Let’s start with the obvious explainer. The acronym SaaS stands for “Software as a Service.” For the most part, this comes in the form of a subscription. Depending on what your small business does, you may want to consider using SaaS. There are basically two ways to do this. The first is to subscribe to someone else’s SaaS in order to obtain access to software that is required to run your business. The second, if applicable, is to offer your own software services via a subscription model.
Let’s take a closer look at both options. We’ll discuss the pros and cons of using SaaS, both as something you buy and something you sell. By the end of this article, you’ll have a much better idea of whether SaaS is the right choice for you and your small business.
What is SaaS?
The term “Software as a Service” is a big ambiguous. It can mean plenty of things. It doesn’t even always mean a recurring subscription, although this remains the most common model. There are SaaS models that rely on one-time purchases, but they are quite rare.
You’re probably already aware of different SaaS products. Video and music streaming services are the most obvious examples, like Netflix or Spotify. You pay a monthly subscription in exchange for access to web-based or smartphone platforms that play movies, TV shows, or music directly to your PC, television, or smartphone.
There are less entertaining examples of SaaS too. Many companies subscribe to SaaS products that provide company payroll services or internal communication tools. If you’ve ever worked for a company that uses (and pays for) Slack for inter-office communication, you’ll be familiar with the concept. Popular PC software also now comes as SaaS, including Microsoft Office and the Adobe Creative Cloud Suite of design products.
Buying a SaaS For Your Business
Using SaaS can be a convenient and cost-effective solution for your business. For example, there are many SaaS options out there that allow you to track hours, sick time, vacation time, and generate paychecks or tax documents for all of your employees. For a small fixed monthly cost, the software does the bulk of the work for you. Even basic subscription licenses that most businesses need, like Microsoft Office, are now sold as SaaS.
You may also need to use SaaS if your business requires access to certain proprietary software associated with running large machines. In some cases, you may not actually have a choice. If you buy hardware that requires a software subscription from the manufacturer, you don’t really have a choice but to pay it.
Providing a SaaS To Your Customers
For many businesses, offering SaaS is an ultimate goal. After all, selling a product one single time only brings in one single piece of revenue. If you can get a portion of your customers signed up your subscription software service, you’ve suddenly created recurring revenue. If your business is software related in any way, you should be exploring ways to sell it as a service instead of a one-time purchase.
Let’s use mobile games as an example, something that almost everyone is familiar with. In the early days of the Apple App and Google Play Stores, you would see a game you liked, pay a buck or two for it, and you could start playing. These days, many games are SaaS. For $1.99 a month, you can gain access to additional levels, extra power-ups, or (commonly) an ad-free gaming experience.
Even larger games use SaaS, offering things like Battle Passes or seasonal-themed updates. Some of the most popular video games, like Fortnite, Rocket League, or Warzone, are actually entirely free to download and play. Players can then opt to buy additional packages of content. This is a slight twist on the SaaS model, but it still qualifies.
The Pros of Using SaaS
If your small business has certain technical needs, like payroll, managing benefits, point of sale, communication, or technical needs, then SaaS is probably the right answer for you. You’ll happily pay for things like Slack, Square, Zoom, or cloud storage because it’s ultimately cheaper than trying to develop your own systems for these needs.
In exchange for your recurring subscription, you’ll get access to any new product updates or features. You’ll also get ongoing customer support, should you encounter any issues.
On the other hand, if you’re thinking about selling your product via the SaaS model, the most obvious benefit is that you can generate recurring revenue as those subscription payments pour in every month, quarter, or year. Another benefit is that many customers are already familiar with subscription based services.
The Cons of Using SaaS
The biggest con is using SaaS for your product is that it can be hard to attract the initial userbase. Without that userbase, revenue will be scant. Until you have enough subscribers, you’ll still have to spend money maintaining and supporting your product for those early adopters. Some companies struggle in these early days.
Another huge downside is that the SaaS industry has become saturated. Almost everything is sold with some sort of a subscription model these days. Some people (and businesses) are getting weary of it and are reluctant to add yet another monthly charge to their credit card.
The rapid growth of the industry also means that you aren’t guaranteed long-term success. Even if you grow rapidly in the early years, you may quickly reach a peak number of subscribers. After that, how do you continue to grow?
The Bottom Line
The SaaS is a booming business model. It’s expected to be worth $172 billion by the end of 2022. Naturally, you’ll want a small slice of that very large pie. Launching your own SaaS product is a shrew business move, as long as you can offer something new or useful — and for a price that others will pay.
On the other hand, maybe you’re looking into purchasing a SaaS product for your own business. The good news is that there are plenty of reliable players in the game for you to choose from, all with fairly reasonable rates. Your company can save itself a lot of money by outsourcing some of your software needs to SaaS services.
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