Starting Up in SaaS: The Pros and Cons You Need to Know

If you’ve been working on getting a leg up in the Software as a Service, or SaaS, business, you’ve more than likely checked out recent trends, worked with prospective clients and understood their needs. And maybe you’ve already put together an excellent tech team. But have you also made the time to see if this is actually the right avenue for your product?

Starting Up in SaaS: The Pros and Cons You Need to Know

With new technologies released in what seems like a daily occurrence, many startups are beginning to look at subscription based programs and apps for businesses and individuals alike. SaaS is quickly becoming a widely used model embraced by a multitude of users for either at-home, or business uses. Here are some pros and cons of running, and beginning, a SaaS business in the growing technology industry today.

The Positives Involved with SaaS

A SaaS business may not be as straight forward as an eCommerce website selling electronics to consumers; instead, it’s a longer process with potentially higher payoff. While SaaS is used in a variety of different situations, from creative individuals looking to spruce up their family photos, to medical offices who need to keep patient information secure, it isn’t necessarily a highly competitive market. If you have a distinct niche, and a platform that stands out, either in features or a layout that is much more user-friendly, you’ll find clients who are interested in trying it.

For example, let’s say you’re creating an educational product for school districts that will not only help teachers grade their students work, but tracks their progress throughout the year. There are plenty of these platforms available, but if you find that private schools in your area have unique needs, then you’ve found your market. With SaaS, shifting your focus is easy and gives you your own market to grow into.

A SaaS business may not be as straight forward as an eCommerce, it’s a longer process with a potentially higher payoff.  

Going back to your educational program, another positive with running SaaS is that your profits can come from more than just a subscription to your software. Profits can also come from upgrades and features, though you’ll need to be sure you aren’t watering down your “base” features, as newer programs can take a potential customer away once they realize they can get a lot more, for the same price from someone else.

Other ways your business can add profits are by adding more space, or personalization features. While customers who subscribe to your product should always receive updates, patches, and customer service, there are always ways to upgrade and add features that can bring in an additional revenue stream.

If you’re already running a fairly successful SaaS business, you’ll also find that selling your business can be quite profitable as well. While many factors go into the selling price of your business, generally you’ll find that you’re able to sign a deal for a larger amount than you would any other eCommerce business.

Generally you’ll find that you’re able to sign a deal for a larger amount than you would any other eCommerce business.

The Not-So-Great Parts of Running a SaaS Business

When building your business, you’ll more likely already have an idea in the works, and at this point you’re talking to possible users and seeing what they want to see in your product. These will lead you on the right track, but your product isn’t the only thing you need to focus on. SaaS businesses are really split into two departments, one being the technology side, and the other is marketing. This means you’ll not only need an expert IT team, but a marketing team who understands your product and who to market it to.

Building these teams can be time consuming, and you’ll need to pay them for their time, so start up costs are fairly high, though they are worth it in the end. Keep in mind, if your two teams don’t communicate well, or someone on either team isn’t pulling their weight, it only means you’ll be in the development phase for longer than you’d like.

SaaS businesses are split into two departments, one being the technology side, and the other is marketing.

Once you're up and running, your relationships with your clients is vital. If you don’t deliver on time, and respond to or fix problems promptly, your relationships will suffer along with your bottom line. Once you have a market carved out for yourself, as stated before, you’ll need to consistently work on being a trustworthy company that offers solutions that work. Your marketing team can work their very hardest to bring in new clients, but if you do not have a good reputation, you’ll find that your new subscriber numbers dropping over time.

Speaking of trust, one of the biggest concerns with software is security. It seems as if there are new security threats or hacking issues each time we turn on the news, and surely you’ve had to change your password for one of the websites you use at least once in the last six months due to a security issue. While your software might only be focused on design or another creative avenue, passwords and usernames can be stolen by hackers, which can make any customer feel less confident in using your service. Obviously, you aren’t trying to let hackers into your system, but one of the priorities of the tech team needs to be keeping up with new security features.

One of the priorities of the tech team needs to be keeping up with new security features.

Final Considerations

Starting and running a SaaS business can seem daunting at first, and issues will always arise, but the payoff is fairly large. Once you’ve made a name for yourself in your market, you’ll find it is easier and less stressful trying to find new clients. If you have a great product with a lot of buzz surrounding it, don’t let the negative portions of running a SaaS business keep you from moving forward, but do keep them in mind so you can continue to meet the needs of your current and future customers.

Though the first few years can be a slow climb to the top, with the numerous revenue streams possible from running your SaaS business, you can rely on a fairly consistent profit margin for years to come. With a great product and equally great team, your business should have no problems staking your claim in the world of SaaS.

With the numerous revenue streams possible from running your SaaS business, you can rely on a fairly consistent profit margin for years to come.
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