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Saas Development: business model for your startup

What is SaaS? SaaS is a subscription-based software distribution business model. Users pay a set amount every week, month or year and receive service. Here's why SaaS development is a cost-effective, flexible and accessible solution for your business in less than 1,500 words (in fact, more than 3,500, thanks to SEO)

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    At Purrweb, we use the SaaS business model for most of our projects. The main advantage of it — how it is monetized. Users are much more willing to pay a small amount every month/year than to pay once but a large amount. It is cost-effective, because the subscription can always be canceled, while the money for the license is quite difficult to return. There are other good things for users — for example, they don’t need to deal with technical issues (install, configure, update the app, check OS compatibility, etc.), just pay for a subscription and use the product.

    The SaaS app can be accessed from any device over the Internet, because it is located on cloud servers. They can be far from the user’s location. The cloud usually denotes multiple servers connected to the Internet that can be rented. It allows users to access the same files and apps from any device because the computation and storage is going on servers of the data center rather than locally on the user’s device. This is why a Facebook user can log into their account on a new phone after their old phone breaks down — all photos, videos and conversation history will be in place.

    Let’s take a closer look at the benefits of SaaS:

    • all data is automatically saved in the cloud, unlike a physical server, where everything needs to be saved manually
    • it doesn’t matter how much memory is on the computer, all data remains on the remote server
    • the app cannot be stolen, since its final version does not fall into the hands of users, but is in the cloud
    • SaaS products can be updated in real-time, the user will not need to install updates manually

    Payment systems and commissions

    The most popular model for SaaS products is subscription. It is a business model where user regularly pays an amount of money to use the service. That’s why you need to choose a payment system.

    What does a payment system do?

    • verifies the users’ billing information, their credit card details
    • ensures the availability of the required amount of funds and verifies the authenticity of funds
    • approves payment requests
    • approves transactions and transfers funds to your trading account and then to your bank account

    How to choose a payment system?

    The first step is to assess the capabilities of a payment system, whether the main card networks and the most popular e-wallets are available, you can also request local payment methods if you are targeting specific regions. Ensure that security features are compliant with PCI-DSS, a data security standard maintained by the Payment Card Security Standards Board. This board was created after MasterCard, Visa, Discover, JCB and American Express teamed up to create a one-stop fraud prevention platform.

    And the most important thing is profitability. Evaluate the transaction fees offered by the payment processor and see how it compares to the features you can get.

    Let’s talk about several payment systems we use in our projects.

    Stripe

    Stripe is a global online payment processor trusted by thousands of businesses around the world. You can accept online payments via credit cards. Zoom, Atlassian and Slack work with Stripe to grow and scale quickly. Stripe is available in 46 countries.

    saas developmentFitness App project, where we used Stripe payment system

    Braintree

    Braintree is a payment platform that allows you to accept credit and debit cards, PayPal in one iteration. The Braintree payment system is owned by PayPal, one of the largest fintech brands in the world.

    Konstantin Romanov,

    The Braintree payment system has a subscription system in which you can add your add-ons. For example, if a user has a $ 10 subscription, an addon allows you to implement additional services to the basic subscription. There are also discounts, they are used to reduce the price of a subscription, for example, as part of a promotion. Both of these options change the subscription price for a specific user without changing the price of the basic plan.

    Konstantin Romanov, 
    teamlead at Purrweb

    saas developmentE-Signature Project, where we used the Braintree payment system

    Cloudpayments

    Internet acquiring service for any websites and apps. CloudPayments allows you to make recurring payments, bank card payments, Apple Pay and Google Pay. Works with bank cards Visa, MasterCard, Maestro, Visa Electron, and Mir.

    saas developmentBiogeek, where we used the Cloudpayments payment system

    Problems with SaaS development

    Of course, the SaaS business model has some risks. This is mainly due to the fact that you will have to rely on a third-party provider to ensure the safety and smooth operation of the service.

    Like everything else in the cloud, SaaS apps are not protected from malware threats and data loss. Making sure that critical and sensitive data is safe in the hands of third-party vendors should be a top concern for both subscribers and vendors.

    In the SaaS business model, the path to convert free users to paid subscribers is a longer sales cycle, which usually includes free trials and subscriptions. It can take from several days to several months before a casual user becomes a regular customer.

    Most SaaS purchases are subscription-based, so once customers arrive, you’ll need to figure out how to keep them from going to the competition. If a user is dissatisfied with the service or support, they can simply go to a competitor offering a similar pricing structure.

