by Spencer Nguyen • March 3, 2022
Many companies find that it is not enough to simply keep up with the competition in their industry. Such well-known organizations as Amazon and Microsoft continually expand their service offerings, making it hard to compete. Innovation continues to be a huge buzzword in the software industry. Tech companies need a reliable way to provide clients with what they need most, which is service wherever and whenever they need it. One industry that does this best is the SaaS (Software as a Service) space. A SaaS business has a unique ability to give other organizations what they need to succeed at any given time. According to one survey, up to 70% of apps companies use are SaaS-based, and that number will continue to grow. What exactly is the SaaS business model, and how can you use it to grow your company? This SaaS providers handbook will explain SaaS, show its benefits and risks and give examples and pricing models for SaaS products.
Sign up for our free 14 day hosted trial to learn how.
As one of the fastest-growing industries, SaaS is a giant market with many established brands and a solid customer base. Startups will face stiff challenges as they enter an increasingly competitive niche. SaaS is one of the most popular business models for software companies in general and includes offerings from big names like Salesforce and Shopify. But what exactly is SaaS, and what are some things you should know about SaaS when starting out? Here are four features of SaaS you need to understand.
SaaS is a subset of cloud computing. Therefore, on-premise software does not count as SaaS, nor does a one-time payment for a lifetime license for a software instance limited to one device. This would be a traditional software licensing model. By contrast, you access SaaS applications through the internet without any additional hardware. This means that anyone anywhere can collaborate or access the same project within parameters set by the SaaS provider. Since users do not have to go through complex installation and can access the application at any time, many companies choose SaaS to ensure all employees have access to the service. Of course, this means that any access requires a stable internet connection.
Another common feature of SaaS is that it generally follows a subscription-based model or pay-for-use rather than a one-time purchase. This is virtually a requirement of the industry, since companies may require the service over many years for many different users. Pricing models for SaaS will be covered more in-depth in a later section of this Saas providers handbook.
SaaS involves managing the solution rather than just providing it. Any company entering the SaaS world has to consider 24-hour support since users may come from various countries and time zones. The provider/host is responsible for any downtime for updates, patches, security, and everything else related to managing the service. This is in contrast to most on-premise software providers, who only have to provide support in case of errors or questions from a user.
Any startup in the SaaS industry has to prioritize the importance of data security. When anyone can access an application through the internet, security becomes much more complex and essential. Also, clients may express concern about how a company uses or exposes its data. Privacy policies generally address these concerns and provide transparency. In terms of availability, many SaaS providers have a fallback in case they go out of business. No one wants former clients to sue them because of data loss or failure to ensure the client can access their own data. Data security standards will be covered in-depth in a later section. All of these may help you understand what SaaS is, but there is also a lot of confusion about what SaaS doesn’t do.
SaaS is not synonymous with cloud computing. It relies on the cloud and is a subset of cloud computing.SaaS is also not synonymous with PaaS (Platform as a Service) or IaaS (Infrastructure as a Service) technology, though all three are subsets of cloud computing.
The SaaS model can also take different forms.
Larger software vendors with robust infrastructure may be able to provide a private cloud for every user. This is a unique experience wherein the system does not require users to share resources. SaaS in the private cloud tends to ensure reduced downtime and faster service. The model provides additional control, security, and customizability for clients.Unfortunately, this means that some of the top benefits of having a SaaS provider to manage security and other concerns no longer apply. It also tends to be much more expensive and therefore commonly limited to medium or large businesses.
The majority of SaaS solutions rely on the public cloud, providing a much simpler and easy-to-manage service for customers. Users share resources, and APIs are publicly available. This can create more potential for unauthorized access, but you can mitigate the risk with an API management platform like DreamFactory. SaaS in the public cloud also comes with the benefit of full management and increased customer support from the provider, as well as lower costs for any small business. Speaking of costs, this leads directly to the next important thing you must understand about SaaS, which is pricing.
While SaaS companies rely on a subscription-based pricing model, there may be a variety of other price point factors. Three common payment models include flat rate, for use/pay-as-you-go, and tiered.
