What is SaaS?
Software as a Service is a business model that evolved from the demands and issues faced by the traditional Software as a Product (SaaP) model. Through SaaS, applications or services are hosted online. Customers can access them over the internet, rather than downloading them onto a piece of hardware like a laptop or mobile phone. As a result, SaaS eliminates the issues many individuals face when it comes to maintaining and updating their current software. This has led to a meteoric rise for SaaS businesses, which were worth $31.5 billion in 2015, a number that pales in comparison to 2021’s $145.5 billion. What’s more, SaaS prioritizes customer service in a way that develops long-term relationships between businesses and clients. Unlike its predecessor, SaaS allows companies to continually deliver value to their customers.
The Benefits Of The SaaS Model
It’s not just customers who benefit from SaaS – there are many benefits to using this revolutionary model for businesses, too. For your start-up, a SaaS model can offer some great benefits, such as:
- Increased Accessibility:
One of the most persuasive elements of a SaaS business model is the increased accessibility that comes with a platform available online, rather than dependent on a software download. Customers can access your software any day, at any time, leaving the product accessible and easy to use.
- High-Level Security:
Although it might seem like online-hosted websites may be at a greater risk of data breaches or hacks, SaaS models are very safe, especially compared to their SaaP counterparts. The biggest reason for this is the heavy investment that SaaS providers make into their information security due to the regulations governing the online services industry.
- Cost Efficiency:
For businesses, a SaaS model saves time and money. By eradicating the need for traditional licensing or equipment, as well as introducing the option to offer flexible payment methods that suit your target audience, SaaS opens up a world of opportunity for your business that lets you grow without breaking the bank.
- Scalability:
Thanks to the reduced need for time-consuming updates that burden users, SaaS models offer businesses the chance to focus on continually delivering new and improved content to their clients in a way that doesn’t affect the user experience. This is a great way to enhance their long-term customer relationships, improve retention rates and boost business growth.
On top of the wide range of benefits available for businesses, there are a whole host of positives for customers, which are rapidly driving the adoption rate of SaaS methodologies.
How Is SaaS Growth Measured?
For SaaS companies around the world, tracking progress can feel overwhelming, due in part to the complexity of this business model that leads development teams to often focus more heavily on the product itself rather than how it is received. There are a variety of metrics that can be used to track the success of SaaS businesses, which paint a clear picture of the growth rate for specific companies, such as:
- Customer Retention
One of the best ways to track SaaS growth is by analyzing customer retention rates, and establishing how many repeat customers return to the business after their initial purchase. For your start-up, you can choose which time period to track retention across, be it weeks, months, or years, but this metric is a key player when it comes to measuring the growth of SaaS companies.
- Churn Rate
For some start-ups, the initial launch can bring some unexpected surprises, so it might be easier to track churn rate rather than retention, if you can’t do both. Churn rate details the number of customers who stop using your product shortly after signing up, and understanding why this is can be vital to understanding any stalls in the business growth.
- CAC
Your CAC, or Customer Acquisition Cost, consists of any financial investment involved in acquiring one new customer. By calculating the price of your sales, marketing and software implementation fees, before dividing this figure by the number of customers, you can determine precisely how much an acquisition costs, which is crucial for tracking growth. After all, SaaS companies rely on budget-friendly customer acquisitions to be successful.
- CLV
Customer Lifetime Value, or CLV, tracks the total financial value of a customer to a business across the lifetime of their relationship with the company. This metric is a useful tool to understand how much investment is required per customer, to work out whether your SaaS start-up is growing, or if you’re still to break even on your CAC.
Once you have a clear idea of the metrics used to calculate growth rate, you can appropriately pitch for investor funding and understand how your business can best react to project planning or operational changes. Not only does this help your budget, but it also works effectively to bring your team together on a roadmap vision.
How Much Do SaaS Businesses Grow Per Year?
While growth naturally slows down for every year a SaaS business operates, as the market adapts to its inception and stabilizes, there are some indicators that a company will succeed in the long term. However, the actual growth of a typical SaaS company depends on the entire development stage, and the size of a business compared to its competitors.
