Software as a Service (SaaS): The Ultimate Guide

If you have been considering launching a SaaS product, now is the time. By 2023, the SaaS industry will be worth about $195 billion U.S. dollars.

A successful career in this market requires at least some understanding of its dynamics and intricacies.

Thanks to this guide, you'll be able to learn all about that. Our goal is to help you understand how the SaaS industry works. Additionally, you will learn how to start and grow your SaaS business.

What is SaaS?

Software as a Service (SaaS) is a software distribution model that gives customers access to applications over the internet, rather than requiring a physical media and custom installation.

How does SaaS work?

SaaS products are hosted centrally by a provider, who maintains and updates the software automatically. Web and mobile browsers are used by customers to access and use them.

Benefits of SaaS

SaaS has revolutionized the software delivery model without a doubt.

A new application used to be a hassle to introduce to an organization in the past.

It could easily take weeks - if not months - for employees to start effectively using a new tool because of the lengthy sales process, the complex on-site installation, custom development, and training.

SaaS makes this possible in a matter of days or weeks.

This has resulted in SaaS becoming the model for delivering core business applications. Moreover, even traditional on-premises software vendors are building SaaS products, and often acquire SaaS companies to expand their offerings.

Microsoft Teams, Amazon Chime, and Oracle's $532 million purchase of Opower are a few examples.

What is a SaaS company?

Software as a Service companies create, develop, host, and maintain proprietary Software as a Service products. SaaS companies benefit from instant access to an unrestricted, global market and the ability to scale without increasing product delivery costs.

It is important to keep in mind that SaaS companies are not synonymous with their products, even though they often share the same name.

SaaS companies typically develop and maintain their products.However, it also focuses a great deal on sales, marketing, and customer satisfaction.

Types of SaaS Products

It is possible to find SaaS applications of different sizes, shapes, and purposes. However, most fall into one of the following three categories.

Packaged SaaS

A company can use these products to manage a specific process, such as increasing employee engagement, enhancing customer relations, or boosting marketing effectiveness.

Collaborative SaaS

By using these applications, teams are able to work more effectively together. Collaboration is supported on these platforms through messaging, video conferencing, and document sharing.

Examples include Zoom, Paper, and Basecamp.

Technical SaaS

Development or technical processes can be managed or improved using these applications.

Cloudsponge, for example, makes it easy for developers to add a contact importer to their products. The Algolia search API helps other apps improve their search capabilities.

SaaS products are also categorized by the value they provide by venture investor Tomasz Tunguz. He believes that some apps can increase a company's revenue. With HubSpot, companies can market, sell, and serve prospects and customers more effectively. As a result, revenue and growth increase.

Other apps reduce costs. The Basecamp software, for instance, includes multiple tools in a single package, eliminating the need to use additional software.

Productivity software falls somewhere between the first and second groups. Additionally, these products can increase revenue or reduce costs. Their effects, however, are less obvious.

Zoom.us, for example, allows companies to conduct online meetings.

It is likely that the product will reduce costs and provide a platform for new revenue-generating ideas, but this outcome is not as evident as it is for products in the other two categories.

SaaS Examples

For a better understanding of what this all means, let's take a look at five examples of SaaS solutions.

1. HubSpot

Marketing, sales, content management, and customer service are all included in HubSpot's CRM platform. Marketing Hub was named one of G2's Top 100 Highest Satisfaction Products in 2020. HubSpot is a SaaS company since its infrastructure is hosted on Amazon Web Services (AWS), a cloud platform.

Here are more examples of SaaS companies and products to watch in 2023.

2. Slack

For businesses, Slack provides a popular chat tool that can be used for internal messaging, video conferencing, and productivity bots. A number of major brands use the tool, such as Netflix and Uber.

Slack's application can be easily installed and used with an internet connection. Slack manages security and performance directly because the application is web-based and does not require any special hardware or software.

3. Zoom

Remote meetings can be held using Zoom's video conferencing tools. Since the pandemic, the world has adjusted to a primarily remote workforce, resulting in exponential growth for the company.

A revenue estimate of $4.53 billion to $4.55 billion is expected for the ongoing fiscal year 2023.

Using the platform across multiple devices is easy since it's cloud-based.

4. Square

Using Square, businesses can accept credit cards without a cash register.

The company offers a variety of products for commerce, banking, payroll, and more, including software that can be plugged into a computer or tablet to act as a credit card processor.

During the next five years, Square is expected to see revenue growth of roughly 80% - significantly faster than its historical growth rate of roughly 40%.

5. Atlassian

Atlassian's products, including Jira, Confluence, and Trello, are aimed at improving software development, project management, collaboration, and code quality.

Atlassian products are often cloud-based, while others are server-based.

The Atlassian platform emphasizes transparency by providing tools that allow teams to collaborate openly - allowing everyone in the organization to see what's going on.

SaaS Sales, Marketing, and Service

How Do SaaS Brands Attract Users?

SaaS companies need to find, attract, and convince new customers to try their products in order to succeed.

