What Is A SaaS Business Model?

SaaS business model

What is a saas business model? 

If you want to know the answer, you must first understand what the SaaS business model is. 48% of companies are in a one-year SaaS contract, and 13% are in a monthly contract with a SaaS product. Businesses and professionals from different industries use some SaaS products.

Based on the cloud delivery model, the SaaS products opened a new world for businesses across different industries. The SaaS business model found its origin in 1999, giving the internet, broadband, browsers, and mobile phones a boom seen never before.

Most popular SaaS businesses went through three steps to becoming successful SaaS business models.

  • A startup phase.
  • Hypergrowth phase.
  • A sustained business model with steady growth.

There are many recognizable examples of this business model. Indeed we will get to the example. But, let me start by solving your curiosity about – what is a saas business model?

What Is A SaaS Business Model?

What Is A SaaS Business Model

To answer the most awaited question on this topic, you must first understand what SaaS products are. SaaS products are software that offers services through the cloud-based program. Of course, there is a subscription-based plan involved when it comes to choosing these apps.

The SaaS business model is about selling cloud-based software to customers as a service. No, it is not a one-time product selling. The buyer has to pay for a subscription-based plan. These products are not materials you can grab in your hand from the supermarket.

The whole point of making these products a service is to leverage the recurring payment from the customers. They have to pay for the period they are subscribed to the plan. When the plan is over, the customer has to renew the plan for another period with a specific subscription plan.

In most cases, the charges are applied on a monthly or a yearly basis. Businesses with a SaaS business model develop software and make it available through a cloud-based platform.

How Does A Saas Business Model Work?

How Does A Saas Business Model Work

So, you already know the answer: What is a saas business model? But how does it work?

There are different types of saas products, and they offer different services to the customers. But despite the differences, most of these businesses have common ways of working. Here is a step-by-step process on how a SaaS business model works.

Recurring Payment System

Recurring Payment System 

The client does not have to buy any material product in a SaaS business model. Instead, they must pay monthly or yearly for a subscription-based software they can use through a cloud server. As a result, the business can earn recurring revenue monthly and yearly.

But, earning revenue through this model is also difficult. When a customer signs up, businesses take it as a liability and have to offer the promised service for the time the user has subscribed. The customer may ask for a refund if the service is not good enough. So, businesses as such need to be consistent with retaining customers in the long run.

Customer Retention

Customer Retention

Software sold like a one-time product helps only a little in returning a sizable revenue. However, when businesses sell software in a subscription-based model, there is a better chance of retaining the customer for the long term.

It is best for sustaining a business in the long run. Subscribers keep using SaaS products during their subscription, and they are ready to pay again when they are used to the SaaS and happy with the service.

Updating Consistently

Updating Consistently

Other businesses and their products often renovate and release a next-generation model to grab more sales. But the SaaS business model works a little differently. They keep updating their service to keep the end users happy.

They can look through the different bugs and user requirements needed on the service software and update them according to the customer’s needs. The recurring payment module and consistent updates and improvements help the SaaS business model retain customers in the long run.

Examples Of Saas Business Model

Examples Of SaaS Business Model

What is a saas business model, and how does it work? After reading the portions above, I hope that your ideas are clear now. Here are some examples of businesses that work on a SaaS business model –

  • Google Workspace 
  • SalesForce
  • Cisco WebEx
  • GoToMeeting 
  • SAP Concur 
  • HubSpot 
  • Slack 
  • ProofHub
  • Google G-Suite 
  • User Guiding 
  • ZenDesk 
  • Photoshop 
  • Netflix

Frequently Asked Questions (FAQs):

I think you understand the SaaS business model and how it works. However, you may have some similar questions. So here are some popularly asked questions about the related topic. You might find them useful.

1. How Does A SaaS Company Operate?

SaaS businesses are based on cloud delivery models. These businesses must maintain a server, a database, and software allowing users to access the product online. These products are accessible on the internet through many browsers, and you can access them from almost any device nowadays.

2. Who Is The Largest SaaS Provider?

The largest SaaS provider in the US is Salesforce. The market cap of this company is around $161 billion. The second largest SaaS company in the line is ServiceNow. Salesforce is 2.8 the size of ServiceNow. In the past few years, SalesForce has seen immense growth.

3. Is Microsoft Office A SaaS?

A user can access cloud-based applications on the internet through the SaaS models. The most common examples of these services are email, calendaring, and office tools like Microsoft Office 365.

4. Is SaaS A Product Or Service?

A SaaS is more than a product or a service. It is a mode for businesses to communicate and interact. But, not all SaaS products follow the same approach.

Final Words

Even the streaming platforms that you monthly pay for are SaaS products. You can take Netflix or Disney Plus as examples. However, unlike other business models, the SaaS business model also requires a different approach to marketing. Businesses with SaaS products must focus on raising brand awareness and retaining customers through consistent service improvement.

I hope you got a basic idea about SaaS Business Model from this article. You can contact us in the comment box if you need further info.


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