For instance, researchers who studied SaaS start-ups found that of those worth around $3 million, an 80% annual growth rate was below average. Yet, for similar businesses worth $20 million, an 80% growth rate would actually come in at twice the average. Such discrepancies only tend to even out at around the 13-year mark for businesses, where the typical growth rate for SaaS companies levels at around 20%, provided retention rates remain high.
Although growth rate can vary, a constant remains – companies who hit the ground running and drive growth early tend to see greater long-term growth and retention.
How Do I Increase SaaS Business Growth?
Quickly increasing your growth rate is the best way to boost the overall performance and longevity of your SaaS start-up. There are several tactics you can implement into your overall business strategy to do this.
Nail Your Predictions
Growth rate for start-ups can take many forms, but one of the best ways to grow your SaaS business is to take the time to nail your future predictions, especially when pitching to investors. Having a clear understanding of your business’ potential, as well as your expected income and expenditure, means that you can build trust among your stakeholders and drive growth from the very beginning. This is the most important time for start-up SaaS companies to make the biggest impact for prolonged and reliable growth.
Improve Product Accessibility
Due to the nature of SaaS companies, you’d be forgiven for thinking that internet-based software provides users with the most accessible service possible. After all, the reduced need for hardware or lengthy downloads means customers often get a seamless experience. However, this is not always the case. Practicalities like location and equipment restrictions can sometimes leave users far away from the software they need.
A growth-focused solution to this need is introducing a mobile app to support your software – not only do device applications allow your customers to work even more flexibly, but the high app growth rate for start-ups also provides far-reaching opportunities for SaaS companies. These include increased brand visibility, reputation, and continued stakeholder investment.
Prioritize UX
First impressions matter. For start-ups, providing customers with a seamless, frustration-free experience from day one is vital to ensure their continued use of your service. Creating a good User Experience (UX) design is a great way to do this. Experienced UX designers can program a straightforward app that prioritizes usability, and make customers more likely to recommend the product to family and friends, or take it into the workplace.
If the software is buggy or difficult to navigate, this can put a lot of users off and directly impact the growth rate of your start-up. Suppose an individual develops a negative first impression. In that case, you’ll have to work twice as hard to win back their business, so you must invest in quality UX professionals from the get-go.
Monitor Retention and Churn Rates
As long as you have an easy-to-use UX system, you can be certain that any customer churn cannot simply be attributed to difficulty using an app or online device. However, this does mean that there might be an underlying or less visible issue facing your audience that you might not be aware of. There are many ways that you can improve the overall user experience, but it’s important that you survey customers wherever possible to maintain high levels of satisfaction and reduce the risk of increasing churn rates through a lack of awareness.
If you have a dedicated marketing team, it’s worth meeting with them to discuss a plan for improving retention rates and encouraging long-term customer relationships. You could consider implementing various incentives that can be built into your SaaS software or promoted through your social media channels, such as loyalty programs or offers for existing customers.
Once you’ve introduced some changes, you can more accurately measure your customer retention rate to see if your strategy has paid off.
Provide Quality Customer Service
Finally, no SaaS start-up can function effectively without providing quality customer service. Unlike SaaP, which relies solely on the product providing enough value to keep retention levels high, SaaS has been designed with the entire customer journey in mind. This involves encouraging and motivating the customer at every stage of the marketing process, and providing aftersales support to clients with issues requiring troubleshooting. Having a dedicated customer service team is vital in this instance, as the likelihood of a customer keeping their subscription depends on the ability of your team to solve their problems or address their concerns.
As a start-up, you might be wondering how you can establish a customer service team that can be on hand to deal with any and all queries. If your resources are stretched, then content creation might be the answer. You can use your platform to create various forms of informational content, such as:
- Product Descriptions
- Blog Posts
- Informative Articles
- Social Media Posts
By creating a bank of unique, original content, you can direct customers to the information they need when they need it. This leaves your team with more time to work on the key elements of your system or application, so that you can continue to build your product offering and increase your growth rate.
