SaaS Business Models You Need to Know

SaaS is here to stay.

We can expect adoption and innovation, as competitors will have to come up with creative SaaS business models to stay competitive and attain sustainable profitability with reduced customer acquisition cost.

Below are the main SaaS business models you need to know. Each model is presented with its strengths and weaknesses and you will have to use your intuition to determine which best suits your particular needs.

“Gartner introduced the concept of a “business moment” — a transient opportunity that is exploited dynamically — in 2013 and expects these moments to occur more and more frequently as enterprises migrate from today’s world to the digital business world. Technology will enable companies to optimize business processes, create new business models, and identify and exploit those business moments. This is why every company will become a technology company.” 

1. The Ad Revenue Model

While this is the simplest model, it is also the most challenging to profit from. Ad support has contributed to probability for many startup SaaS concepts. Unfortunately, ads can annoy users despite knowing how unavoidable they are. Moreover, simply viewing ads is not worth much, as meaningful clicks are required for your product to have a wide customer base. This model also poses a great challenge when it comes to finding the right balance to make your users avoid blocking your ads, while you strive to minimize the level of annoyance to users.

1. The Freemium Model

This is an improvement from the ad-supported model because it still offers free base functionality. The difference, however, is the upsell aspect here, which aims at getting users to subscribe to an improved tier of service/functionality already available. The downside, however, is that the paying customers support free users. This problem may be solved by peppering in the ad model here (on a small scale). Buying out of ads by upgrading to paid user can be the right motivation for an upsell. Freemium is tough because it often annoys customers, so you have to be careful as you work toward the upsell.

1. Pay Per Use Subscription-based Model

For an upfront payment, it grants you a short, onetime access to computing solutions. It is a very good model if the service is cheap and worth it. The problem is that cheap, individual uses are never worth much. Moreover, you cannot supplement it with ads.

1. Pay per Month Subscription-based Model

It is characterized by a small span, as well as manageable prices. Therefore, it is “the middle of the road” subscription model. It also lets users opt out whenever they feel like. The time is both short enough for them to feel comfortable, yet long enough to use real history capture to encourage loyalty.

1. Pay per Year Subscription-based Model

Since it is big enough, it is mostly an enterprise-targeted solution. When used with the last three models, they provide workable solutions for all demographics without struggling with freemium.

Create a design that is useful/good enough to make your users want to stick around for longer. Do not use all the models at once, instead find a few that work for you and maximize on them.