    Monetization models

    There are several ways to monetize your SaaS project. How you will earn on your product depends on the choice of a monetization model. Let’s talk about five popular options.

    1. Fixed Price

    A fixed price is probably the easiest way to sell a SaaS solution: you offer a product with a specific set of features for a fixed price. This model is similar to the software licensing model that was used before the cloud infrastructure, but with the added benefit of a monthly fee. An example of such a product is Facetune – an application for editing photos.

    2. Pay As You Go

    In this type of pricing strategy, cost depends on how you use it: the more services are used, the larger the bill. If less, then less, respectively. In practice, this pricing strategy is most common in software companies (such as Amazon Web Services), where they charge fees based on the number of API requests, transactions processed, or gigabytes of data used.

    3. Price per user

    One user pays a fixed monthly fee; add one more user and the price will double; add a third user, and you guessed it, the monthly cost will triple. This makes it easier for users to understand what their monthly subscription gives them, and also allows SaaS startups to manage and predict their revenues. An example of such a model is Hubstuff and Intercom.

    4. Price per feature

    If in previous models the accent was on users, then in this model the value metric is features. Feature pricing divides the different pricing tiers according to the functionality available in each. The more features, the more expensive the package is.

    5. Freemium

    In this model, the company offers a free product supplemented by paid packages. The freemium business model is typically used as part of a tiered pricing strategy: basic features are free, while advanced features come at a cost. The basic level is limited by certain parameters that encourages users to upgrade to a paid package:

    • based on features (if you want feature X you need a paid package)
    • based on capacity (if you exceed your limit, you need a paid package)

    According to this model works the popular video hosting YouTube. The service can be used for free, but there are also paid features. With the Premium package, you can watch videos or listen to music in the background and without ads, as well as download to watch offline.

    Popular SaaS examples

    Figma

    It is a cloud-based UI/UX design tool that is compatible with any system. It’s versatile and easy to collaborate with. Figma saves projects in the cloud, controls version updates. This allows all team members to view, review, modify, or comment on projects in real time. Figma works with the Stripe payment processor.

    Slack

    Slack is an app for exchanging, archiving messages in real time. Users can organize group discussions in public channels dedicated to specific topics or projects, or limit interactions to participants. Colleagues can also communicate one-on-one through secure private messages. Slack also allows users to share files, documents, spreadsheets and PDFs. In addition, all messages, notifications and files are automatically indexed and archived.

    Google Docs

    Google Apps is personalized email, shared calendars, and video conferencing with Google Drive. Google Drive is a cloud-based document storage solution that allows users to access and share files from any device instantly.

    Difference between SaaS, PaaS and IaaS

    SaaS (Software as a service). Users receive company services through a browser or mobile application using the cloud, for example — Google Documents. Instead of users installing the app on their device, SaaS apps are hosted on cloud servers and users can access them over the Internet.

    • Examples: Salesforce, Dropbox, Zoom

    P.S. you can read more about the work of these applications in the FAQ section 🙂

    IaaS (Infrastructure as a service). Clients can use virtual servers by subscription. This way, they only buy the resources they need. In this model, the company leases the servers and storage they need from a cloud provider. Then they use this cloud infrastructure to build their apps. IaaS is like a land lease company where clients can build whatever they want, but they need to provide their own construction equipment and materials.

    • Examples: Amazon Web Services, Google Compute Engine (GCE), Digital Ocean

    PaaS (Platform as a service). PaaS solutions are popular because they shorten time to market and provide more flexibility. In this model, companies don’t pay for hosted apps; instead, they pay for what they need to build their own applications. PaaS providers offer everything you need to build an application, including development tools, infrastructure, and operating systems.

    • Examples: SAP Cloud, Heroku, Force.com

    SaaS development cost

    SaaS development cost depends on many factors. The number of features and integrations, the complexity of the design and architecture, the target market and the timing of the project are the most important issues. There are also factors such as the country of development (the difference between the cost of developing applications in the US and Russia can be more than $ 100 per hour). Do not forget about the marketing promotion of the product after the release and further improvements.

    Instead of hiring your own development team, spending time and money on training and paying employees, you can contact an outsourcing agency. Outsourcing is a popular way to reduce SaaS development costs if you are on a tight budget.

    ​​Briefly

    The SaaS business model worked this way:

    • The company creates a software product and hosts this product on multiple servers. The company manages hardware and software.
    • Customers subscribe to the service and can use the software as long as they continue to pay a regular subscription fee.
    • The company makes both major and minor software updates, and customers automatically receive these updates as part of their subscription.