In addition, it must do so as soon as possible. SaaS companies must achieve annual growth rates greater than 20% to survive, according to a McKinsey report. Given how much SaaS marketing differs from other types of marketing, that speed of growth is no small feat.

I'll explain why.

As a SaaS provider, you promote a product with no tangible results. It can't be held by your potential customers. You must therefore convince them that your product works and can solve their problems through your marketing efforts.

A user decides whether to try out a SaaS product in a blink of an eye. It is common for them to conduct a quick online search, compare some solutions, and then make their decision.It shouldn't take more than a few hours to complete.

It is crucial that your marketing targets every stage of the buyer's journey and offers relevant information that can persuade someone to try your product.

Many consumers, however, make little effort to discover the new tool. The majority of new users log into an app once, never to return. Before moving on to another solution, most don't realize the full value of the app.

You also rely on different sales models. A self-serve SaaS product, which customers sign up for themselves, can be purchased quickly.

In a sales-driven approach, the customer handles most of the process on their own. At the last stage, they usually work with a sales team that guides and recommends the best course of action.

There is a possibility that this process will take longer and require additional resources. The enterprise cycle could easily take months before a contract is signed, if not longer.

Overall, SaaS companies typically have the following marketing objectives. In general, however, SaaS companies tend to have the following marketing objectives.

SaaS Marketing Objectives

Objective 1: Attract the right audience

Bringing potential users to a SaaS company's website is the first step to growth.

There shouldn't be any visitors here, however. Instead, they should be people who have already experienced a specific problem that your product is intended to solve.

The first step is to figure out what challenge you're solving for your users. Create a strategy to entice them to learn more about the product.

Objective 2: Build a relationship with leads

Lead nurturing is the responsibility of marketers. Using content, emails and other channels, a new SaaS company can position itself as an authority and convince leads to test their product.

Objective 3: Remove roadblocks to sign up

SaaS marketers often optimize conversions around various website goals - from trial sign-up to onboarding, to converting free users into paying customers.

Objective 4: Engaging users

In most SaaS apps, users first sign up for a trial, free, or demo version. A marketer's job is often to convert them into paying customers.

Typically, marketers do this by optimizing the free or trial offer to get people to the activation point where they realize the true value of the product.

Objective 5: Increase customer lifetime value

Due to the subscription-based nature of most SaaS companies, it's important for a person to remain a user for as long as possible.

The main goal of SaaS marketing strategies is to increase customer lifetime value by reducing churn and moving customers to higher priced plans.

SaaS Marketing in Practice: The Most Effective SaaS Marketing Channels

SaaS companies have a variety of opportunities to introduce their products to potential users and gain traction. We've compiled a list of the most effective SaaS marketing channels below.

Inbound Marketing

Using inbound marketing strategies, you can attract strangers to your product and convert them into customers. It all starts with content. Adding value at every stage of the buyer's journey with blog posts, guides, and resources helps attract new visitors and convert them.

Search Engine Optimization (SEO)

In today's world, almost everyone searches for answers on search engines. People know they can find anything they need on Google, regardless of whether they are searching for a product recommendation or guidance.

At every stage of the buying cycle, SEO positions your site and content in front of potential users.

Content Marketing

You can establish your brand or product as a credible authority and helpful resource by publishing engaging content. Consequently, you can convert prospects into paying customers by building meaningful relationships.

Online Advertising

Online ads are used by SaaS companies to attract and entice potential users.

In addition to free ads, many also use paid advertising, such as pay-per-click (PPC) channels like Adwords, social media ads, and display or banner ads to drive potential customers to lead generation assets.

PR

PR is no longer just about publishing and distributing press releases. Today, public relations focuses on improving almost every aspect of a brand's online presence. PR strengthens brand awareness and recognition through search results, brand mentions, and online reviews.

Viral Marketing

A viral strategy involves getting existing customers to refer and promote your product to their friends and family. In these programs, your users are encouraged to invite their friends, family, and connections to try out the product as well. Referral programs or viral loops are common viral marketing strategies in SaaS.

User Actions

By introducing their clients to some apps, users can naturally expand their customer base. According to Xero, a single accountant using their product introduces anywhere from 6 to 31 new users.

App Stores, Resellers, and Affiliates

SaaS companies can also promote their products using app marketplaces like Intuit, Apple Appstore, or Google Play. Affiliate programs and reseller programs offer cash or other rewards to anyone willing to promote their products.

SaaS Customer Service

The types of complaints you field as part of the customer support team at a SaaS company will differ from those you receive from an e-commerce company.

With e-commerce, you're primarily dealing with customers who are unhappy with their purchases and want to exchange them, or who need help making a purchasing decision.

Customer support for SaaS products, on the other hand, involves helping customers solve their unique challenges, both before and after the sale. Your SaaS customer service will ultimately make or break your business, since many SaaS customers require advanced support to see results.

