How to build a Software as a Service Company
There has been a huge shift by traditional businesses to as-a-service business models, which are also known as flexible consumption models (FMCs) or XaaS models, these offer customers the flexibility to select the relevant access to a product with a variety of payment plans. The flexibility of paying what you use has made this model extremely famous with consumers. Research carried out by the synergy group confirmed that SaaS spending hit $100 billion annual spending rate in 2019 and that the market continues to grow at a rate of 30% every year. We have therefore worked with our in-house SaaS specialists to curate an in-depth guide to starting a SaaS business.
SaaS (software as a service), acts as a software delivery method configured by a third party that hosts multiple business applications on the cloud, like content management systems (CMS), customer relationship management (CRM) and human resource management services (HRM). These virtual services hosted by cloud technology help businesses cut down significant costs associated with managing and maintaining data on traditional business infrastructures. Free, instant and unlimited access to data has enabled SaaS technology to become a popular and attractive option amongst new entrepreneurs.
How should you plan when starting a SaaS Business:
Planning is the most essential element when starting a business, like any business you will need to prepare a business plan which will involve validating the idea, researching the market, building a minimum viable product, creating a goto market strategy, pricing the product and understand how to fund the business. Our funding guide is a good starting point for anyone looking to fund their business.
Related: Our in-house business advisors have worked hard to curate a business planning guide to help you make an effective business plan for your new venture.
Video: Understanding the XaaS Family
Watch this video to understand the XaaS family and its different service delivery models IaaS, PaaS and SaaS.
Developing the infrastructure for your SaaS business:
There are several considerations to keep in mind when developing the SaaS infrastructure; you have to ensure that the software design should be scalable and cloud-supported. Your SaaS application must prop multi-tenancy, that is it should be capable of hosting online services to multiple subscribers on a shared server. This is possible if every software user is provided specialised web databases and applications or by enabling every user to share a database and application version of the software both. One example of the popular SaaS providers that offer cloud computing services based on this model is Salesforce.
However, there are other aspects to bear in mind while designing your SaaS infrastructure:
- Ensure that you build a platform that can integrate itself with other web applications, has the capacity for customisation and can install multiple add-ons without any interruption in its functioning.
- Focus on developing applications that are easily useable on multiple devices without requiring a physical copy of the software.
- Pay attention to the security of sensitive user data. The user data becomes exceptionally vulnerable when multiple servers host the SaaS app, so you must ensure that you add several layers of security. Maximise the level of protection by encryption, user authentication, adding audit checks and trails with multiple restricted levels of permissions.
- Build a self-service model that allows users from non-IT backgrounds to quickly deploy, customise or connect the software without requiring coding on technical know-how.
There are many other factors that you should consider when working for your SaaS infrastructure. It would be best if you spoke to someone who has extensive knowledge of handling SaaS technology efficiently. It is a wise decision to have a competitive SaaS accountant advising you to start, run and manage your business effectively.
After your SaaS product is ready, you need to launch it and keep it running. Be careful when deploying it; to implement it correctly, you will have to go through a number of specialists that provide all the services required to keep your product running. Many companies provide assistance to startups by providing open-source operating systems and applications for cloud computing plus hosting services.
The basic setup of a SaaS business is no different than any other business, our startup business guide is, therefore, a great starting point to starting your SaaS business, alternative why not speak to our in-house SaaS Accountants for more help.
How should you find customers for your SaaS business?
Businesses require customers to grow, If your SaaS product is up and running you should look at getting customers for your business. The ways you can do this:
Offer a free version with limited functionality: Offer your customers free access to a limited version to your software, if they seem happy with your software, you will have the option to upsell a premium version of the software.
Free Trial: Offer a free no-risk trial to hook new customers. This might be a good option if your brand is new and you are looking for traction for your product.
Referral Program: Create a referral programme where customers get incentives for any new customers they introduce to your product.
Other methods include Cold Calling, Land pages with lead magnets, Email Campaigns, Free Offers, Advertising, Partnerships, Social Media Campaigns, etc.
It is always a good idea to price your product carefully in order to be able to scale your business quickly, we have formulated a guide to help you work out your pricing strategy.
What are the advantages of using SaaS over using traditional software?
SaaS has numerous benefits for buyers compared to traditional software:
- They are not required to develop and maintain the infrastructure like they would have to when working with traditional systems.
- Data migration is rapid and extremely cost-effective for buyers.
- Less involvement of support staff, thus leading to low IT costs for customers
- Out of the box solution, no implementation cost, debugging or user testing.
- Your customers will always have a fully updated completely secure solution, all the benefits of enterprise-grade desktop software without the hassle.
What are the drawbacks of employing a SaaS system?
- The system relies entirely on the internet, meaning that the system can fail to respond and function in times when the internet service is offline.
- You might face latency issues because of data storage sources being far away in terms of distance from the user.
- There will always be security concerns as your valuable data is stored on the cloud, hosted by a server accessible to multiple users.
How can you keep track of your SaaS business performance:
Your SaaS business can end up in trouble very quickly if you do not keep an eye on it, the metrics for a subscription-based business are trickier than a traditional brick and mortar business, you have no assets as such and your business is mainly the subscription base that you build over the years. You should, therefore, make sure you design effective business performance models on top of the financial accounts and data that you work with your accountant to keep, having a SaaS Accountant that understands the industry can be quite useful when trying to monitor your business performance. The key performance metrics every SaaS business should monitor are as follows:
Churn: There is no point adding more customers to a business if they keep churning, the sales structure for a SaaS business can be pretty expensive especially where you have a sales commission structure, therefore measuring the rate at which customers are churning and comparing that to how many new customers are being added is very important to understand the sustainability of a business.
Monthly Recurring Revenue (MRR): Revenue is important for the survival of a business, this metric tells how much recurring revenue the business makes from its customers on a monthly basis. The metric can be calculated by taking the total annual revenue being generated from all the customers and dividing that by the number of months over which the revenue is being generated. There are many variations to this formula which can be modified based on the business specifics.
Cost of Acquiring a Customer (CAC): Assessing how much you are spending to acquire clients is important for a business so they can reduce the cost and make the business more profitable.
Net Promoter Score (NPS): This metric helps you measure customer satisfaction and how loyal they are to your business. It’s not a simple metric but there is numerous software that can help you calculate this metric.
Customer Lifetime Value (LTV): This metric helps you make decisions about your business and other factors relating to customers. This metric tells you if your business model is viable or not.
Our in-house SaaS specialists have curated a guide explaining in much more detail the various metrics for a SaaS business and how to measure them.
Make buying your SaaS product easy!
Your most important concern as a small business owner should be how well and quickly you deal with your customers. You should introduce a system that makes the entire subscription process quick and frictionless for users. It would help if you also focused on building an effective and transparent billing process.
We also recommend you to make the sign-up process smooth and quick, by making the overall process smooth you not only get more registrations but also incentivise people to buy your product and spread a good word about it.
Streamline the data-export and import process
Your customers will likely have complex data stored on other platforms. It’s advisable to prioritise on removing bottlenecks that hinder the data-export and import process, as most of the customers will prefer a product that lets them move their data over quickly.
Clear House Accountants are innovative Accountants in London who specialise in dealing with XaaS businesses of all sizes. Our SaaS accountants help start saas businesses and help businesses develop and employ efficient financial and performance solutions, to improve performance, save money and raise funds from investors.