    The popularity of the SaaS model is growing rapidly due to the benefits it offers to both consumers and application developers. Cost-effectiveness, flexibility, scalability, current releases, and predictable revenue streams for vendors are all good reasons why SaaS remains an integral part of technology trends.

    Are you ready to present your SaaS project to the world? We will help you with the implementation.

    FAQ s

    • What is SaaS?

      SaaS (Software As a Service) is a subscription-based product license model. Most often this is a cloud solution, located on servers on the Internet. Products are not installed on physical media; you can also access the required software via the Internet.

    • SaaS products advantages

      Security — your data is stored in a safe place scalability — product can be easily upgraded or downgraded if needed; reliability — servers can be located all over the world, which means that if one of them fails, the rest continue to work; lower costs — SaaS provides lower development costs as there is no need to buy and maintain expensive hardware potentially larger customer base due to lower costs and trial periods; availability — the solution is available at any time and is limited only by the Internet connection

    • How to choose the SaaS development team?

      A team of several people is working on the startup. The minimum set is: a project manager who will lead the project, a UI/UX designer who will design the app interface, front-end and back-end developers who will write the code, and QA engineers who will check this code for bugs. There are several approaches to building a SaaS development team: In-house team: gathering your own team means that you need to rent an office, purchase equipment, buy subscriptions to all the programs you need, and the most difficult thing is to find and hire employees. And, perhaps, invest in their education. But! If you have an unlimited budget and are ready to take the lead, you will have a well-coordinated team that can solve any problem. Freelancers: if you don't have a large budget, your option is to hire a freelancer. On freelance exchanges, you can find people for almost any task, the only question is the quality of implementation. Freelancing is complicated by the fact that you can look for a person with sufficient experience for a long time and the fact that a person can leave with your project and get away with it. Plus, you will have to be responsible for communication and micromanagement between contractors. What if the designer lives in the US and the developer lives in Asia? It will not be easy to maintain a connection between them. Outsource: hiring an outsourced team means getting a full cycle development team. Experienced managers, designers, developers will help you with the development of your project and will be on support after the release. Business analyst will estimate the scope of work according to your budget. And the project manager will lead your project, keep you posted during development and plan deadlines. Clutch reviews will help you find the best outsourcing agency.

    • How to choose a SaaS development company?

      Here are a few things to look out for if you want to find reliable contractors: Reviews— it's good if the site of the SaaS development company has reviews or recommendation letters with the client's seal. But, if this is not the case, then you can see what people write about the company on Goodfirms, AppFutura and Google Business. Text reviews are easy to fake, so companies that have video reviews are in higher priority. Experience with similar projects — check out the relevant outsource experience. One studio has implemented many projects on the Internet of Things, while the other specializes in food tech. If the company has developed similar applications for other clients, this is a big plus. The team already knows all the pitfalls, which means that there will be fewer bugs. Clarifying questions — the more questions you are asked, the better! Some customers perceive the performer's inquisitiveness as a sign of unprofessionalism, but this is not so. On the contrary, the more the outsource is interested in the details of the project, the more likely it is that he will make the application of high quality and soon it will appear in the App Store or Google Play. Payment in installments — some SaaS development companies ask you to pay the full amount for the application development right away. It's better not to do that. It doesn't matter how much you trust the contractor, it's not worth the risk: you can become a victim of scammers and lose money. The maximum that you can agree to is to make an advance payment for part of the work.