Moreover, SaaS businesses can experience higher churn rates than normal - the average SaaS churn rate is 5%, while a "good" churn rate is under 3%. By communicating your brand's values to your customers, demonstrating empathy, and going above and beyond for them, SaaS customer support can reduce churn rate and increase customer satisfaction.

Learn how SaaS customer service differs from traditional support, how to build a strong SaaS customer support team, and how to optimize your SaaS customer service workflow in our beginner's guide.

SaaS Pricing Models

In order to attract visitors, a SaaS company must decide how to charge. There are two reasons why this is important:

Potential users' willingness to consider a solution will be affected by a pricing model.

The rate of growth of a company could be affected by this factor. SaaS companies typically break even after two years, according to PwC.

Here are some pricing models you can use for your product.

1. Freemium

With the freemium model, you can access a significant number of features for free, as well as purchase additional features. Freemium SaaS products include Slack, Dropbox, and Airstory.

It is free for most users to use them.They must upgrade to a premium package when they need more than the basic features.

2. Flat-Rate Pricing

A company uses this pricing model to offer a single product with a standard set of features.

In Basecamp, for instance, all features are available for a flat monthly fee of $99 per month.

3. Tiered Pricing

The most common pricing practice among SaaS brands is to offer multiple packages. Various features are included in each package to meet the needs of different users.

Hubspot uses this model.

4. Per-User Pricing

Depending on the number of users, some SaaS companies offer different options.

They can pay per user instead of paying a flat fee or choosing a feature set. An app like Asana, for example, charges companies a flat rate per user.

5. Usage-Based Pricing

Lastly, some products charge based on usage rather than feature sets or users. Each transaction processed by Stripe is paid for by the company.

SaaS Learning Resources

Would you like to learn more? To help you expand your knowledge of SaaS, we've gathered some of the best online resources.

1. Tomasz Tunguz

Tomasz Tunguz writes extensively about SaaS on his website and is a venture capitalist at Redpoint Ventures.

Topics include "the identity crisis facing open source companies in the cloud" and "How a Salesforce-Slack merger would change the SaaS landscape."

If you want to learn more about SaaS, you can subscribe to the newsletter or scroll through his SaaS posts.

2. Hitenism

Hiten Shah has founded three successful SaaS companies: Crazy Egg, KISSmetrics, and Quick Sprout.

As well as offering a weekly SaaS newsletter, Hitenism, he also writes compelling articles such as "We Haven't Hit Peak SaaS" and "3 Lessons that SaaS Founders Should Learn from David Cancel."

Hiten is an excellent resource to learn from due to his proven experience in the SaaS space.

3. SaaStr

The world's largest community of SaaS executives, founders, and entrepreneurs is SaaStr.

It offers blog posts, ebooks, podcasts, and videos, as well as annual events for 15,000+ SaaS entrepreneurs.

SaaStr is an excellent resource for getting started or finding industry connections.

4. Startup School

Check out Startup School if you're interested in starting your own SaaS business.

The Startup School provides a curriculum, a progress tracker, a co-founder matching program, and access to more than $100,000 in deals on AWS, GCP, and more.

5. For Entrepreneurs

David Skok, a serial entrepreneur who has founded four companies, founded For Entrepreneurs, which was voted #2 on Forbes' list of 100 Best Websites for Entrepreneurs.

Startup founders and SaaS entrepreneurs will find articles here that can help them.

6. Chaotic Flow

This list is distinguished by Chaotic Flow's segmentation of four distinct SaaS categories: SaaS Marketing, SaaS Product, SaaS Sales, and SaaS Metrics.

No matter what your SaaS needs are, whether you're seeking articles on aligning SaaS customer acquisition or fitting SaaS products to markets, you'll easily find them here.

Joel York, who has spent more than 20 years in the SaaS industry, founded the website to provide SaaS go-to-market strategies and tactics.

7. Sixteen Ventures

There are a variety of articles in Sixteen Ventures' "Library of Awesomeness" on topics ranging from good SaaS churn rates to emotional disconnect during customer onboarding.

Customer-centric growth expert, consultant, and thought leader Lincoln Murphy's website is a great resource for SaaS companies looking for customer-centric strategies.

8. On Startups

It is possible that we are biased (the founder of this site is also the founder of HubSpot).

If you're looking for content about software startups, On Startups, a website created by Dharmesh Shah, is an impressive resource.

Website content includes a list of software startups Shah has invested in, videos such as "From Day 0 to IPO: What Went Right, What Went Wrong" and content for startup founders and investors.

9. Predictable Revenue

You can learn how other SaaS companies have succeeded by reading Predictable Revenue's podcasts, webinars, blog posts, and ebooks.

This is a good option for those interested in video or audio content, with podcasts like "How to Write Proposals That Sell" and videos like "How To Not Suck At Demo Calls".

The SaaS business model offers tremendous opportunities. The adoption of software as a service continues to grow.

Despite high demand and competition, founders must understand the intricate dynamics of the market and provide unique solutions and value to users to stand out.

Keep these goals at the forefront of your offering as you explore SaaS and make your introduction into this multi-billion dollar industry.