Flat rate pricing may be the simplest method, but it is also rare since most companies require more flexibility. This model charges all companies the same price each month, regardless of usage or the size of the company. Flat rate pricing tends to push out smaller businesses or fails to gain sufficient revenue from larger companies.
Usage-based or pay-as-you-go pricing depends on the number of times your client uses your services or the volume of data processed in your service. For example, a communication company might price services depending on the number of messages a user sends and receives each month. Often, companies may start with a flat rate that applies until the client meets a certain criteria. For example, pricing might be $1000 per month until the number of messages goes over a certain amount, at which time the pricing will depend on the exact amount of messages sent.
This pricing model can be a good option to adjust payments depending on the size/income of the client business. Larger businesses will need to pay for more users, while smaller businesses will pay based on a smaller number of users.
Tiered pricing is the most common method used by SaaS companies. Each tier adjusts pricing for the needs or sizes of the potential client. Platforms that use this method include AWS (Amazon Web Services) and Hubspot. One advantage of tiered pricing is the potential for offering a free tier, intended for trial purposes. This allows you to increase conversion rates by giving users an example of your services before they have to invest a lot of money.
What are some of the reasons a SaaS business model might help bring new customers to your business, and what benefits can you provide to your client base?
SaaS relies on a subscription or for-use payment structure. Upfront, one-time payments tend to increase churn rates since customers judge your company based on one experience. Since clients have a long-standing relationship, customer satisfaction will tend to rely on a general impression of your company and support.
Again, a subscription-based model means a steady, reliable income from your existing customers. Also, more companies may be willing to invest in a smaller cost long-term rather than a large cost up-front depending on their size or income.
SaaS companies have a unique opportunity to improve customer experience through their many services delivered over the cloud. Anyone in any region can access the services, so employees in each business can communicate and collaborate with ease. You can also provide security and other support services to customers.On-premise software companies have to base customer acquisition and retention almost exclusively on the quality of the product. SaaS providers may retain customers as much through the quality of support as through the quality of the product itself.
Companies in a great variety of industries seek automation as a means of keeping up with the competition. Automation is a means to reduce the necessity of human interaction in order to perform a service. While in some cases automation has replaced jobs, over 80% of employees trust that automation will increase efficiency in their jobs. What are some of the ways SaaS helps companies use automation more effectively?
Better security is one of the primary reasons companies turn to SaaS to manage their applications. Such a platform can standardize security across multiple applications. Additionally, going with a reputable or big-name provider can help you and your clients feel more secure in their service offerings. Many SaaS providers ensure built-in compliance with such well-known security standards as GDPR (Global Data Protection Regulation) and HIPAA (Health Insurance Portability and Accountability Act), among various others. SaaS companies work to provide data recovery options in case of failure or downtime. They have protections in place to prevent data loss in these situations.
SaaS platforms help you more easily integrate your applications with data analytics in order to mine useful insights from normal processes. Also, you can use many SaaS products specifically for this purpose. Now that you know why SaaS is such a big deal, what are some of the biggest concerns professionals face when turning to the SaaS industry?
Nearly half of companies believe that API (Application Programming Interface) security is the top risk for APIs. Since APIs are how your clients access and interact with your applications, it is also a primary risk for SaaS companies. What are some of the top security concerns for you as a provider?
Security misconfiguration is among the globally-recognized OWASP Top 10 API security concerns, as is broken access control. Three types of access control include:
Whenever you incorrectly implement or misconfigure any of these protocols, a system becomes vulnerable to unauthorized access. SaaS companies should have safeguards in place to test for incorrect configurations that may result in vulnerabilities.
Testing applications for vulnerabilities should be a part of cloud-based software management. Examples of tests that you should perform on a regular basis include:
Several of these involve performing a safe ‘test’ version of an attack to see how the system or application responds. These tests can help you discover vulnerabilities before a data breach occurs, thereby saving you money and ensuring potential customers feel secure in trusting their data to your system.
