Businesses are growing accustomed to doing some research into software applications, choosing the one that they think best suits their operations and their needs — and then just entering a credit card number and starting a subscription. But is Software as a Service (SaaS) the right choice for any application that you develop?
Duncan Stockdill, CEO and Co-Founder of Capsule, says, “There are many compelling reasons why customers love SaaS, and as a CRM vendor, we find it’s a perfect fit for our customers because SaaS makes it really easy for customers to sign-up and start collaborating with co-workers to get immediate value.”
Eric Prugh, Co-Founder and Chief Product Officer of PactSafe, agrees: “SaaS is the right choice from the standpoints of implementation, cost, subscription revenue, operations, and infrastructure. Everything is more scalable when it is SaaS.”
“There are some solutions that need human to human interaction,” Jeb Banner, CEO of Boardable, comments. “Computers cannot replace that human connection — not yet.”
Eric Diamond, CEO of PushSend, points out, “Software as a Service is not just the idea of putting a product in the cloud and making it available to your customers or potential customers. The SaaS model is heavily focused around the idea of supporting those clients.”
“Not all businesses understand supporting a cloud-based product or even setup with support as number one priority,” says Diamond. “There is also a big upfront cost to run a SaaS business versus other business models. Before you even figure out if your product lends itself to being a good SaaS offering, you need to first understand if you have enough financial support to get you to the point of being a cash-positive company.”
Should You Offer Different SaaS Packages or Tiers?
If you determine that SaaS is the right delivery method for your application, you will also need to determine whether you’ll offer different packages — which could range from a free trial to a full-featured enterprise edition.
Prugh says, “You absolutely should have different packages if you have different customer segments you’re trying to serve. Pricing is ultimately based on the value the customers’ derive from the product, how it scales, and how it aligns to the different customer segments you have.”
He says PactSafe discovered very logical breaks in what users value in their solution. “There was a midmarket segment, but they only used a subset of features. There was a larger business segment, and they needed more enterprise-type features. It made sense to charge differently for those features,” says Prugh.
Diamond says, “Offering different packages is a great way to really address a wide market. If your product and services can actually appeal to all types of businesses and you can break tiers down to address various stages or sizes. That is what SaaS is all about. It allows a company to address a wider market while only supporting one product code base.”
Stockdill says, “For a long time we had just a single paid plan with a really simple price, and that has enabled us to grow successfully to over 10,000 paying business customers in a competitive market space. Other products such as Basecamp also prove that a single price can work.”
He explains, however, “If you have upgrade packages that your customers grow into, you’re a step closer to net negative MRR churn. This means each set of customers you add grows in value over time because the revenue growth in the remaining customers offsets the value lost from canceling customers. Where you have no means to upsell existing customers, your MRR will churn at a similar rate to your customer churn. We’ve recently introduced an upgrade package and are finding that helpful to accelerate our revenue growth.”
The Software as a Service tiers you offer can also include a free or introductory level. Banner says Boardable offers a free trial that can be upgraded to a paid subscription “giving the user a chance to really test out the software.”
Diamond agrees: “Entry level packages or ‘gateways’ are great. You are not taking on 100 percent of the cost for the user, and it provides a frictionless way for users to try your service. Having free and entry-level (or low-cost) tiers together can be a big win for you if done right.”