for teleconference settings

How do SaaS businesses work? 

While many businesses create software to offer to the public, how exactly do these big companies work?

Revenue: recurring payment 

The main revenue driver of SaaS companies is the monthly, quarterly, or annual subscription of customers. As long as a customer base keeps paying for the software, the companies make revenue from managing the SaaS.  

Company focus: customer retention 

Since the company focuses on subscription payments, these firms focus on customer retention. Companies are more reliant on the existing customer base than new customers. The longer an individual customer pays for the SaaS product, the longer the company can keep making upgrades and necessary changes. 

SaaS products often result in long-term payment commitments, primarily if the software addresses the needs of the paying customer base. New customers slowly build up over time, and there will always be new subscribers that will choose to use the software for a long time. Companies focus more on retaining the existing subscribers instead of acquiring new users. 

SaaS products: continuous improvements and upgrades vs. new software 

Many businesses focus on creating new products to offer to various markets. Then, with each new paying customer base, a new revenue stream flows to the company. On the other hand, SaaS products are typically created for continuous upgrades and improvements.

The reason that the customers pay for long-time regular subscriptions is that they need the software. Introducing new software instead of upgrading the current software means new payment. Customers will be less likely to pay for a new subscription if an ongoing paid product is paid for.  

SaaS market: low-cost and scalable software 

The benefit of SaaS products to new customers is that the subscription fees are lower for extended use. If the software brings value that the markets see will last long-term, the costs lessen with a longer commitment period.

The use of SaaS products means scalable needs. If, for example, a new customer only wants to try the product for testing, then the subscription doesn’t need to be for a long-term haul immediately. There are options for free trials, and the customer can scale up the subscription depending on changes in SaaS needs.