Any unusual activity may be an indication of a vulnerability. Failure to monitor for such activity can cause serious problems for many companies and result in a zero-day vulnerability. This is when an organization has no knowledge of a vulnerability prior to the actual attack and exploitation. In some cases, you might not notice the attack for some time, leading to serious data loss. DreamFactory is an API management solution with which you can automate secure REST API generation. Since the platform can run in any private, public, or hybrid cloud infrastructure, it is ideal for SaaS providers. DreamFactory also provides API monitoring and security so that you can ensure your clients’ data is safe at all times. What are some of the applications that show the world how SaaS should be managed and secured?
SaaS applications can vary in function from communication and messaging apps to analytics tools like CRM (Customer Relationship Management) and ERP (Enterprise Resource Planning) software to e-commerce platforms like Shopify. What are some of the top examples of popular SaaS applications today?
Slack provides a communication platform built in the SaaS model. It continues to be one of the fastest-growing SaaS companies. Slack users can securely transfer messages and files. Some of the reasons people choose Slack include ease of use, excellent privacy, and response to feedback. Slack uses a tiered subscription payment model.
Salesforce offers a wide variety of services centered around CRM. They advertise features intended especially for nonprofits and the education industry like Nonprofit Cloud and Education Cloud. The platform is the go-to solution for ASU (Arizona State University) and other universities, providing services to students and also helping to improve marketing systems and strategies. Salesforce uses a tiered pricing model that ranges anywhere from $25 for each user every month to as much as $300.
Dropbox is another popular SaaS solution. The Dropbox APIs provide features for sharing and securing files as well as streamlining workflows. Yet again, Dropbox uses a tiered pricing model with a free tier that provides 2 GBs of cloud storage. The Professional tier adds premium tools and 3,000 GB of storage. These are some of the best-known and most reliable solutions on the market today, and all of them rely on the SaaS business model. After reading all of this, you may wonder how you can ever succeed in this continually growing and changing market. How can you promote your products better and attract new customers?
How can you make your SaaS products appeal to entrepreneurs, CEOs and professionals at every level of the industry? This section will cover five of the obvious and not-so-obvious ways SaaS companies can market their services more effectively.
Pay-per-click advertising is one of the most well-known methods for marketing products. PPC campaigns work by posting ads through various mediums. Any time a potential customer clicks on the ads, the company paying for the advertisement has to pay a small amount to whoever hosts the ad. Although many users find such ads irritating, it is still one of the most effective methods to increase brand awareness, and over three-quarters of all businesses believe PPC is effective for bringing in new customers.
Social media advertising is not quite as effective as PPC for generating new leads, but it can be essential for increasing client loyalty. Social media advertising increases website traffic and much more.
The platforms you choose to use will vary in effectiveness as well. Preferred channels for SaaS companies include LinkedIn, Facebook, and Twitter. Instagram is now also an important option. Finally, using YouTube to publish informational and promotional videos can help establish a voice for your brand and increase awareness.
Content marketing can involve much more than blog posts. Other mediums like white papers, newsletters, email, infographics, and more can also be part of this category. Email marketing is one of the best generators of on-site conversions. It is effective for bringing in new customers, establishing thought leadership, and increasing client trust.
Each company is different. How can you tell what methods are working best for your organization and what you might need to change to increase your conversion rate? One of the best ways to improve your strategy is through targeted advertising. High-level data analytics enables you to target your advertisements to specific demographics or based on a specific ROI (return on investment) metric. SaaS is all about delivering applications and services that your clients will love. One of the ways you can do that more easily is through DreamFactory. The platform allows you to generate secure REST APIs with a drag-and-drop interface instead of extensive coding. Prioritizing security and analytics requires modernization and digital transformation. DreamFactory lets you build APIs that enhance business strategies and customer engagement. In a competitive and constantly-changing market, SaaS is a difficult industry. Using this Saas providers handbook will help you understand how to get established and grow your business.
Developing APIs can be a complex, time consuming, and expensive process. It also exposes businesses to a number of risks including consistency, quality, and developer resourcing. DreamFactory is a REST API generation tool for 20+ databases and a range of other data sources. It gives you the ability to generate secure and fully documented APIs in a matter of minutes. Ready to get started?
Sign up for a 14-day free trial and start creating your APIs today!
Build a Data Driven Business: Follow These 4 Steps
Join the DreamFactory newsletter list.