    • SaaS development stages

      1. Idea. It is immediately worth explaining that there is no point in coming up with something unique. Most likely, whatever you come up with, at this time someone else will already be doing. Business ideas should solve user problems. How Trello helps companies do business or Tinder find a partner. Based on the pain of people, you can choose the best option for your future product. 2. Market research. To understand the market, you need to study it and find out who your target audience is. This will help when choosing a monetization model. Will users want to buy your product right away, or will they need a free version for a short period of time to evaluate your product? Don't forget your competitors: think about not only what they are doing right, but also what they are doing wrong. Look for gaps in services or features that your platform could fill in order to provide added value and attract customers. 3. UI/UX Design. At the design stage, the business logic of the product is worked out. First, the UX goes into battle - the designer studies competitors' products, their functionality, looks at what can be adopted and what can be done better in your product. UX research allows you to think through a product, create and test prototypes, and abandon knowingly non-working solutions. When it comes time for the UI, designers work with ready-made layouts: they add any visual elements - colors, buttons, fonts, images. At this stage of design creation, you can also work on branding (corporate identity) — everything that reflects the integrity of the product, its positioning. 4. Tech stack and development. A technology stack is a list of programming languages, frameworks, and tools used in software development. The choice of those stack depends on the specific requirements of your business. Conventionally, the development of mobile apps consists of two parts. The frontend is responsible for everything that users see on their screens. For these purposes, you need modern JavaScript frameworks that meet the SaaS requirements - React, or Vue.js. Back-end development is responsible for the back end. While invisible to users, it creates the core functionality of your SaaS product and articulates its responsiveness. Choose a reliable framework like Ruby on Rails or Node.js. P.S. if you do not fumble in the development — contact a professional agency. A competent CTO will help you choose the best stack for your product. 5. Testing. During and after development, there is always a testing process. The task of QA engineers is to find all possible errors and bugs. This is done by running the same script with different settings and on different devices, as well as careful manual testing at the end of each development iteration. 6. Release. Product release is not the end of the road. After that, you need to quickly collect feedback from the first users. How to do it? Conduct a survey or interview. Based on the results of the feedback, it will be clear what needs to be changed: something will have to be added, and something will have to be permanently removed. Don't be discouraged if your app gets a lot of negative reviews - this can be used to improve your product. 7. Support. If there were no bugs in the product at the time of release, it does not mean that everything will work perfectly afterwards. To quickly fix bugs while the product is being used by real people, development companies offer post-release support services.

    • Why is it better to start with MVP?

      In software development, the key is to test your idea in the real market. This can be done with the help of an outsourced development team. You can find an experienced team on Fiverr for example. They can provide you with a huge database of independent contractors willing to participate in your project at the lowest possible cost for quality work. At Purrweb, we develop web, desktop and mobile apps from scratch and design UI / UX interfaces for them. Our task is to help young startups launch MVPs in order to test the idea and quickly ‘get used’ to the market.

    • Other examples of SaaS products

      Salesforce is a cloud-based CRM system available by subscription. Salesforce literally came up with the SaaS model. Salesforce is the leader in the CRM market now, and its revenue is growing at more than 20% annually. Dropbox is a file hosting service. Users can access files hosted on the hosting from any device. Dropbox operates on a Freemium model: a user can create a free account with a limited amount of free space, and a paid subscription is required to increase the volume. Mailchimp is an email marketing platform that has grown from a small business email service in the US to a $400 million giant. MailChimp founder Ben Chestnut used an unconventional method to grow his customer base. They charged their users a small fee for the first eight years and then started offering their customers a free plan. Zoom. Launched in 2013 by Eric Yuan, Zoom is now used by over 300 million people who participate in Zoom meetings at one time or another. Zoom had 4.84 million daily users as of March 3, 2020, compared to 1.56 million Microsoft Teams users. DocuSign is a cloud-based digital transaction technology that enables the exchange of contracts, documents and legal materials. DocuSign also provides services for authentication, user identity management and workflow automation. HubSpot is a prime example of a SaaS company that is a leader in inbound marketing automation, with tools focused on content management, web analytics and search engine optimization.

    • SaaS or on-premises app?

      The first step is to determine the complexity of your business. Answer a few questions about your business: How specialized is your business compared to others in your industry? Do off-the-shelf products offer the functionality you need? Another factor you need to consider is budget. SaaS subscription payment models help low-budget companies distribute the total cost of ownership over time, so even small businesses can implement reliable, state-of-the-art software. Customers no longer have to choose between flexibility and functionality. Most cloud-based software today can offer the same capabilities as a local installation. The bigger issue is about data ownership. The vast majority of vendors still put data at the disposal of the end user, but be sure to read the service contract to understand exactly how your data will be used.

    • Who owns my SaaS data?

      In the vast majority of cases, you still own your data in the cloud. Most service level agreements (SLAs) certify that your company owns your data located on the vendor's servers and your right to receive it. Most SaaS providers allow data to be exported and backed up locally at any time. It is very unusual for any vendor to insist on retaining ownership of your data.

    • Metrics to watch for when working with a SaaS product

      LTV is the value of each user; CAC — Customer Acquisition Cost. It can be used to calculate revenue and profitability, and to inform new marketing campaigns or other customer acquisition initiatives. MRR and ARR — Monthly and Annual Income, are used to measure your projected income on a monthly or yearly basis